Financial Crime World

Hong Kong’s New AML/CFT Guidance for Stored Value Facility Licensees: Boosting Anti-Money Laundering and Counter-Financing of Terrorism Measures

The Hong Kong Monetary Authority (HKMA) has issued a revised Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) for Stored Value Facility (SVF) licensees, effective July 2, 2021. This guideline aims to prevent illicit activities through SVFs and strengthens Hong Kong’s commitment to international efforts against financial crimes.

Overview

  1. SVF Products: This section covers AML/CFT requirements for different types of SVF products, including physical devices and network-based solutions.
  2. Risk-Based Approach (RBA): Understanding and mitigating risks is crucial for SVF licensees. This section discusses implementing RBA to identify, assess, and manage risks effectively.
  3. AML/CFT Systems: SVFs must implement robust systems to address potential money laundering and terrorist financing risks.
  4. Customer Due Diligence: Proper customer identification, verification, and ongoing monitoring are essential AML/CFT measures.
  5. Ongoing Monitoring: Regular monitoring of transactions and unusual activities is necessary to detect and prevent potential financial crimes.
  6. Terrorist Financing: SVFs must adhere to regulatory requirements related to terrorist financing.
  7. Record-Keeping: Proper record-keeping is a vital component of AML/CFT compliance.
  8. Staff Training: Training staff about AML/CFT regulations, procedures, and risks is critical to maintaining a strong compliances culture.

Stored Value Facility (SVF)

According to the HKMA, an SVF is a facility that enables users to store value which can be used to make payments for goods or services under an issuer’s agreement. SVFs include smartcards, mobile payment, and internet payment services.

Risk-Based Approach (RBA)

RBA is essential for effectively managing AML/CFT risks. SVF licensees must:

  1. Identify Risks: Understand the risks through SWF products, services, customers, and transactions.
  2. Assess Risks: Evaluate the potential impact and likelihood of money laundering and terrorist financing risks.
  3. Mitigate Risks: Implement adequate preventive measures proportional to identified risks.

Money laundering and terrorist financing risks

SVF products are vulnerable to similar risks as other retail payment services. Effective AML/CFT systems and product control features can mitigate these risks. Key considerations for AML/CFT systems include:

  1. Customer Identification: Proper customer identification is a cornerstone of AML/CFT compliance.
  2. Transaction Monitoring: Monitoring all transactions can help detect and disrupt suspicious activities.
  3. Reporting Suspicious Activities: Reporting unusual transactions to the relevant authorities is a critical function of AML/CFT systems.

Risk factors

Factors to consider when assessing the risks of a specific SVF product include:

  1. Maximum Stored Value or Transaction Amount: The higher the transaction amount, the greater the risk.
  2. Funding Methods: Different payment methods may pose varying degrees of AML/CFT risks.
  3. Geographical Usage: SVFs used in higher-risk jurisdictions may pose greater risks.
  4. Person-to-Person Fund Transfers: These transfers can be challenging to monitor and are susceptible to money laundering.
  5. Cash Withdrawals: High cash withdrawal frequency or large withdrawals may increase the risk.
  6. Holding Multiple Accounts/Cards: Multiple accounts can complicate customer identification and monitoring.
  7. Payment for High-Risk Activities: Certain goods or services may pose higher risks.

Risk mitigating measures

Effective measures for reducing the associated risks with SVF products include:

  1. Transaction Limits: Implementing transaction limits can help reduce potential money laundering activities.
  2. Restricting High-Risk Funding Sources: Controlling access to risky funding sources is crucial.
  3. Restricting Higher-Risk Activities: Inhibiting certain high-risk activities can limit the potential AML/CFT risks.
  4. Limiting Cash Access: Limiting cash access can help prevent money laundering through unmonitored cash transactions.
  5. Ongoing Monitoring and Investigating Unusual Transactions: Regularly examining and investigating unusual transactions can help detect and prevent potential AML/CFT violations.

For more details, consult the original text of the Guideline on the HKMA website (https://www.hkma.gov.hk/).