On 18 September 2020, the Hong Kong Securities and Futures Commission (SFC) commenced a three month consultation on a wide range of proposed changes to its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) (Guideline) and the Prevention of Money Laundering and Terrorist Financing Guideline issued by the SFC for Associated Entities (AE Guideline).
The SFC’s proposed changes include measures to incorporate various aspects of the Guidance for a Risk-based Approach for the Securities Sector published by the Financial Action Task Force in October 2018, including through:
- significantly enhancing the requirements in relation to institutional risk assessments, which we consider may open the door to enforcement in relation to deficiencies in firms’ risk assessment processes;
- mitigation of the risks associated with business relationships in the securities sector similar to cross-border correspondent relationships; and
- providing further guidance in relation to simplified and enhanced customer due diligence processes, as well as red-flag indicators for suspicious transactions / activities.
The SFC has also stated that, following industry feedback, it has also proposed changes designed to facilitate compliance with the existing requirement to assess third-party deposits, by allowing for third-party deposit due diligence to be conducted after settling transactions with deposited funds, but only in exceptional circumstances.
Proposed changes to Guideline and AE Guideline
The SFC’s proposed changes to the Guideline and AE Guideline are far-reaching, and include a range of amendments to consolidate existing guidance issued by way of circular into the two guidelines.
However, we consider there are also five categories of proposed changes which are likely to require licenced corporations to make significant revisions to their existing anti-money laundering and counter-terrorist financing policies, procedures and controls if enacted by the SFC.
Please read our full briefing here.