AML/CFT compliance in Hong Kong: Recent record fine and reminder of latest guidance

Authors: William Hallatt, Hannah Cassidy, Natalie Curtis, Valerie Tao and Jennifer Fong.

The Hong Kong Securities and Futures Commission (SFC) has recently reprimanded and fined Guosen Securities (HK) Brokerage Company (Guosen) HK$15.2 million for failures in complying with anti-money laundering and counter-terrorist financing (AML/CFT) regulatory requirements when handling third party fund deposits.

This is the largest fine imposed under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to date.

In this e-bulletin, we provide an overview of the Guosen case and other recent cases, the regulators’ approach to AML/CFT enforcement, as well as a reminder of the recent AML/CFT regulatory guidance.

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HKMA turns up the heat and announces consultation on IBOR transition

On 12 February 2019, the Hong Kong Monetary Authority (HKMA) announced in a briefing to the Legislative Council Panel on Financial Affairs that the Treasury Markets Association (TMA) will hold a long-awaited consultation this quarter on alternative reference rates.

The announcement follows signals from regulators globally that firms should transition away from the London Interbank Offered Rate (LIBOR) and other IBORs to alternative, risk-free, reference rates.

While there is no immediate plan to discontinue the Hong Kong Interbank Offered Rate (HIBOR), the HKMA noted that “as a FSB member, [the HKMA] has an obligation to put in place an alternative reference rate as a contingent fall-back”, tentatively suggesting the HKD Overnight Index Average (HONIA) as the most suitable alternative. Click here to read more.

HERBERT SMITH FREEHILLS’ 2019 GUIDE TO CORPORATE INVESTIGATIONS IN CHINA

Authors: Kyle Wombolt and Anita Phillips

Kyle Wombolt, global head of corporate crime and investigations, and Anita Phillips, professional support consultant, have updated their guide to corporate investigations in China. This forms part of GIR’s acclaimed text, The Practitioner’s Guide to Global Investigations 2019, third edition. It is regarded as the only text covering the nuts and bolts of multi-jurisdictional corporate investigations.

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SFC seeks to halt “rolling bad apples” in their tracks with licensing reforms

On 1 February 2019, the Securities and Futures Commission (SFC) announced significant changes to its licensing forms and processes (Licensing Reforms). Included in these changes was the long-awaited arrival in Hong Kong of measures intended to stop the “rolling” of “bad apples” within the financial industry by requiring licensed corporations and registered institutions to provide the SFC with more information about the circumstances under which their employees depart.

In addition to these reforms targeting “bad apples”, the Licensing Reforms also include:

  1. sweeping changes to the SFC’s licensing forms. These changes include streamlining and consolidating the forms, as well as reforms which will mean that applicants must now provide the SFC with significantly more granular information regarding matters relevant to fitness and properness; and
  2. a thorough refresh of the SFC’s Licensing Handbook, which now includes key aspects of the licensing-related guidance issued by the SFC since the publication of the previous Licensing Handbook in April 2017.

The new licensing forms can be used from 11 February 2019. However, the SFC will accept current standard forms during a two-month transition period, before the new forms become compulsory from 11 April 2019.

We have been following these developments for some time and were part of the informal consultation held by the SFC in late 2018. We will be holding a seminar in Hong Kong to share our insights on how these developments will impact licensed corporations in Hong Kong and form part of broader conduct and culture-focused reforms across the Asia-Pacific region. Read our full client briefing and register for the seminar here.

Hong Kong Insurance Authority prepares for direct regulation of insurance intermediaries in mid-2019 – what is the progress so far?

It is anticipated that in around mid-2019, the Insurance Authority (IA) will take over the regulation of insurance intermediaries from the three self-regulatory organisations (SROs). In preparation for the commencement of the new regime, the IA has launched several public consultations on guidelines and rules. For our full briefing on these developments, please click here.

 

From offline to online: upholding investor protection in sale of complex products

As investment services go digital, Hong Kong regulators have found it necessary to issue tailored guidance to protect investors.

From 6 April and 23 August 2019 respectively, new guidelines from the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority will increase the regulatory requirements for financial institutions offering investment products via online platforms. Continue reading

Hong Kong Court of Final Appeal clarifies “innocent purpose” defence to insider dealing

The Hong Kong Court of Final Appeal (CFA) has recently allowed the Securities and Futures Commission’s (SFC) appeal against the Market Misconduct Tribunal’s (MMT) findings that two former executives of a listed company (ATML), Mr Charles Yiu Hoi Ying and Ms Marian Wong Nam, had not engaged in insider dealing in ATML shares. Continue reading

Stock Connect Northbound Investor ID Model set to launch on 17 September 2018

Late last month, the Securities and Futures Commission (SFC) announced that agreement had been reached with the China Securities Regulatory Commission (CSRC) to implement the investor identification model for Stock Connect Northbound trading (NB Investor ID Model) on 17 September 2018. This will apply to Northbound trading under both the Shanghai-Hong Kong Stock Connect and the Shenzhen-Hong Kong Stock Connect. Continue reading