29th November 2019
7 Tips For Fintechs to Comply With Anti-Money Laundering In Hong Kong
7 Tips For Fintechs to Comply With
Hong Kong is a gateway to China and financial markets across Asia and is home to thousands of financial institutions, including some of the world’s most innovative fintechs. Like every global financial center, however, Hong Kong faces a range of money laundering and terrorism financing threats, and attaches great importance to safeguarding its financial systems against them. It does this by putting robust anti-money laundering/counter-terrorism financing regulations in place.
For fintechs in Hong Kong, understanding those regulations is a crucial component of business success. With that in mind, navigate your anti-money laundering compliance challenges in Hong Kong with our list of the most important considerations.
The Hong Kong Monetary Authority (HKMA) is Hong Kong’s central bank and financial regulator and is responsible for maintaining the stability of the city-state’s financial system. That role includes setting out Hong Kong’s anti-money laundering regulations: the HKMA requires that firms take a risk-based approach to anti-money laundering in line with domestic policy, and the standards set by the Financial Action Task Force (FATF) and the Asia Pacific Group on Money Laundering (APG).
The HKMA issues, and periodically updates, its anti-money laundering guidance: this includes the Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report, and the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism. Its broad goals include strengthening domestic capability to detect and deter money laundering activity, and fostering international collaborative efforts to promote global anti-money laundering and counter-terrorism financing.
Hong Kong’s anti-money laundering regulations are principally based on the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and on the Banking Ordinance (BO). The AMLO sets out the risk-based measures which firms must put in place to detect and prevent money laundering, while the BO requires firms to implement appropriate accounting systems.
Other relevant anti-money laundering legislation includes the Organized and Serious Crimes Ordinance (OSCO) and the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), along with a number of United Nations ordinances.
Fintechs: While Hong Kong does not employ any specific fintech regulation, fintechs are subject to certain laws depending on their functions.
- Fintechs which carry out any ‘regulated activities’, as defined by the Securities & Futures Commission (SFC), must be licensed by that body.
- Money lenders are subject to the Money Lenders Ordinance.
- Payment systems firms and retail payment systems providers must be licensed under the Payment Systems and Stored Value Facilities Ordinance (PSSVFO).
Under the AMLO, fintechs in Hong Kong must have a monitoring system in place to detect transactions that indicate potential money laundering activities. The system must continuously monitor customer accounts for suspicious activity in proportion with the risk profile each presents. That activity might involve:
- Unusually large transactions, or unusual patterns of transactions.
- Transactions with no apparent purpose, or which contravene the law.
- Transactions which involve high-risk countries
- Transactions which violate international sanctions
Anti-money laundering in Hong Kong involves payments sanctions screening. The HKMA expects all fintechs to enforce United Nations sanctions imposed by the United Nations, a requirement which is set out in the United Nations (Anti-Terrorism) Ordinance (UNATMO), and the United Nations Sanctions Ordinance (UNSO). The relevant sanctions lists are published in the Hong Kong Government Gazette and by the Commerce and Economic Development Bureau.
Hong Kong firms may use third-parties to conduct sanctions screening for them. When payments are found to violate sanctions, firms must freeze the assets (if possible) and contact the authorities.
Anti-money laundering policy in Hong Kong dictates that fintechs perform Customer Due Diligence (CDD) checks at the beginning of, and throughout, customer relationships. CDD checks are broadly intended to verify a customer’s identity and the nature of their business but they are also necessary to establish whether that customer’s risk profile has changed.
In addition to identity verification measures (name, birthdate, etc.) fintechs must also perform ongoing Politically Exposed Person (PEP) checks, and screen regularly for adverse media which might indicate a customers’ involvement in money laundering.
Upcoming changes to Hong Kong’s anti-money laundering regulations include:
- An update to the SFC’s Code of Conduct (paragraph 5.1) introducing new onboarding rules in non-face-to-face contexts.
- A committment by the SFC to deepening understanding of money laundering and terrorism financing risk, and to strengthening anti-money laundering measures, including monitoring and reporting. This follows recommendations of a recent FATF Mutual Evaluation report on Hong Kong.
- Enhancing the quality and timeliness of suspicious activity reporting (SAR) by stored value facility licensees.
How ComplyAdvantage Can Help
Managing your Hong Kong anti-money laundering compliance processes poses a significant administrative challenge, and can lead to efficiency drains, human error, and ultimately, compliance penalties. ComplyAdvantage helps you avoid those problems with an automated anti-money laundering solution taking advantage of smart technology and software, and complementing the expertise of employees.
Our smart screening tools will add speed and accuracy to your anti-money laundering infrastructure: satisfying your regulatory obligations, reducing administrative friction, and passing the benefits onto you and your customers.