23rd September 2021

New Regulatory Guidelines from Hong Kong’s Securities and Futures Commission

New regulatory guidelines from Hong Kong’s Securities and Futures Commission (SFC) take effect from the end of September, aimed at closer alignment with FATF proposals.

The guidelines follow consultations on proposed changes to Hong Kong’s AML/CFT advice, which were “largely supportive”, but led to a revision to provide greater clarity and flexibility to cross-border correspondent relationship requirements. This will be transitioned in and take effect six months later than the rest of the guidelines – in March 2022.

As a major financial center, keen to be known as the global gateway to Asia, Hong Kong has taken FATF guidance very seriously and has been proactive in its changes to support FATF recommendations. 

Its new stance is further evidence of the FATF shaping AML/CFT policy in Asia. Last month, Japan came under the FATF spotlight with the launch of its Mutual Evaluation Report (its fourth evaluation since 2008), which warned that Japan needs to do more to combat money laundering.

Hong Kong revisions

Changes to the SFC guidelines aim to take a more risk-based approach, addressing areas that are relevant to licensed corporations (LCs) and “providing practical guidance to facilitate the implementation of anti-money laundering and counter-financing of terrorism (AML/CFT) measures in a risk-sensitive manner.” They cover risk factors such as country, customer, product, service, and delivery, at a more granular level than previously.

The guidelines indicate sources of information and risk factors to consider when LCs conduct their institutional risk assessments – to be held at least every two years, or when a trigger event happens. 

The importance placed on regular risk assessments is already supported by the industry, with our recent State of Financial Crime report finding that 81% of respondents’ organizations perform company-wide risk assessments at least once a year. 

Enhancements have also been made to the list of red flag indicators for suspicious transactions and activities, requirements to perform third-party deposit due diligence before settling transactions with client-deposited funds, and additional guidance on sources of funds and wealth checks.

Compliance teams should carry out a gap analysis of Appendix 2 of the guidelines with current procedures and controls, to ensure all changes are captured.  

They should also be mindful that these changes will be effective from the end of September and that while changes to cross-border correspondent relationship requirements do not come into effect until next March, they should be considering them now.  

Compliance teams should also note that the SFC continues to be highly active in its enforcement activities, with its most recent quarterly report, issued in August, showing major increases from 2020  in the number of investigations started (87.9%), criminal charges laid (500%), Notices of Proposed Disciplinary Action issued (150%), and search warrants executed (900%).

Find out more about Hong Kong’s AML system and explore the latest global trends in financial crime, sanctions, and crypto in our State of Financial Crime 2021 report.