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AML guidelines for Hong Kong’s securities sector

Hong Kong has adopted legislation covering anti-money laundering and counter-terrorist financing measures for financial institutions. The ordinance (AMLO) comes into effect on 1 April 2012. The Securities and Futures Commission (SFC) has published a consultation paper on proposals for new guidelines to assist licensed corporations (LCs) and associated entities (AEs) to comply with relevant regulations. The SFC’s key objective is to help LCs and AEs implement policies, procedures and controls in the relevant operational areas. The guidelines will replace the existing Prevention of Money Laundering and Terrorist Financing Guidance Note dated September 2009.

The proposals consist of:

1. Guideline on Anti-Money Laundering and Counter-Terrorist Financing; and

2. the Prevention of Money Laundering and Terrorist Financing Guideline Issued by the SFC for Associated Entities.

The SFC has stated that, in implementing the measures, where regulated entities make departures from the guidance provided, they “should document the rationale for doing so and stand prepared to justify departures”.

Key issues in the proposed guidelines include:

  • Verification of persons purporting to act: Under the AMLO, financial institutions (FIs) should identify all persons purporting to act on behalf of customers, take reasonable measures to verify their identities and verify their authority to act on behalf of the customers. In a previous soft consultation of the industry, concerns were expressed over the broad meaning of “a person purporting to act on behalf of the customer” and over the practicality of obtaining verification of their identity and authority. The proposed guideline clarifies that, as a general rule, FIs should verify the identity of those authorised to give instructions for the movement of funds or assets. Some flexibility has been provided as to what measures would be considered reasonable in verifying identities.
  • Company searches: The proposed guideline requires an FI to perform a company registry search in respect of all locally incorporated non-listed companies and companies incorporated in jurisdictions which have a public company registry. Under the SFC’s existing guidance note, this is a requirement only for higher risk customers or where there is any doubt as to the identity of the company’s stakeholders. This increased compliance burden is unlikely to be welcomed by the industry. The proposed guideline allows some flexibility in that the FI may, as an alternative to performing the search, obtain from the customer a certified true copy of a full company search report.
  • Nominee companies: Under the AMLO, an FI is not required to identify and verify beneficial owners in relation to a customer if the customer is another FI. To accommodate the industry practice of fund units being held by nominee companies of fund distributors, the guideline allows for the fund distributor to be regarded as the customer of the fund house and not the nominee company. Accordingly, a fund house is not required to identify and verify the beneficial owners of nominee companies of fund distributors holding fund units, provided that the distributor is an FI and has conducted customer due diligence on the underlying customers and is authorised to operate the account, as evidenced by contractual document or agreement.
  • Staff training: The proposals require FIs to implement staff training and to monitor its effectiveness.

The SFC invites the submission of written comments on the proposals, to be received no later than 18 November 2011.

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