New SFC AML Guideline effective 1 November 2018

On 12 October 2018, the SFC issued the Consultation Conclusions on Proposed Amendments to the (1) Guideline on Anti-Money Laundering and Counter-Terrorist Financing (Current Guideline) and (2) Prevention of Money Laundering and Terrorist Financing Guideline Issued by the Securities and Futures Commission for Associated Entities (Guideline for AEs). 

To address concerns over the revised guidelines coming into effect on 1 November 2018, allowing little lead time for implementation, the SFC has indicated that it will take a pragmatic approach and take into account a licensed corporation’s implementation plan.

The name of the Current Guideline will be changed to Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) (New Guideline) to make it clear that it is applicable only to SFC-licensed corporations. The guideline for authorized institutions, which is issued by the Hong Kong Monetary Authority, will be renamed as the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorized Institutions).

A tracked-changes version, showing differences between the Current Guideline and the New Guideline, is available at Appendix 2A of the Conclusions. Clean copies of the New Guideline and revised Guideline for AEs were gazetted on 19 October 2018.

The SFC has made various changes or clarifications to what was originally proposed in the July Consultation Paper. The final key changes relating to customer due diligence (CDD) include:

• Providing the framework for flexibility to use technology in non-face-to-face customer identification and verification

• Expanding the list of politically exposed persons (PEPs) to include international organization PEPs

• Providing new guidance to determine whether to apply or continue to apply the additional measures to a high risk relationship with a domestic or international organization PEP who ceases to hold a prominent (public) function

• Removing the mandatory requirement to conduct a company search for corporations

• Dropping address proof requirements

The SFC has also indicated that it will keep in view the need to provide additional guidance on the money-laundering / terrorist financing risk assessment of new technologies taking into account any relevant future guidance issued by the Financial Action Task Force (FATF), such as the result of the public consultation on Draft Risk-Based Approach Guidance for the Securities Sector on 6 July 2018, as well as future technological developments.

It is advisable to review your firm’s existing AML framework in order to:

1. Assess whether to establish or amend the steps in taking on clients online or in other non-face-to-face account opening situations.
2. Revise the AML policies and procedures so they are aligned with the new requirements, such as ongoing CDD (see Chapter 5 of the New Guideline). The SFC has repeatedly reminded the industry that AML / CDD compliance is one of its focuses during on-site inspections. The latest reminder was in a 31 August 2018 circular entitled AML / CFT measures and controls inspection findings.
3. Conduct additional AML training to cover the New Guideline, and the resulting revisions to internal policies and procedures.

We have prepared an overview of key changes to the SFC’s CDD requirements to assist clients with implementation. Please inform your usual contact at Deacons if you would like a copy.