Hong Kong SFC licensing and compliance hints – June 2022

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Authored by: Lavita Pong

Client onboarding CDD

Onboarding customers during fund launches often involves significant time pressure as licensed corporations (LCs) tend to prefer to collect all the required customer due diligence (CDD) documentation before fund close, rather than relying on the time extension (of up to 120 days) for obtaining all CDD documentation as permitted under the SFC AML Guideline, subject to fulfilling certain conditions.

We have set out some hints concerning the common pitfalls and how to navigate them when undertaking the onboarding process.

1. High risk country lists

Risk assessment of customers involves several factors including the country risk factor. The SFC has recently pointed out during its Anti-Money Laundering and Counter-Financing of Terrorism Webinar 2021 that some LCs failed to ensure that their high-risk country lists are complete and up-to-date relating to the proper classification of money laundering and terrorist financing risks of customers.

Taking the high-risk country lists issued by the Financial Action Task Force (FATF) as an example, the FATF does not have a definitive timetable as to when it updates the lists, therefore LCs should, as part of their compliance monitoring action plan, designate a staff member to conduct a monthly check to ensure that these lists are complete and up-to-date. The following lists are available by clicking “Publications” and clicking “High-risk and other monitored jurisdictions”:

• Jurisdictions under Increased Monitoring
• High-Risk Jurisdictions subject to a Call for Action

2. HK Company searches

Although it may be convenient to request a corporate investor to provide a full company search report or alternatively a long list of certified copies of required CDD documentation including a certificate of incorporation, a certificate of incumbency and a certificate of good standing, LCs can adopt alternative measures if they prefer not to request the documentation from their investors.

Taking a Hong Kong incorporated company as an example, LCs can undertake online company searches at the Companies Registry in order to verify the name, legal form, current existence and powers that regulate and bind the investor (4.2.6 and paragraph 3 of Appendix C of the SFC AML Guideline) and all of these can be verified online free of charge if the compliance department of the LC is prepared to work with screenshots instead of print / certified copies (see the following section re hints relating to electronic documents). However, LCs will still need to pay certain fees in order to obtain specific documents such as the latest annual return in order to ascertain the shareholder and director information.

3. Electronic documents

After conducting a Hong Kong Companies Registry search as described above, if an LC is undertaking the search itself, it is fine to rely on the downloaded document from the Companies Registry because it is a reliable source, instead of requiring a certified copy (see Anti-Money Laundering and Counter-Financing of Terrorism FAQ #9 updated as of 22 October 2021). Although this FAQ does not mention screenshots obtained after logging into the Hong Kong Companies Registry’s Cyber Search Centre, an LC’s compliance department can take a risk-based approach and consider accepting screenshots obtained by the LC itself.

Six months remaining for your 2022 CPT hours

If you are licensed by the SFC as a licensed representative or responsible officer you must ensure you obtain your required CPT hours by the end of the year as outlined below.

Please take note of other specific requirements if you are engaging in work related to sponsors or takeovers (5.3(a) and 5.3(b) of the Guidelines on Continuous Professional Training of January 2022). You can also refer to our previous article of 25 February 2022 for further details.