Financial Action Task Force (FATF) publishes Best Practices on Beneficial Ownership for AML/CFT Due Diligence

05 March 2020, Banking & Finance, Newsletter

The Financial Action Task Force (FATF), the international body which sets international standards on anti-money laundering and counter-financing of terrorism (AML/CFT), recently (October 2019) published a guide entitled Best Practices on Beneficial Ownership for Legal Persons (the Guide).

Purpose of the Guide: The Guide serves as practical guidance supplemental to, among others, the FATF’S Guidance on Transparency and Beneficial Ownership published in October 2014. It aims to help countries solve the common challenges FATF members face in implementing AML/CFT measures (Section III on “Common Challenges” of the Guide).

How it is relevant to Authorised Institutions (AIs) in Hong Kong: As a FATF and Asia-Pacific Group on Money Laundering (APG) member, Hong Kong is not only regularly assessed by the FATF and the APG on its AML/CFT regime, but the HKMA is of the view that it is also obliged to adopt the latest FATF recommendations from time to time (see Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorised Institutions) published by HKMA in October 2018). The HKMA is likely to adopt these recommendations in its policies—all AIs are expected to comply with the relevant regulatory requirements. 

Key takeaways:

1. 

The Guide recommends the following approach at country level towards obtaining information on beneficial ownership: a multi-pronged approach involving the use of at least one or more of the mechanisms below:

i.

Registry Approach – requiring company registries to obtain and hold up-to-date information on beneficial ownership.

ii. 

Company Approach – requiring companies themselves to obtain and hold up-to-date information on shareholders and members.

iii. 

Existing Information Approach – using existing sources of information including financial institutions, company, land, property or other types of registries, other authorities (tax authorities, stock exchanges), commercial databases.

 2.

The Guide recommends the following key features for an effective AML/CFT system for a country to monitor organisations:

a) 

Risk assessment.

b) 

Adequacy, accuracy and timeliness of information in beneficial ownership:

(i)

verifying and/or monitoring the accuracy of the information;

(ii) 

use of supplementary information platform in addition to company registry;

(iii) 

ongoing reporting at company level / to the reporting entities or company registry;

(iv) 

verification through different means;

(v) 

enhanced measures for companies with foreign ownership/directorship;

(vi) 

highly effective law enforcement authorities with adequate resources;

(vii) 

using technology to facilitate checking and validation.

c) 

Access by competent authorities.

d) 

Forbidding or immobilising bearer shares and nominee arrangements.

e) 

Effective, proportionate and dissuasive sanctions.

The above suggestions are relevant both at a country level and at an organisational level. AIs should bear in mind the above suggestions (which HKMA may seek to impose) regarding their AML/CFT measures.

Please refer to the Guide for more details: https://www.fatf-gafi.org/media/fatf/documents/Best-Practices-Beneficial-Ownership-Legal-Persons.pdf