Hong Kong SFC licensing and compliance hints

Continued regulatory focus on anti-money laundering regulatory requirements

Recent SFC enforcement actions indicate the SFC’s ongoing focus on intermediaries’ AML obligations and their willingness to levy fines and public reprimands where licensed entities are found to have fallen short of their obligations under the AML / CFT regulatory requirements, including those as set out in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Guideline on Anti-Money Laundering and Counter-Financing of Terrorism and the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, when handling third party deposits and withdrawals from client accounts.

Licensed entities must ensure that they have appropriate policies and procedures in place to identify unusual / suspicious third party funds transfers into and out of client accounts. Potential red flags include:

  • significant and frequent transfers from third parties unrelated to the client;
  • u-turn transactions involving the deposit and subsequent withdrawal of similar amounts;
  • transactions or activities which appear unnecessarily complex or of questionable purpose.

When red flags occur, the licensed entity must evaluate the situation and where it proceeds with the transaction, ensure that it appropriately documents its evaluation and any follow up actions as evidence of its compliance infrastructure.

Appropriate policies and procedures as well as ongoing staff training must be put in place to ensure that licensed entities and their staff are aware of their obligations under the relevant laws and regulations, and are aware of the requirement to report suspicious transactions to the Joint Financial Intelligence Unit.

Asset and Wealth Management Activities Survey

The SFC announced the commencement of the AWMAS in its Circular of 19 February 2021, as an annual exercise to collect information on the state of the asset and wealth management industry in Hong Kong for regulatory and market facilitation purpose.

We recommend clients to participate in the survey to assist the SFC in its understanding of the industry and to promote a good relationship with the regulator. Licensed corporations which had gross operating income derived from asset management, giving advice on funds / portfolios and / or private banking / private wealth management during 2020 should complete the whole questionnaire. Even if your corporation did not engage in any of these activities throughout 2020, you should still complete the General Information part of the questionnaire. The deadline for submitting the responses through the online portal is 16 April 2021.