SFC consults on AML guidelines

The SFC’s financial crime consultation hails a more risk-based approach for Hong Kong firms when it comes to anti-money laundering and counter-financing of terrorism. The proposed amendments, according to the regulator, “align with the latest international standards” and will provide guidance on how to approach measures in “a more risk-sensitive manner”.

The SFC consultation on proposals to amend AML and CFT guidelines closes on the 18th December. The proposed amendments include the adoption of the Risk-Based Approach Guidance for Securities Sector published by the Financial Action Task Force (FATF) in October 2018. It also facilitates the securities industry’s implementation of a more risk-based approach to AML and CFT.

Key points of SFC consultation on AML/CFT

The consultation paper seeks comments on key areas of anti-money laundering and counter-financing of terrorism.

  1. The methodology of AML/CFT risk assessments including institutional risk assessments (IRA) and customer risk assessments (CRA). The IRA should be kept up-to-date and reviewed at least once every two years or more frequently upon trigger events. The SFC has also included, for CRAs, an expanded list of illustrative examples of relevant and useful risk indicators for country risk, customer risk, product/service/transaction risk and delivery/distribution channel risk in the Proposed Revised Guideline.
  2. Risk mitigating measures for cross-border correspondent relationships, red flag indicators of suspicious transactions and activities, and due diligence process for assessing third-party deposits and payments.
  3. Additional guidance on persons purporting to act on behalf of the customer (PPTA), establishing source of funds and source of wealth.

Once the three-month public consultation ends in December 2020, the finalised guidelines will be issued and all SFC Licensed Corporations will be expected to follow the relevant guidance.

Approaching your risk assessments

We have observed that firms tend to struggle with implementing IRAs. Many fail to consider money laundering and terrorist financing (ML/TF) risks in relevant key areas during the risk assessment process, and also fail to use relevant available data to aid in the analysis of the ML/TF risks the firm is exposed to. The SFC expects that the design of the approach and process for conducting the IRA should be commensurate with the firm’s business profile and activities and should take into account the ML/TF risk factors.

We can help

Our regulatory compliance consultants can help you ensure your procedures and controls are effective and compliant with local regulations. Get in touch to find out more.

Read the full SFC consultation here: Consultation Paper on Proposed Amendments to the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and the Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities