Changes to Hong Kong AML Regime likely ahead of FATF Evaluation, says Law Firm

Hong Kong regulators are likely to amend their anti-money laundering ("AML") regimes following new developments from the global AML standard-setter the Financial Action Task Force ("FATF"), a law firm said. It said there were already signs of increased regulatory activity in the AML space in Hong Kong, and that this was likely driven by an upcoming review of the territory's Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance ("AMLO") and a scheduled mutual evaluation of the territory's regime by the FATF in late 2017 or early 2018.

At its latest plenary meeting in Korea in late June, the FATF published a consolidated standards document on information sharing, setting out all the relevant principles from its recommendations for information sharing with authorities.

"The current FATF recommendations focus on group-wide policies for information sharing. This is not currently codified in the existing Hong Kong AML/CTF regime," said Urszula McCormack, partner at King & Wood Mallesons in Hong Kong, in a client briefing. "Given the upcoming AMLO review schedule for later this year, we expect this is already on the radar of the relevant regulatory authorities and is likely to be addressed in the revised AML/CTF regime."

The upcoming mutual evaluation of Hong Kong's regime by the FATF has spurred increased supervisory activity by the territory's regulators, industry officials said, with recent mutual evaluations of jurisdictions such as Singapore and Australia pinpointing several flaws in their AML/CTF regimes.

"We are already seeing this reflected in the high volume of AML/CTF-related examinations and investigations, although public enforcement actions remain surprisingly slow to emerge," McCormack said in the briefing. "Regulators are nonetheless extremely busy and we expect heightened activity in the coming months."

To date, the Hong Kong Monetary Authority ("HKMA") has only taken one enforcement action, against the State Bank of India, Hong Kong, last year, for breaches of the territory's now four-year-old AML act.

The bank was found to have not carried out due diligence on its customers to an adequate degree and was fined HK$7.5 million.

On the point of beneficial ownership of assets, Hong Kong's AMLO is among the toughest in the world, King & Wood Mallesons noted. Indeed, there may even be moves to relax the regime somewhat, it added.

"There are early indications that some of the beneficial owner requirements in Hong Kongmay be adjusted to allow greater flexibility and alignment with other leading markets," McCorrmack said.

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North Asia editor for Thomson Reuters Regulatory Intelligence. He is based in Hong Kong.