Hong Kong

What sort of operations are restricted in Hong Kong

Hong Kong serves as a bridge to China and other Asian financial markets and is host to thousands of financial firms, including some of the world’s most creative fintech companies. However, Hong Kong, like any global financial center, confronts a variety of money laundering and terrorist funding risks and places a premium on safeguarding its financial institutions against them. This is accomplished by the implementation of comprehensive anti-money laundering/counter-terrorism funding laws.

Understanding specific regulations are critical for setting up a Forex bank account in Hong Kong or account opening for risky/sensitive businesses. With that in mind, use our checklist of essential factors to help you navigate the anti-money laundering enforcement issues in Hong Kong.

  1. The Hong Kong Monetary Authority (Hong Kong Monetary Authority)

The Hong Kong Monetary Authority (HKMA) is the city-central state’s bank and financial regulator, charged with ensuring the financial system’s stability. This involves establishing Hong Kong’s anti-money laundering regulations: the HKMA expects businesses to pursue a risk-based approach to anti-money laundering following domestic legislation and the Financial Action Task Force (FATF) and Asia Pacific Group on Money Laundering (APGML) guidelines (APG).

The HKMA publishes and updates anti-money laundering guidelines regularly, including the Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report and the Anti-Money Laundering Counter-Financing of Terrorism Guideline. Its diverse objectives include enhancing domestic capacity to detect and deter money laundering operations and promote international collaboration to advance global anti-money laundering and counter-terrorism funding efforts.

2. Anti-Money Laundering Legislation in Hong Kong

Anti-money laundering legislation in Hong Kong mainly focuses on the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Banking Ordinance (BO). The AMLO specifies the risk-based controls that businesses must enact to track and deter money laundering, while the BO mandates the implementation of effective accounting systems.

Additionally, the Organized and Serious Crimes Ordinance (OSCO) and the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), as well as a host of United Nations ordinances, are applicable anti-money laundering laws.

Though Hong Kong does not have a dedicated fintech regulatory framework, fintech is subject to various laws based on its functions.

Fintechs that engage unregulated practices,as specified by the Securities and Futures Commission (SFC), are required to obtain a license from that entity.

The Money Lenders Ordinance regulates money lenders.

Under the Payment Services and Stored Value Facilities Ordinance, payment systems companies and retail payment system suppliers must be approved (PSSVFO).

3. Hong Kong’s Data Privacy and the Cloud

Hong Kong has an established mechanism for protecting personal data, and the government is aggressively supporting cloud computing projects for fintech. The Personal Data Protection Ordinance (PDPO) protects personal data and is enforced by the Privacy Commissioner’s Office for Personal Data (PCPD). Hong Kong was ranked second on the Asia Cloud Computing Association’s (ACCA) 2018 Cloud Readiness Index, which considers technology, stability, and regulation.

4. Transaction observation

Under AMLO, fintech in Hong Kong must provide a surveillance scheme in place to identify transactions that could indicate money laundering. The framework must track consumer accounts for irregular activities continuously in proportion to each customer’s danger profile. This operation may include the following:

Huge transactions or transaction trends are uncommon.

Transactions that seem to have no obvious intent or that violate the statute. Transactions involving countries that have economic embargo are posing high-risk Economic sanctions.

5. Screening for Payment Sanctions

Anti-money laundering measures in Hong Kong include sanctions monitoring of transfers. The HKMA requires all fintech to comply with United Nations sanctions levied by the UN, a condition outlined in the United Nations (Anti-Terrorism) Ordinance (UNATMO) and the United Nations Sanctions Ordinance (UNSO). The Hong Kong Government Gazette and the Commerce and Economic Development Bureau issue the related sanctions lists.

Hong Kong-based businesses can engage third parties to perform sanctions screening on their behalf. When companies discover transfers that circumvent sanctions, they must immediately seize the funds (if possible) and notify the authorities.

6. Onboarding and Monitoring for Anti-Money Laundering

Hong Kong’s anti-money laundering program requires fintech to conduct Customer Due Diligence (CDD) audits at the start and during customer partnerships. Although CDD tests are mainly used to validate a customer’s identification and the essence of their operation, they are often used to determine if their risk profile has changed.

Along with identity-checking (name, birth date, etc. ), fintech must conduct ongoing Politically Exposed Person (PEP) audits and monitor negative publicity that could suggest a customer’s role in money laundering.

7. Recommendations on Future Regulatory Changes

Among the forthcoming amendments to Hong Kong’s anti-money laundering laws are the following:

A revision of the SFC’s Code of Conduct (paragraph 5.1) provides revised guidelines for onboarding in non-face-to-face situations.

The SFC’s commitment to increasing awareness of the possibility of money laundering and terrorist funding and improving anti-money laundering efforts, including surveillance and reporting. This follows the latest FATF Mutual Evaluation study on Hong Kong’s suggestions.

Enhancing the consistency and timeliness for which licensees of stored value facilities disclose fraudulent activities (SAR).

Managing the Hong Kong anti-money laundering enforcement procedures is a major logistical problem resulting in productivity sinks, human error, and, eventually, compliance fines. Comply Advantage helps you avoid those issues by providing an integrated anti-money laundering approach that leverages intelligent technologies and tools to augment your employees’ skills.

Our intelligent screening consultants will accelerate and improve the anti-money laundering infrastructure’s accuracy, allowing you to meet regulatory requirements while reducing administrative burdens and forwarding the savings to you and your clients.

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