Enhancement of AML Regulatory Regime for Financial Sectors

At mid-July 2009, FSTB has launched a 3-month public consultation on its legislative proposals to enhance the anti-money laundering (AML) regulatory regime for the financial sectors. The proposals include codifying the customer due diligence and record-keeping requirements for financial institutions in law and putting in place an AML regulatory regime for remittance agents and money changers. The aim of the proposals is to address the deficiencies indentified by the FATF its evaluation of Hong Kong.

Summary of the key proposals are set out below:

Proposed Scope of the Future Legislation

• The proposed legislation will apply to the following financial institutions:

1. Authorized institutions (banks/deposit-taking institutions)
2. Licensed corporations regulated by SFC
3. Insurance companies and intermediaries carrying on or advising on long term business (i.e. life insurance)
4. Remittance agents and money changers (RAMCs)

• SFC, HKMA, OCI and C&ED will be designated as regulatory authorities to supervise compliance in respect of the securities, banking, insurance and RAMC sectors respectively.

Obligations of financial Institutions, Powers of the Regulatory Authorities and Offences and Sanctions

• The financial institutions will be required to implement CDD and record-keeping requirements in accordance with international standards, which are not substantially different from the existing requirements set out in the guidelines issued by the financial regulators.
• The regulatory authorities will issue guidelines on the statutory obligations to facilitate compliance.
• The regulatory authorities will be empowered to supervise compliance. These powers will be modeled on relevant powers in SFO, including powers to:

1. access to financial institutions' business premises for routine inspections
2. access to, extract or make copies of books and records of the financial institutions
3. require information and answers from financial institutions, staff and counterparties in investigation into suspected breaches
4. enter into and search a premises and seize documents/records and other items upon warrants
5. impose supervisory sanctions, including fines, public reprimand, suspension or revocation of licence having regard to the fitness and properness of the regulatees, and issue directions on remedial actions to be taken
6. prosecute offences summarily
7. share and exchange information with local and foreign authorities

• There will be appropriate checks and balance in the system, including the establishment of an independent appeals tribunal to hear appeals lodged by financial institutions against regulatory authorities' decisions made under the proposed new legislation.
• A financial institution commits an offence under the proposed new legislation only if it breaches the statutory customer due diligence and/or record-keeping requirements without reasonable excuses.
• No one will commit an offence under the proposed new legislation solely due to inadvertence on his/her part. A member of the management of a financial institution will be personally liable in case of a breach by the financial institution only if the breach was committed with his/her consent, connivance of, or is attributable to any recklessness on his/her part. Other staff members of the financial institution commit an offence only if they willfully breach the statutory obligations.
• The maximum level of penalty of the criminal sanctions will be specified in the new legislation, which will be determined by drawing reference from sanctions for offences of similar nature.

Licensing of the Remittance Agents and Money Changers

• A licensing system for RAMCs to be administered by the C&ED will be put in place. It will provide "fit and proper" test and other licensing criteria. Granting of new or renewed licences will be subject to a specified fee, to be determined on the cost recovery principle. C&ED will make regulations to prescribe the application and processing matters.
• To tackle unlicensed activities, carrying on a remittance and money changing business without a licence would be a criminal offence with penalty of fine and/or imprisonment.
• C&ED would be conferred with appropriate powers to take enforcement action against unlicensed RAMCs, such as the power to arrest/seizure as the Police currently have in administering the registration system for RAMCs under the Organized and Serious Crimes Ordinance.