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Latest Updates on Hong Kong Anti-Money Laundering Regulations

Updated on 2023/07/20

The Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022 was passed by the Legislative Council of Hong Kong in December 2022. The new legislation, including the establishment of a registration regime for Dealers in Precious Metals and Stones (“DPMS”) and a licensing regime for Virtual Asset Services Providers (“VASP”), as well as some amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”) regulations, has been effective since Jun 2023. These measures aim to strengthen Hong Kong’s regulatory framework and reinforce its position as a leading international financial center.

This article provides a comprehensive overview of the key changes to the Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) regulatory framework in Hong Kong, to help professional firms stay up-to-date with the latest developments and ensure compliance with the new requirements.

Key Updates on Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”)

Key updates on Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”) from Jun 2023 include:

  • The Hong Kong government has implemented a licensing regime for Virtual Asset Services Providers (VASPs), requiring VASP operators to apply for a license from the Securities and Futures Commission (SFC) in order to engage in virtual asset exchange activities.

    Read more about the licensing regime for Virtual Asset Services Providers:
    Virtual Asset Services Providers (VASP) Licensing Regime in Hong Kong

  • A two-tier registration regime — Category A & B — has been introduced for Dealers in Precious Metals and Stones (“DPMS”). Category B DPMS who engage in cash transactions at or above HK$120,000 now are subject to statutory Anti-Money Laundering and Counter-Terrorist Financing (AML/CTF) obligations.

    Read more about the registration regime for Dealers in Precious Metals and Stones:
    i. Hong Kong Registration Regime for Dealers in Precious Metals and Stones (DPMS)
    ii. Guide for HK DPMS: Registration Process, How to Do AML and Useful AML Tools (With Tips on Waiver of Registration Fee)

  • The definition of politically exposed persons (“PEPs”) has been amended to include any person outside the jurisdiction of Hong Kong.

  • The introduction of “former PEPs” enables Designated Non-Financial Businesses and Professions (DNFBPs) to adopt more flexible due diligence measures based on a risk-based approach.

  • Aligning the definition of “beneficial owner” in relation to trust with that of “controlling person” under the Inland Revenue Ordinance, by including trustees, beneficiaries and classes of beneficiaries.

  • The use of digital identification systems is now permitted to assist in the conduct of customer due diligence for identification and verification purposes, further enhancing the efficiency and effectiveness of AML/CTF processes.

Changes in Companies Registry AML/CTF Guideline for TCSPs

With regards to the amendments to Anti-Money Laundering and Counter-Terrorist Financing (“AML/CTF”) regulations, the Companies Registry (“CR”) has also updated its Guideline on Compliance of AML/CTF Requirements for Trust or Company Service Providers (TCSPs). It is important for professional firms to take note of the following 2 main expanded sections:

1. Implementation of an Independent Audit Function

In the updated guideline, an independent audit function has been added as one of the requirements for internal AML/CTF policies, procedures and controls (“APPC”, also known as “AML/CTF systems”):

(a) risk assessment;
(b) customer due diligence (“CDD”) measures;
(c) ongoing monitoring of customers;
(d) suspicious transactions reporting;
(e) record keeping;
(f) employee screening procedures;
(g) staff training; and
(h) independent audit function.

TCSP licensees are required to establish an independent audit function that has sufficient expertise and resources to review their AML/CTF policies, procedures and controls, and a direct line of communication with senior management. The audit function should regularly review the licensee’s AML/CTF systems, including their risk assessment framework, suspicious transaction reporting, compliance function, and staff awareness of AML/CTF responsibilities. The frequency and extent of the review should be tailored to the nature, size, and complexity of the licensee’s businesses and money laundering (“ML”) and terrorism financing (“TF”) risks.

2. Countering Proliferation Financing

The updated guideline has also expanded the section on the counter proliferation financing regime. Professional firms should be aware of the regulations in relation to proliferation financing, including the provisions outlined in the Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Chapter 526) (WMD(CPS)O), and United Nations Sanctions Ordinance (UNSO), which implement sanctions against North Korea and Iran respectively.

Professional firms are advised to exercise additional caution when handling any business relationships or transactions that are suspected to be linked to the proliferation of weapons of mass destruction. This is necessary to prevent any violations of the relevant regulations and to ensure compliance with legal requirements.

What Steps Should Professional Firms Take to Comply with the Updated Regulations?

DNFBPs, including TCSP, accountants, lawyers, real estate agents, DPMS, and VASP, are advised to conduct a thorough review of their internal anti-money laundering and counter-terrorism financing policies, procedures, and controls. This is essential to ensure compliance with the latest regulatory requirements and to make any necessary updates to their existing AML/CTF framework.

To fast-track the development or update of the internal AML/CTF policies, procedures and controls documents for effective AML risk management and AML regulator inspection, now you can purchase a customizable template that complies with the Hong Kong regulatory requirements. Click here to learn more.

Additionally, professional firms should implement regular Anti-Money Laundering audits as part of their AML/CTF system to ensure the effectiveness of the internal AML policies, procedures and control, by identifying and addressing any deficiencies, and compliance with the latest regulatory requirements stated in the updated CR AML/CTF guideline, to avoid regulatory violations or reputational harm. It is advised to seek external and independent audits and work with experienced and professional auditors or consultants who possess the necessary expertise in AML and regulatory compliance to ensure a thorough and effective audit.

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