The financial services sector has become accustomed to the introduction and enforcement of numerous regulatory and licensing regimes around the world. In Hong Kong, it is now the turn of Designated Non-Financial Businesses and Professions (DNFBPs) – accounting professionals, estate agents, legal professionals and trust company service providers (TCSPs).
From 1 March 2018, these businesses and professions will be subject to the same enhanced customer due diligence and record-keeping obligations as financial institutions under the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance. The amendment also introduces a new licensing regime for TCSPs.
The amendment forms part of the Hong Kong government’s reforms to bring its anti-money laundering (AML) legislation in line with the international standards set by the Financial Action Task Force (FATF), which is scheduled to commence an evaluation of Hong Kong’s regime towards the end of this year.
Hong Kong has been a member of the FATF since 1991. In its last Mutual Evaluation Report for Hong Kong in 2008, the FATF noted that while supervision was effective for the banking, insurance and securities sectors, it was “weak or non-existent for many types of DNFBPs”.
Besides having to apply for a licence, Hong Kong TCSPs will (if they are not already doing so) now be subject to a statutory requirement to carry out the following due diligence procedures before establishing a business relationship with a client or before carrying out occasional transactions involving HK$120,000 (US$15,000) or more:
- Identify the customer or any person purporting to act on behalf of the customer;
- Verify the customer’s identity using documents, data or information from a reliable, independent source;
- Identify a beneficial owner where there is one and take reasonable steps to verify the identity of the beneficial owner;
- Understand the ownership and control structure of those customers who are legal persons or trusts (or other similar arrangements); and
- Obtain information about the purpose and intended nature of the business relationship.
TCSPs will also be expected to monitor ongoing business relationships and to maintain records – documents, data and information obtained in connection with the transaction – for a period of five years.
Sovereign welcomes this move. From 1 March 2018, any person who wishes to carry on a trust or company service business in Hong Kong will have to apply for a TCSP licence and comply with the relevant requirements of the AML Ordinance.
In all jurisdictions that require us to be licensed we have applied for, and been granted, the appropriate authorisation. To obtain these licences, Sovereign has had to demonstrate its financial stability and probity as well as professional competence and integrity and the robustness of its systems. We have had to satisfy the licensing authorities that every relevant person is ‘fit and proper’ to carry on or be associated with a trust or company service business.
We do not therefore anticipate any problems in obtaining a licence, nor in the implementation of these changes. In fact Sovereign has been urging the Hong Kong authorities to regulate the TCSP sector for many years. Compliance with international AML standards has become a major business cost but we recognise it is also an essential element in building and maintaining trust and confidence in the sector. This move will introduce a level playing field for TCSPs in Hong Kong and will mean that we can now compete on a fair and even basis.
It is also to be hoped that these remedial actions will be sufficient to deal with the deficiencies previously identified by the FATF in the run-up to 2018. If Hong Kong receives adverse ratings, it will then have to face an ‘enhanced follow-up’ process. This would affect Hong Kong’s reputation as an international financial centre and as a safe and clean city for doing business.