In this article, we take a close look at the most important regulatory changes introduced by the AML/CFT Amendment Bill in Hong Kong.
On 7 December 2022, the Hong Kong Legislative Council passed the new Anti-Money Laundering and Counter-Terrorist Financing Amendment Bill.
The bill updates the existing AML and CFT Ordinance (AMLO), whose first iteration came into effect on 1 April 2012. The current amendments aim to reflect changes to the recommendations by the Financial Action Task Force (FATF) as well as the availability of new technologies and usage patterns in financial institutions.
Here is our summary of the most relevant changes introduced by the bill that every compliance team should be aware of.
No more automatic EDD requirement for remote onboarding
The Amendment Bill removes the blanket high-risk classification of any remote onboarding situation in the existing regulation. When a regulated institution uses a recognised digital identification system for client due diligence in situations where the customer is not physically present, there is no longer automatically the need for enhanced customer due diligence measures. Since the beginning of the COVID-19 pandemic, the Hong Kong Monetary Authority (HKMA) has been consistent in supporting the use of RegTech, especially in the area of client onboarding and ID verification. This regulatory change backs the financial regulator’s strategy, effectively de-risks the use of technology for financial institutions and enables better customer onboarding experiences across the board.
Change in definition of a PEP
The bill also modifies the definition of what a Politically Exposed Person (PEP) is and what type of customer due diligence regulated institutions should apply to former PEPs. This change closely follows the updated FATF recommendations in this area.
Licensing requirement for VASPs
Another important change is formally introducing a licensing requirement for any person or company offering virtual asset services (VASPs). The licenses will be managed by the Securities and Futures Commission (SFC). Fit and proper tests for the officers of VASPs as well as thorough KYC/AML measures are now a mandatory condition for VASP licensees.
CDD obligations for dealers of precious metals
Dealers of precious metals and stones were previously not regulated, but received some attention by the FATF in recent years given the sector’s potential misuse for money laundering purposes. In this area, the amendment bill introduces a registration regime handled by the Commissioner for Customs and Excise. Again, registration is coupled with a requirement to implement customer due diligence programs within dealers’ organisattion, including full KYC and anti-money laundering components for buyers.
Trustees recognised as Beneficial Owners of Trusts
Last but not least, this bill clarifies that for trusts the definition of beneficial owners includes trustees, beneficiaries and a class of beneficiaries entitled to a vested interest in the trust.
The amendments will come into operation on 1 June 2023 to provide financial institutions enough time to prepare for the changes. To help implement these changes, the Hong Kong Monetary Authority has also announced that it will consult the banking sector and provide specific guidance on topical issues.
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