Designated non-financial businesses and professionals (DNFBPs) in Hong Kong are now expected to observe the same customer due diligence (CDD) and record-keeping requirements as financial institutions.
It is a statutory requirement for all registered trust or company service providers (TCSPs) in Hong Kong to request documents for customer verification from prospective clients.
This is according to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance (Cap. 615) (AMLO), which came into effect on March 1, 2018. (See official link to the law here.)
The new compliance threshold brings Hong Kong’s existing anti-money laundering legislation in line with international best practices framed by the Financial Action Task Force (FATF) – an intergovernmental organization founded in 1989 to develop global policies to combat money laundering and terrorist financing.
Who will be affected?
The amendment states that designated non-financial businesses and professionals or DNFBPs are now subject to the same Know Your Customer (KYC) reporting norms as financial institutions. It should be noted that the law does not impact in-house legal counsel and accounting teams.
- Accounting professionals;
- Estate agents;
- Legal professionals; and
- Trust or company service providers (TCSPs).
KYC for DNFBPs engaged in specified transactions
The KYC compliance will be mandatory when DNFBPs are engaged in ‘specified transactions’ for their clients.
The increased reporting requirements will apply to all clients, including those subjects located outside Hong Kong.
Specified transactions for lawyers and accountants include:
- Buying or selling of real estate;
- Managing client finances, such as money, securities, or other assets;
- Managing bank accounts;
- Managing the financing and setting up of corporations,
- Managing legal persons or legal arrangements;
- Buying or selling of business entities; and
- Dealing with a trust or company service as defined in the AMLO.
Specified transactions for estate agents include:
- Buying or selling of real estate for a client – as defined in section 2(1) of the Estate Agents Ordinance (Cap 511).
Specified transactions for TCSPs include:
- Preparing for or executing a client transaction concerning a trust or company service as defined in the AMLO.
What are the new compliance requirements?
The amended Schedule 2 of the AMLO states that anti-money laundering and counter-terrorist financing (AML/CTF) compliance requirements for DNFBPs will include:
- Conducting customer risk assessment or due diligence before starting a business relationship or carrying out business transactions valued at HK$120,000 (US$15,298) and above;
- Ongoing monitoring of business relationships for any signs of unusual activity; and
- Maintaining records related to all transactions and business relationships. The time period required to retain records is six years from the date on which a transaction is completed or six years from the date on which a business relationship ends.
The AMLO further strengthens the reporting duty of DNFBPs regarding suspicious transactions and activity as regulated by the Organised and Serious Crimes Ordinance (OSCO) (Cap 455).
Impact of new KYC norms on clients
Clients engaging in business relations with a registered TCSP should be forthcoming with their information regarding their identity, purpose and nature of business/occupation/activity, and their significant beneficial owner(s).
Under Hong Kong’s anti-money laundering and counter-terrorist financing legislation, a TCSP is obliged to terminate their relationship with the customer at any time due to non-completion of stipulated verification measures.
AMLO places certain limits on the number of transactions and type of transactions that can be undertaken during the period when verification is pending. On their part, clients will be assured that they are in a transparent business relationship with a registered corporate service provider.
The KYC remediation also prevents companies and professionals from getting involved in corruption, terrorist financing, and money laundering – either directly or indirectly.
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