Hong Kong SAR – SFC Publishes Circular on Deficiencies in AML Frameworks and Management Responsibility

The SFC has published a circular setting out key observations from routine and thematic inspections of Licensed Corporations’ (LC) AML/CFT policies, procedures and controls carried out in 2019 and 2020. LCs should review this circular as AML continues to be a focus area for the SFC following the FATF mutual evaluation published last year and given the likelihood of amendments to both the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the SFCs’ AML Guidelines. As with previous circulars setting out findings from inspections, not only are deficiencies highlighted, but also the expected regulatory standards and examples of good practices.

The SFC set out five priority areas for attention, including areas that are being consulted on by the SFC in their current AML Guidelines consultation paper;

  1. Ensuring policies and procedures are up-to-date with adequate oversight;
  2. Consideration of pertinent ML/TF risk factors when conducting institutional risk assessments and customer risk assessment with proper follow-ups;
  3. Assessment of fund deposits by clients to ascertain whether they originate from third parties;
  4. Measures to establish sources of wealth; and
  5. Screening clients when sanctions lists are updated.

In addition, the SFC highlights the duties of senior management/ Managers in Charge of ensuring that the appropriate standards are met, with procedures and policies in place, as well as effective oversight. The circular also specifically raises the possibility of disciplinary action for senior management in the event of future or continuing deficiencies or non-compliance discussed in this circular and its Appendix.

LCs and senior management should therefore keep their AML/CFT frameworks under review and assess where there might be gaps or discrepancies with current or future rules and obligations, as well as evaluating LC policies and processes in the areas highlighted in the circular.