Enhancing Hong Kong’s Regulatory Regime for Combating Money Laundering and Terrorist Financing – Part I

Both the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 and the Companies (Amendment) Ordinance 2018 were passed by the Legislative Council on 24 January 2018 and have come into operation on 1 March 2018. This article seeks to set out the background and objectives, and highlight the major requirements, of the two Amendment Ordinances.

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 (‘The AML Amendment Ordinance’)

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) (‘AMLO’) was first enacted in July 2011 and came into operation in April 2012 to require financial institutions (as defined in Part 2 of Schedule 1 to the AMLO) to, among other things, comply with the customer due diligence (‘CDD’) and record-keeping requirements as set out in Schedule 2 to AMLO. The said requirements are the main strands of the anti-money laundering and counter-terrorist financing regulatory regime championed by the Financial Action Task Force (‘FATF’), an inter-governmental body of which Hong Kong has been a member since 1991.

To enhance Hong Kong’s regulatory regime for combating money laundering and terrorist financing in fulfilment of Hong Kong’s international obligations as a member of the FATF, the Government introduced the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Bill 2017 (‘AML Amendment Bill’) into the Legislative Council on 28 June 2017 to amend the AMLO to apply the statutory CDD and record-keeping requirements (‘AML/CTF requirements’) to solicitors and foreign lawyers (as defined in section 2(1) of the Legal Practitioners Ordinance (Cap. 159) (‘LPO’), accountants, estate agents and trust or company service providers (‘TCSPs’) (collectively called designated non-financial businesses and professions (‘DNFBPs’)) when they conduct certain specified transactions and for that purpose to establish a regulatory regime for TCSPs, and designate relevant professional or regulatory bodies as "relevant authority" or "regulatory bodies" to implement the statutory requirements for various DNFBPs. The AML Amendment Bill was subsequently passed on 24 January 2018.

Under the AML Amendment Ordinance, non-compliance with the AML/CTF requirements by DNFBPs may result in disciplinary sanctions imposed by the relevant authority or regulatory bodies.

For the TCSP sector, the AML Amendment Ordinance introduces a licensing regime for TCSPs which is administered by the Registrar of Companies (‘Registrar’). Under the new regime, a TCSP must apply to the Registrar for a licence to carry on a trust or company service business in Hong Kong. Any person carrying on a trust or company service business in Hong Kong without a licence commits an offence (new section 53F). A licence would be granted only if the Registrar is satisfied that the applicant is a "fit and proper" person (new section 53H). New section 53ZQ contains transitional provisions applicable to TCSPs who have been carrying on a TCSP business and holding a valid Business Registration Certificate. For this group of persons, a licence is deemed to have been granted when the licensing requirement came into effect on 1 March. If they wish to continue to carry on their businesses, they must lodge an application for the TCSP licence within the transitional period of 120 days, which will expire after 28 June 2018.

In the case of legal professionals, The Law Society of Hong Kong (‘LSHK’) takes on statutory oversight for monitoring and ensuring the compliance of solicitors and foreign lawyers with the AML/CTF requirements. Non-compliance with the requirements would be handled in accordance with the prevailing investigation and disciplinary procedures under the LPO governing professional misconduct. To this end, the LPO has been amended to enable the LSHK to take disciplinary action under the existing regulatory regime in respect of failure to comply with the AML/CTF requirements. Enabling provisions have also been introduced (new section 7(1)) so that LSHK has the discretion to promulgate guidelines as they consider appropriate in relation to the operation of the requirements. LSHK may have regard to or take into account any practice direction that it has issued in providing guidance on the AML/CTF requirements.

To avoid regulatory overlap, exemption from the new licensing requirements for TCSPs are given to, among others, accounting professionals and legal professionals who are subject to the regulation of their respective professional bodies. For details of the licensing regime and its exemption, please visit www.tcsp.cr.gov.hk. .

Jurisdictions: 

Registrar of Companies, Companies Registry

Ms Ada Chung is qualified as a barrister-at-law and a Certified Public Accountant.  As the Registrar of Companies, she was heavily involved in the rewrite of the Companies Ordinance and spearheaded the implementation of the new Companies Ordinance and, more recently, the new anti-money laundering initiatives relating to the transparency of corporate beneficial ownership and a licensing regime for trust or company service providers in Hong Kong.

Senior Solicitor, Companies Registry