As reported in the February 2017 edition of the Hong Kong Lawyer (“DNFPBs”), the Financial Services and the Treasury Bureau (“FSTB”) has recently undertaken a consultation, proposing to extend client due diligence (“CDD”) and record-keeping requirements contained in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) (the “Ordinance”) to certain professions; including, law firms and registered foreign law firms in Hong Kong.
Since the consultation was launched it is has become clearer that the law profession’s Practice Direction P (“AML”) is the most comprehensive guidance given to any profession in Hong Kong.
Indeed, Practice Direction P was recently revised and updated (Law Society Circular 17/167(SD), 13 March 2017, “Amendments to Practice Direction P”). Practice Direction P is not just a set of guidelines; it is a standard for good practice*. Some of its provisions are mandatory (for example, paras. 18–28, including Client identification, verification and due diligence). It is also used as a source of reference by some other professions in Hong Kong.
A question posed, in these circumstances, is why has the solicitors’ profession in Hong Kong been put in the same category as (for example) estate agents or accountants?
Of the Financial Action Task Force Recommendations (on international standards for combating money laundering and terrorist financing), Recommendation 22 relates to DNFBPs’ CDD. The underlying principle as regards financial institutions is that CDD and record-keeping requirements should be set out in law (which includes legislation and relevant binding judicial decisions). The means by which it is proposed to extend certain CDD and record-keeping requirements to (among others) lawyers in Hong Kong is for the Ordinance to be amended to contain a definition of DNFBPs (including, solicitors and foreign lawyers). However, Practice Direction P was promulgated pursuant to the statutory powers of the Law Society of Hong Kong, has been tested and approved in court and is enforceable.
If the consultation proposals purport to be no more than a codification of current professional practice requirements (insofar as law firms in Hong Kong are concerned), a further question remains – why does FSTB consider there is a “regulatory gap” with respect to lawyers? Particularly, given that it is widely acknowledged that Practice Direction P is fit for purpose and the standard of AML “reporting” by law firms to the relevant authorities is pretty good.
Furthermore, consistent with the consultation proposals being a codification exercise, they do not purport to increase the regulatory powers of the Law Society of Hong Kong. Therefore, what appears to be driving the proposals may be something else in (for example) “FATF world”, as Hong Kong approaches her fourth on-site mutual evaluation in the last quarter of 2018.
* April, 2015 – Industry Insights: “Internal Controls – No Passing the Buck or Turning a Blind-Eye”.