Some Lessons from SFC’s Further Guidance to the Markets

The Securities and Futures Commission’s recent circular to licensed corporations and associated entities on anti-money laundering and counter financing of terrorism (“AMLCFT” or “AMLCTF”) comes at an opportune time with the AMLCTF practices of certain designated non-financial businesses and professions (“DNFBPs”) also in the news, following a related government consultation. At the time of writing, the formal phase of that consultation is due to conclude in early March 2017 (see Industry Insights, February 2017, “AML: DNFBPs”).

The SFC circular Compliance with AMLCFT Requirements” follows its review of the practices of more than 290 licensed entities in 2016. That review identified more than 200 incidents of non-compliance with (among other things) the SFC’s Guideline on AMLCTF and Code of Conduct.

As with most industry standards, the general principles that underpin the SFC’s guidelines are rooted in the Financial Action Task Force’s key 40 Recommendations(on the international standards for combating AMLCFT).

The SFC circular specifically gives examples of the different types of irregularities discovered as a result of its findings (Appendix 1 and 2 of the circular). These irregularities, together with the examples of good practice set out at Appendix 3, demonstrate two themes. First, deficiencies in licensed entities’ AMLCTF procedures are often a result of omissions (“failing to …”); these omissions are, in turn, often caused by a lack of proper resources. Second, good practices are led by a senior management team*.

While the SFC’s circular and guidelines are industry specific, the general principles relating to client due diligence and record-keeping are useful reminders for DNFBPs in Hong Kong (be they, among others, lawyers, accountants or estate agents).

With this in mind, the responsible partner(s) and/or AML compliance and reporting officer(s) within a law firm and a foreign law firm would do well to review the contents of the profession’s Practice Direction P (AMLCTF) and, in particular, its mandatory aspects. Practice P is the legal profession’s relevant regulatory standard and provides the most comprehensive guidance of all DNFBPs in Hong Kong*. Members in practice (and in-house lawyers with a current practising certificate) would also be well advised to attend the Academy of Law’s annual Anti-Money Laundering Seminar for Lawyers” (run in conjunction with the Police, the Narcotics Division and the DOJ in October) and/or an accredited AML risk management education course (if they have not already done so).

In light of the government’s consultation document on Enhancing AML Regulation of DNFBPs it is likely that more attention will focus on the provisions of Practice Direction P; particularly, in the run-up to the FATF’s next mutual evaluation of Hong Kong (thought to be in the last quarter of 2018, for reporting in the summer of 2019).


* See Industry Insights, April 2015: Internal Controls – No Passing the Buck or Turning a Blind-Eye”.

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Partner, Smyth & Co in association with RPC

Senior Consultant, Smyth & Co in association with RPC