Consultation on Legislative Proposals to Enhance Anti-Money Laundering and Counter-Terrorist Financing Regulation in Hong Kong
Release Date: 2021-01-13
January 30, 2021
Question 1: Do you agree that Hong Kong should continue with efforts to strengthen the AML/CTF system having regard to international standards, in keeping with our status as an international financial centre that is safe and clean for doing business?
Response 1: We agree to continue enhancing the regime according to international standards within reasonable limits, to maintain Hong Kong's status as an international financial center and a safe, clean business environment.
Question 2: Do you agree that a balanced approach should be adopted for the current legislative exercise, complementing the need to have an effective system for tackling ML/TF risks in the VASP and the DPMS sectors in accordance with the FATF Standards, while minimising regulatory burden and compliance costs on the businesses?
Response 2: We agree. Virtual asset service providers should align with current anti-money laundering standards for financial institutions. However, applying these standards to precious metals and stones dealers is impractical as most are wholesale and retail without the need for account opening. The customer due diligence and ongoing monitoring required for financial institutions are not suitable here, as it would unnecessarily complicate the sales process.
For activities like issuing and redeeming gold bullion, engraving a trade name on the merchandise and requiring proof of purchase when selling back to the trade name can enhance AML efforts. Additionally, "London gold" investment activities should be regulated.
Question 3: Do you agree with the proposed scope and coverage of the regulated activity of operating a VA exchange?
Response 3: We agree.
Question 4: Do you agree with the proposed definition of VA? Other than closed-loop, limited purpose items, are there other digital items that should be excluded from the definition?
Response 4: We agree. Digital products with investment functions should not be exempted.
Question 5: Should peer-to-peer VA trading platforms be covered under the licensing regime?
Response 5: We agree they should be regulated under Type 7 regulated activity licenses by the SFC.
Question 6: Do you agree that only locally incorporated companies may apply for a VASP licence?
Response 6: We agree, using Type 9 regulated activity licenses from the SFC with additional conditions.
Question 7: Should other criteria be added to the fit-and-proper test given the nature and risks of VASPs?
Response 7: We agree that additional requirements should be added.
Question 8: Should other regulatory requirements be added to mitigate the risks of VASPs?
Response 8: We agree more requirements are needed due to low transparency and public awareness of virtual assets, to protect the public.
Question 9: Do you agree that a VASP licence should be open-ended or should it be periodically renewed?
Response 9: Given the relatively short history, we believe licenses should require periodic renewal to monitor development. This can be adjusted over time.
Question 10: Do you agree with the exemption arrangement and the 180-day transitional period for application of a VASP licence?
Response 10: We believe a transition period should not be granted to prevent any gray area exploitation.
Question 11: Do you agree that, for investor protection purpose, persons without a VASP licence should not be allowed to actively market a VA exchange business to the public of Hong Kong?
Response 11: We agree.
Question 12: Do you agree that the penalty level for carrying out unlicensed VA activities should be sufficiently high to achieve the necessary deterrent effect?
Response 12: We agree, but believe the maximum two-year imprisonment is too short and should align with fraud penalties, which can be up to 14 years.
Question 13: Do you agree with the proposed sanctions, including that it shall be a criminal offence for a person to make a fraudulent or reckless misrepresentation to induce someone to acquire or dispose of a VA?
Response 13: We believe this should be prosecuted as fraud.
Question 14: Do you agree that the Tribunal be expanded to hear appeals from licensed VASPs against future decisions of the SFC?
Response 14: We agree.
Question 15: Do you agree generally with the proposed scope of “regulated activities” and related definitions for DPMS, which draw reference from the FATF requirement and overseas legislation?
Response 15: We agree.
Question 16: Are there any other business activities in respect of precious metals, precious stones, precious products, and precious-asset-backed instruments that should be covered under the registration regime?
Response 16: We agree.
Question 17: Do you agree with the proposal to have a two-tier registration regime, such that registrants who do not engage in large cash transactions can be separated from those who do, with the former being subject to simple and mere registration requirements and the latter to standard AML/CTF requirements currently applicable to other DNFBPs?
Response 17: We agree. However, all bullion traders only accept cash, mostly qualifying for the second-tier license. We suggest implementing specific regulations for the industry.
Question 18: Do you agree generally with the respective requirements for Category A and Category B registrations, including that Category B registration should be renewed every three years?
Response 18: We suggest annual renewals for the first ten years for industry observation, then potentially extending the renewal period.
Question 19: Do you agree that financial institutions which are already regulated under the AMLO should be exempted from the registration regime when carrying on a DPMS business that is ancillary to their principal business?
Response 19: We agree.
Question 20: Do you agree that non-domestic dealers who visit Hong Kong only occasionally should be exempted from the registration regime, subject instead to the requirement of filing cash transaction reports with possible sanctions for failure to do so?
Response 20: We disagree, fearing it could be exploited for illegal activities. A short-term license method should be considered for registration.
Question 21: Do you agree with a 180-day transitional period and the deemed registration arrangement for incumbent dealers to facilitate their migration to the registration regime?
Response 21: Unlike the previous response, this involves less public interest, so a transition period is acceptable.
Question 22: Do you think the proposed sanction is adequate in deterring the operation of a DPMS business without registration?
Response 22: We agree.
Question 23: Do you agree that Category B registrants should be subject to the same administrative sanctions as other DNFBPs, and not to criminal sanctions, for non-compliance with the AML/CTF requirements in the AMLO?
Response 23: We disagree with the absence of criminal sanctions.
Question 24: Do you agree that the Tribunal be expanded to hear appeals from registrants against future decisions of the Registrar?
Response 24: We agree.
Question 25: Do you agree with the miscellaneous amendments proposed by the Government to address some technical issues identified in the Mutual Evaluation Report and other FATF contexts?
Response 25: We have reservations about relaxing rules for former politically exposed persons due to ongoing political risks, but no objections to other areas.
Best wishes for health and well-being,
The Council of the Hong Kong Securities and Futures Professionals Association
Question 1: Do you agree that Hong Kong should continue with efforts to strengthen the AML/CTF system having regard to international standards, in keeping with our status as an international financial centre that is safe and clean for doing business?
Response 1: We agree to continue enhancing the regime according to international standards within reasonable limits, to maintain Hong Kong's status as an international financial center and a safe, clean business environment.
Question 2: Do you agree that a balanced approach should be adopted for the current legislative exercise, complementing the need to have an effective system for tackling ML/TF risks in the VASP and the DPMS sectors in accordance with the FATF Standards, while minimising regulatory burden and compliance costs on the businesses?
Response 2: We agree. Virtual asset service providers should align with current anti-money laundering standards for financial institutions. However, applying these standards to precious metals and stones dealers is impractical as most are wholesale and retail without the need for account opening. The customer due diligence and ongoing monitoring required for financial institutions are not suitable here, as it would unnecessarily complicate the sales process.
For activities like issuing and redeeming gold bullion, engraving a trade name on the merchandise and requiring proof of purchase when selling back to the trade name can enhance AML efforts. Additionally, "London gold" investment activities should be regulated.
Question 3: Do you agree with the proposed scope and coverage of the regulated activity of operating a VA exchange?
Response 3: We agree.
Question 4: Do you agree with the proposed definition of VA? Other than closed-loop, limited purpose items, are there other digital items that should be excluded from the definition?
Response 4: We agree. Digital products with investment functions should not be exempted.
Question 5: Should peer-to-peer VA trading platforms be covered under the licensing regime?
Response 5: We agree they should be regulated under Type 7 regulated activity licenses by the SFC.
Question 6: Do you agree that only locally incorporated companies may apply for a VASP licence?
Response 6: We agree, using Type 9 regulated activity licenses from the SFC with additional conditions.
Question 7: Should other criteria be added to the fit-and-proper test given the nature and risks of VASPs?
Response 7: We agree that additional requirements should be added.
Question 8: Should other regulatory requirements be added to mitigate the risks of VASPs?
Response 8: We agree more requirements are needed due to low transparency and public awareness of virtual assets, to protect the public.
Question 9: Do you agree that a VASP licence should be open-ended or should it be periodically renewed?
Response 9: Given the relatively short history, we believe licenses should require periodic renewal to monitor development. This can be adjusted over time.
Question 10: Do you agree with the exemption arrangement and the 180-day transitional period for application of a VASP licence?
Response 10: We believe a transition period should not be granted to prevent any gray area exploitation.
Question 11: Do you agree that, for investor protection purpose, persons without a VASP licence should not be allowed to actively market a VA exchange business to the public of Hong Kong?
Response 11: We agree.
Question 12: Do you agree that the penalty level for carrying out unlicensed VA activities should be sufficiently high to achieve the necessary deterrent effect?
Response 12: We agree, but believe the maximum two-year imprisonment is too short and should align with fraud penalties, which can be up to 14 years.
Question 13: Do you agree with the proposed sanctions, including that it shall be a criminal offence for a person to make a fraudulent or reckless misrepresentation to induce someone to acquire or dispose of a VA?
Response 13: We believe this should be prosecuted as fraud.
Question 14: Do you agree that the Tribunal be expanded to hear appeals from licensed VASPs against future decisions of the SFC?
Response 14: We agree.
Question 15: Do you agree generally with the proposed scope of “regulated activities” and related definitions for DPMS, which draw reference from the FATF requirement and overseas legislation?
Response 15: We agree.
Question 16: Are there any other business activities in respect of precious metals, precious stones, precious products, and precious-asset-backed instruments that should be covered under the registration regime?
Response 16: We agree.
Question 17: Do you agree with the proposal to have a two-tier registration regime, such that registrants who do not engage in large cash transactions can be separated from those who do, with the former being subject to simple and mere registration requirements and the latter to standard AML/CTF requirements currently applicable to other DNFBPs?
Response 17: We agree. However, all bullion traders only accept cash, mostly qualifying for the second-tier license. We suggest implementing specific regulations for the industry.
Question 18: Do you agree generally with the respective requirements for Category A and Category B registrations, including that Category B registration should be renewed every three years?
Response 18: We suggest annual renewals for the first ten years for industry observation, then potentially extending the renewal period.
Question 19: Do you agree that financial institutions which are already regulated under the AMLO should be exempted from the registration regime when carrying on a DPMS business that is ancillary to their principal business?
Response 19: We agree.
Question 20: Do you agree that non-domestic dealers who visit Hong Kong only occasionally should be exempted from the registration regime, subject instead to the requirement of filing cash transaction reports with possible sanctions for failure to do so?
Response 20: We disagree, fearing it could be exploited for illegal activities. A short-term license method should be considered for registration.
Question 21: Do you agree with a 180-day transitional period and the deemed registration arrangement for incumbent dealers to facilitate their migration to the registration regime?
Response 21: Unlike the previous response, this involves less public interest, so a transition period is acceptable.
Question 22: Do you think the proposed sanction is adequate in deterring the operation of a DPMS business without registration?
Response 22: We agree.
Question 23: Do you agree that Category B registrants should be subject to the same administrative sanctions as other DNFBPs, and not to criminal sanctions, for non-compliance with the AML/CTF requirements in the AMLO?
Response 23: We disagree with the absence of criminal sanctions.
Question 24: Do you agree that the Tribunal be expanded to hear appeals from registrants against future decisions of the Registrar?
Response 24: We agree.
Question 25: Do you agree with the miscellaneous amendments proposed by the Government to address some technical issues identified in the Mutual Evaluation Report and other FATF contexts?
Response 25: We have reservations about relaxing rules for former politically exposed persons due to ongoing political risks, but no objections to other areas.
Best wishes for health and well-being,
The Council of the Hong Kong Securities and Futures Professionals Association