SFC Consultation Paper on Proposed Amendments to (1) the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and (2) the Prevention of Money Laundering and Terrorist Financing Guideline issued by the SFC for Associated Entities
Release Date: 2020-12-18
Securities and Futures Commission
18 Westlands Road, Quarry Bay, Hong Kong
54/F, One Island East
Online Submission
https://www.sfc.hk/edistributionWeb/gateway/TC/consultation/
December 2, 2020
To: Securities and Futures Commission
Dear Sir/Madam,
Subject: Feedback on Consultation Paper on Proposed Amendments to (1) the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and (2) the Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities
Question 1: Do you agree that the institutional risk assessment should be subject to periodic review at least once every two years or more frequently upon the occurrence of trigger events? Please explain.
Response: We propose a routine review schedule or reviews triggered by specific events. An annual minor review and a comprehensive review every two years are recommended. The biennial review might not be timely enough. Immediate action and evaluation should follow a triggering event. An annual minor review involves assessing high and medium-risk clients for potential compliance risks related to their transactions after fund deposits. The two-year comprehensive review entails an extensive examination of the entire system and framework.
Question 2: Do you consider the expanded list of illustrative examples of risk indicators to be sufficiently comprehensive? Please state your views.
Response: We consider the list to be sufficiently comprehensive.
Question 3: Do you agree with the scope of application for the cross-border correspondent relationships provisions for the securities sector? Please explain.
Question 4: Do you have any views on the additional due diligence and other risk mitigating measures applied to cross-border correspondent relationships in the securities sector? Please state your views.
Response: We partially agree with the provisions' applicability to cross-border agency relationships in the securities sector. While we support the need for additional due diligence and risk mitigation, we have reservations. There is a risk that customers might shift to other brokers, and intermediary brokers could use customer due diligence as a marketing tool. In jurisdictions deemed equivalent, both foreign and domestic intermediary brokers should conduct due diligence and trust that the counterparties have met the necessary requirements. Further scrutiny should be avoided unless dealing with non-equivalent jurisdictions, which necessitate additional due diligence or the use of the Wolfsberg Questionnaire.
We also assert that due diligence for establishing business ties with foreign banks should be carried out exclusively by local banks, not by local financial service providers such as brokers and asset managers, who lack banking-specific information. Local financial providers should rely on local banks' adherence to anti-money laundering laws when offering cross-border banking services.
Question 5: Do you have any views on the expanded list of illustrative examples of possible simplified and enhanced measures under a risk-based approach? Please state your views.
Response: We have no comments but suggest that additional examples would be advantageous.
Question 6: Do you have any views on the list of illustrative red-flag indicators of suspicious transactions and activities set out in Appendix B to the Proposed Revised Guideline? Please state your views.
Response: We have no comments.
Question 7: Do you have any views on the facilitative guidance permitting delayed third-party deposit due diligence? Please state your views.
Response: We appreciate the Commission's guidance allowing for delayed due diligence on third-party deposits, which enhances industry flexibility. However, this should not be exploited, and licensed firms should complete due diligence on third-party deposits before using customer funds for settlement.
For any questions regarding this letter, please contact Mr. Mofiz Chan, Director of Industrial Relations Department.
Best regards,
The Council of the Hong Kong Securities and Futures Professionals Association
18 Westlands Road, Quarry Bay, Hong Kong
54/F, One Island East
Online Submission
https://www.sfc.hk/edistributionWeb/gateway/TC/consultation/
December 2, 2020
To: Securities and Futures Commission
Dear Sir/Madam,
Subject: Feedback on Consultation Paper on Proposed Amendments to (1) the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations) and (2) the Prevention of Money Laundering and Terrorist Financing Guideline issued by the Securities and Futures Commission for Associated Entities
Question 1: Do you agree that the institutional risk assessment should be subject to periodic review at least once every two years or more frequently upon the occurrence of trigger events? Please explain.
Response: We propose a routine review schedule or reviews triggered by specific events. An annual minor review and a comprehensive review every two years are recommended. The biennial review might not be timely enough. Immediate action and evaluation should follow a triggering event. An annual minor review involves assessing high and medium-risk clients for potential compliance risks related to their transactions after fund deposits. The two-year comprehensive review entails an extensive examination of the entire system and framework.
Question 2: Do you consider the expanded list of illustrative examples of risk indicators to be sufficiently comprehensive? Please state your views.
Response: We consider the list to be sufficiently comprehensive.
Question 3: Do you agree with the scope of application for the cross-border correspondent relationships provisions for the securities sector? Please explain.
Question 4: Do you have any views on the additional due diligence and other risk mitigating measures applied to cross-border correspondent relationships in the securities sector? Please state your views.
Response: We partially agree with the provisions' applicability to cross-border agency relationships in the securities sector. While we support the need for additional due diligence and risk mitigation, we have reservations. There is a risk that customers might shift to other brokers, and intermediary brokers could use customer due diligence as a marketing tool. In jurisdictions deemed equivalent, both foreign and domestic intermediary brokers should conduct due diligence and trust that the counterparties have met the necessary requirements. Further scrutiny should be avoided unless dealing with non-equivalent jurisdictions, which necessitate additional due diligence or the use of the Wolfsberg Questionnaire.
We also assert that due diligence for establishing business ties with foreign banks should be carried out exclusively by local banks, not by local financial service providers such as brokers and asset managers, who lack banking-specific information. Local financial providers should rely on local banks' adherence to anti-money laundering laws when offering cross-border banking services.
Question 5: Do you have any views on the expanded list of illustrative examples of possible simplified and enhanced measures under a risk-based approach? Please state your views.
Response: We have no comments but suggest that additional examples would be advantageous.
Question 6: Do you have any views on the list of illustrative red-flag indicators of suspicious transactions and activities set out in Appendix B to the Proposed Revised Guideline? Please state your views.
Response: We have no comments.
Question 7: Do you have any views on the facilitative guidance permitting delayed third-party deposit due diligence? Please state your views.
Response: We appreciate the Commission's guidance allowing for delayed due diligence on third-party deposits, which enhances industry flexibility. However, this should not be exploited, and licensed firms should complete due diligence on third-party deposits before using customer funds for settlement.
For any questions regarding this letter, please contact Mr. Mofiz Chan, Director of Industrial Relations Department.
Best regards,
The Council of the Hong Kong Securities and Futures Professionals Association