On December 7, 2022, the Legislative Council of Hong Kong handed an modification to the Anti-Cash Laundering and Counter-Terrorist Financing Ordinance (AMLO) that introduces a licensing regime for digital asset service suppliers (VASPs).

In keeping with the Secretary for Monetary Companies and the Treasury, Mr. Christopher Hui, the modification reinforces Hong Kong’s standing as a global monetary heart. At its core, the up to date licensing regime formulates a “complete and balanced regulatory framework” for digital asset actions to guard traders and improve Hong Kong’s regulatory regime for combating cash laundering and terrorist financing. 

Initially, the brand new licensing regime was scheduled to enter operation on March 1, 2023. Nevertheless, the Hong Kong Financial Authority (HKMA) has since moved the date to June 1, 2023, to offer VASPs with extra preparation time.

AMLO Amendments

Hong Kong’s modification of the AMLO aligns with Advice 15 set out by the Monetary Motion Job Pressure (FATF), which requires VASPs to be regulated for anti-money laundering and countering the financing of terrorism (AML/CFT) functions. In keeping with the FATF, VASPs must also be licensed and topic to efficient techniques for monitoring or supervision.

Below the amended AMLO, VASPs might be required to:

• Apply for a license from the Securities and Futures Fee (SFC)
• Fulfill the “match and correct check” and adjust to anti-money laundering and counter-terrorist financing (AML/CTF) necessities, equivalent to buyer due diligence (CDD) and record-keeping
• Frequently submit audited accounts and monetary data to the SFC
• Appoint not less than two accountable officers who might be usually chargeable for overseeing the operation of the licensed VASP and guaranteeing compliance with the AML/CTF and different regulatory necessities
• Search the SFC’s approval of the premises for use for conserving information

The replace additionally introduces a two-tier registration regime for treasured metals and stones sellers. Sellers that intend to have interaction in non-cash transactions at or above HK$120,000 will fall into Class A. These registrants won’t be required to implement specified measures on CDD and document conserving. Nevertheless, sellers looking for to have interaction in money transactions at or above $120,000 will fall into Class B and be topic to AML/CTF supervision, as required by the FATF. 

Concerning this sector, companies ought to be conscious that current analysis by the think-tank, RUSI, discovered that sellers in treasured metals and stones (DPMS) are at a very excessive threat of being concerned within the evasion of financial sanctions, notably by North Korea. 

Additional amendments to the AMLO related to the banking sector embrace:

Coverage Assertion on the Growth of Digital Belongings

The AMLO modification follows a coverage assertion issued by the federal government on October 31 throughout Hong Kong FinTech Week. Specializing in Hong Kong’s imaginative and prescient and method, rules, and pilot packages, the coverage assertion units out the federal government’s stance towards creating a “vibrant sector and ecosystem for digital property in Hong Kong.”  

As highlighted within the coverage assertion, compliance professionals ought to guarantee they continue to be up-to-date with Hong Kong’s forthcoming pilot tasks that goal to check the technological advantages of digital property and their additional purposes within the monetary markets. 

Moreover, companies ought to look out for the SFC’s upcoming public session on how retail traders could possibly be given appropriate entry to digital property.

Key Takeaways

VASP compliance groups ought to guarantee they totally perceive their new compliance obligations underneath the AMLO, studying the FATF’s Advice 15 and its interpretive be aware for readability. 

Threat-based VASP AML/CFT controls embrace:

• CDD: VASPs ought to set up and confirm the identities of their prospects earlier than commencing enterprise relationships. The CDD course of ought to contain names, addresses, and dates of start. Nevertheless, digital identifiers equivalent to scans of official paperwork and biometric data can also be essential in a cryptocurrency context. 
• Transaction monitoring: VASPs ought to monitor their prospects’ transactional habits to identify exercise that doesn’t match their established threat profile and will point out legal exercise. 
• Screening and monitoring: VASPs ought to display screen their prospects in opposition to worldwide sanctions and watchlists for PEP standing and their involvement in antagonistic media tales. 
• Good expertise instruments: Given the huge quantity of digital transaction information concerned in digital regulatory compliance, VASPs ought to search to implement an appropriate technological resolution to satisfy their AML/CFT obligations. 

Initially revealed December 22, 2022, up to date December 23, 2022