With a FATF visit looming, Hong Kong steps up AML/CFT efforts

Written by Jake Plenderleith on Monday May 14, 2018

FATF’s mutual evaluation in Hong Kong later this year will be its first evaluation in the territory since 2007. In anticipation, the Hong Kong Monetary Authority (HKMA) in March issued ‘Enhanced Competency Guidelines’, strengthening AML/CFT regulations and reminding firms of their obligations.

The Guidelines acknowledge that money laundering has been a growing threat in Hong Kong over the last few years, with a string of money laundering cases. One of the most significant involved Coutts’ Hong Kong branch who between 2012–2015 were found to have breached money laundering rules by not taking the necessary steps to discover if clients were politically exposed persons, receiving a HK$7 million fine in the process (Coutts endured a difficult 2017).

Hong Kong was then dragged into a money laundering probe centred on Commonwealth Bank of Australia, where it was alleged that laundered cash was transferred to accounts in the region. In addition to this there was the concern, aired in the House of Lords, that stolen funds linked to former South African president Jacob Zuma were laundered through Hong Kong.  

All unwelcome headlines for the HKMA. In response, it took action to bolster AML and CFT controls and keep financial institutions on their toes. March’s AML/CFT update was intended as a reminder to financial institutions of the behaviour expected of financial services firms in Hong Kong. In addition, the measures, though necessary from a practical perspective, were also aimed at reassuring the world that Hong Kong takes financial crime seriously.

Hong Kong undoubtedly wants a squeaky-clean reputation for its own sake. But the HKMA’s eagerness to make sure that financial institutions follow the rules also comes at a crucial juncture. The potential trade war between the US and China may well trigger some regional uncertainty that Hong Kong will want to deal with from a position of strength and confidence.

Likewise, any attempt to lure financial institutions from a post-Brexit London to the special administrative region will be damaged if Hong Kong is thought of as a financial centre where illegal behaviour is tolerated; nor will continued money laundering breaches aid Hong Kong’s attempt to topple London and New York from the summit of global financial centres. The HKMA understands this, hence the appearance of guidance.

Not that the HKMA had been resting idly prior to the publication of the March Guidelines: in May last year a tripartite collaboration between the HKMA, the police and the Hong Kong Association of Banks united to address money laundering, forming the Fraud and Money Laundering Intelligence Taskforce as a result.

This triumvirate has been largely successful, with deputy chief executive of the HKMA Arthur Yuen Kwokhang reporting that HK$2.8 million had been confiscated by the HKMA over the last 12 months. Moreover, he noted that suspicious activity reporting was up 25% from 2017, and pointed to the possibility of using artificial technology (AI) to prevent financial crime from taking place. Kwokhang also encouraged greater information sharing between the public and private sectors, but warned that excessive caution could result in unnecessary de-risking.    

The HKMA’s attempt to strike the right balance between risk and innovation is refreshing. It’s an attitude that can be found elsewhere in Hong Kong: just this month the Financial Services and Treasury Bureau announced that the risk posed by cryptocurrencies is ‘low’ – an admirably bold stance for the regulator and a balance that many regulators are trying to achieve. How the HKMA opts to straddle the gap between over- and under-regulation will determine just how successful Hong Kong can be in not only preventing money laundering and terrorist financing but also flourishing as a global financial centre.

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