Hong Kong: Fighting Financial Crime and Best Practices

5 mins

Hong Kong is home to thousands of financial institutions, including some of the most cutting-edge fintechs in the world, and serves as a gateway to China and financial markets throughout Asia. However, Hong Kong faces a variety of challenges from money laundering and terrorism financing, just like every other major financial hub, and places a high priority on protecting its financial systems from these dangers. It accomplishes this by establishing strict anti-money laundering and anti-terrorist financing rules.

Understanding these rules is a key element of commercial success for fintechs in Hong Kong. This blog focuses on some of the most crucial factors to help you navigate your anti-money laundering compliance problems in Hong Kong.

Compliance with FATF Recommendations 

Hong Kong is not on the FATF List of countries that have been identified as having strategic AML deficiencies. According to Know Your Country, the last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Hong Kong was undertaken in 2019. According to that Evaluation, Hong Kong was deemed Compliant for 11 and Largely Compliant for 25 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 6 of the Effectiveness & Technical Compliance ratings.

US Department of State Money Laundering assessment (INCSR) 

Hong Kong is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

AML Regulators in Hong Kong

As the city-central state's bank and financial watchdog, the Hong Kong Monetary Authority (HKMA) is in charge of preserving the financial system's stability. This responsibility involves establishing Hong Kong's anti-money laundering laws and regulations. The HKMA mandates that businesses adhere to domestic policy, the Financial Action Task Force (FATF) standards, and the Asia Pacific Group on Money Laundering (APG).

The HKMA publishes and updates Hong Kong’s anti-money laundering guidelines, such as the Guidelines on Anti-Money Laundering and Counter-Financing of Terrorism and the Hong Kong Money Laundering and Terrorist Financing Risk Assessment Report. Its overarching objectives include enhancing national capacity to identify and prevent money laundering activity as well as encouraging international cooperation to advance global anti-money laundering and counter-terrorism financing.

AML Legislation in Hong Kong 

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) and the Banking Ordinance serve as the main foundation for anti-money laundering laws in Hong Kong (BO).While the BO mandates that businesses put in place suitable accounting systems, the AMLO outlines the risk-based procedures that businesses must employ to detect and prevent money laundering.

The Organized and Serious Crimes Ordinance (OSCO), the Drug Trafficking (Recovery of Proceeds) Ordinance (DTROP), and a number of United Nations resolutions are further pertinent anti-money laundering laws.

What Should Financial Institutions Do?

With an increase in regulatory requirements, financial institutions are required to monitor their banking relationships with customers, as well as financial networks in foreign jurisdictions. Having and maintaining a compliance programme can put financial institutes in a stronger position to maintain or grow their network, serve their customers more effectively, and contribute to the global economy.

Transaction Monitoring

According to the AMLO, fintech companies in Hong Kong are required to have a monitoring system in place to find transactions that might be signs of potential money laundering. According to each customer's risk profile, the system must regularly check customer accounts for suspicious activities. This activity could include:

  • Transactions involving high-risk countries
  • Transactions which violate international sanctions
  • unusually high transaction volumes or atypical transaction patterns.
  • transactions that seem to have no purpose or that break the law.

Sanctions Screening

Payment sanctions screening is part of Hong Kong's anti-money laundering efforts. The United Nations (Anti-Terrorism) Ordinance (UNATMO) and the United Nations Sanctions Ordinance are two pieces of legislation that the Hong Kong Monetary Authority (HKMA) wants all financial institutions to comply with (UNSO).The Commerce and Economic Development Bureau and Hong Kong Government Gazette both publish the pertinent sanctions lists.

Sanctions screening for Hong Kong companies is sometimes done by outside organisations. Firms must notify the authorities and, if at all feasible, freeze assets when payments are discovered to be in violation of sanctions.

Customer Due Diligence (CDD)

According to Hong Kong's anti-money laundering regulations, financial institutions must do Customer Due Diligence (CDD) inspections before and throughout all customer interactions. A customer's identity and business type are generally verified by CDD checks, but it is also important to determine whether the customer's risk profile has altered.

Financial institutions are expected to conduct ongoing Politically Exposed Person (PEP) checks, identity verification processes (name, birthday, etc.), and routine media monitoring that may indicate a customer's involvement in money laundering.

How Can Tookitaki Help?

A major administrative burden, managing your Hong Kong anti-money laundering compliance operations can result in productivity losses, human error, and ultimately, compliance fines. With an automated anti-money laundering solution utilising cutting-edge software in addition to staff experience, Tookitaki assists you in avoiding those issues.

Regulators have generally been supportive of the adoption of regtech by regulated financial entities. Various regulators (like Hong Kong SAR) have developed strategies to promote the adoption of regtech, including boosting awareness, promoting innovation, and enhancing regulatory engagement within the regtech ecosystem. 

With our quick and accurate screening technologies, your Hong Kong anti-money laundering infrastructure will be able to meet regulatory requirements, streamline administrative processes, and benefit both you and your clients.

Headquartered in Singapore, Tookitaki is a regulatory technology company offering financial crime detection and prevention to some of the world's leading banks and fintech company to help them transform their anti-financial crime and compliance technology needs. Founded in November 2014, the Company employs over 100 people across Asia, Europe, and the US.

Fighting financial crime needs to be a collective effort through centralised intelligence-gathering. The Anti-Financial Crime (AFC) Ecosystem includes a network of experts and provides a platform for the experts to create a knowledge base to share financial crime scenarios.

This collective intelligence is the ability of a large group of AFC experts to pool their knowledge, data, and skills in order to tackle complex problems related to financial crime and pursue innovative ideas.

The AFC ecosystem is a game changer since it helps remove the information vacuum created by siloed operations. Our network of experts includes risk advisers, legal firms, AFC specialists, consultancies, and financial institutions from across the globe.

Tookitaki’s Anti-Money Laundering Suite (AMLS) covers the entire customer onboarding and ongoing processes through its Transaction Monitoring, Smart Screening, Customer Risk Scoring and Case Manager. Together they provide holistic risk coverage, sharper detection, and significant effort reduction in managing false alerts.

The AFC Ecosystem and the AMLS work in tandem and help our stakeholders widen their view of risk from an internal one to an industry-wide one across organizations and borders. Moreover, they can do so without compromising privacy and security.

Contact us today to learn how your business can benefit and strengthen your compliance efforts. Our team of experts are on hand to answer all your questions.