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Company secretaries and governance professionals play an important role in maintaining best practice in anti–money laundering and counter-terrorist financing (AML/CFT) compliance. Mohan Datwani FCIS FCS(PE), Senior Director and Head of Technical & Research of the Institute, reviews the Institute’s initiatives to promote this aspect of its members’ work.

Two major pieces of legislation came into force on 1 March 2018 to enhance Hong Kong’s international reputation in this year’s Financial Action Task Force (FATF) mutual evaluation by other FATF member countries as to Hong Kong’s anti–money laundering and counter-terrorist financing (AML/CFT) efforts.

The Companies (Amendment) Ordinance (CO Amendment) introduces a new regime relating to disclosure of ultimate beneficial ownership (UBO) over Hong Kong private companies. This is through requiring all Hong Kong private companies to create and retain a verified significant controllers register (SCR). A significant controller is in general the person and/or member of the Hong Kong private company who holds over 25% interest or otherwise exercises significant control (significant controller) over the company. During the legislative process, the Institute’s call for the SCR to be only open for competent authority searches, instead of being publicly available, was heard and enacted.

The Anti–Money Laundering (Financial Institutions) (Amendment) Ordinance (AMLO Amendment) extends the due diligence and record-keeping requirements of financial institutions to designated non-financial businesses and professions (DNFBPs). It also creates a licensing regime over trust and company service providers (TCSPs) within the DNFBP sector. The Institute’s long-standing calls for the Companies Registry to be the regulator over the TCSP sector was adopted. Also, the Institute’s call for certain additional timing for verification to onboard clients under the Companies Registry’s AML/CFT Guidelines to facilitate TCSP business was adopted under the guidelines.

The Institute’s AML/CFT Charter

The CO and AMLO Amendments are intended to comply with Hong Kong’s international obligations as to UBO and DNFBP regulation, including over the TCSP sector, required under FATF Recommendations 22 and 24 to enhance Hong Kong’s mutual evaluation results. These topics became international focuses following the Panama Papers in 2014 where a number of prominent politicians and businesspeople found using offshore companies were alleged to have hidden ill-gotten gains. The Institute became a pioneer in Hong Kong on TCSP regulation with the launch of its AML/CFT Charter initiative in 2016. With the Companies Registry issuing its own AML/CFT Guidelines, the Institute will adopt these guidelines. An organisation subscribing to the Institute’s AML/CFT Charter can assert that it is accredited by the Institute as complying with official AML/CFT standards following an independent audit for brand differentiation.

The meaning of ‘fit and proper’

This ties in to the issue that under the current AMLO Amendments anyone over 18, subject to a certain minimal ‘fit and proper’ test, can seek a licence and become personally, as a partner or director, involved in the running of a TCSP business. The Institute submitted to the Legislative Council (LegCo) Bills Committee studying the draft legislation that professionalism and/or experience with a TCSP firm should be required under the fit and proper test in line with requirements of our major competitors. In a LegCo report relating to the passage of the legislation, the government made it clear that at this stage it will not be considering professional requirements. However, this is not a closed topic. As such, the Institute will continue to raise the issue at an opportune time after Hong Kong’s mutual evaluation, which is the priority for now. In the interim, Institute members can consider using subscription to the Institute’s AML/CFT Charter to demonstrate requisite professionalism and experience in TCSP business.

Promoting knowledge and recognition

The Institute will continue to lobby for better recognition of the Institute’s members, in particular to allow company secretaries to become to be specifically named a designated representatives to provide regulatory support as to SCR compliance, especially in group situations, as well as to be listed as a specified intermediary under Schedule 2 of the AMLO, which already extends to licensed TCSPs. This is intended as further recognition of the Institute’s members.

As both sets of legislation impact our profession, the Institute has conducted three seminars on the new AML/CFT landscape and will be making a course available online soon. The Institute will continue to provide further training to support its members. The Institute is also collating questions raised by members and will be providing these to the Companies Registry for its consideration, to the extent that these raise general issues relating to the legislation.

The Institute will continue to work with the Companies Registry and the government to promote the role of its members in ensuring compliance with the new AML/CFT regime in Hong Kong. A technical issue that the Institute is currently working on is the need for clarification on whether a sister company carrying out TCSP activities for other members within a group and/or affiliates is doing this ‘by way of business’. In this regard, some indication as to what amounts to being ‘by way of business’ will be useful in the context of the issue. The Institute believes that the legislative intent behind TCSP licensing may be relevant to the issue and awaits the Companies Registry’s clarification.

The Institute has also submitted to the government the need for future legislative amendments to allow due diligence to stop where listed companies are involved. The current narrow exemption relates to Hong Kong–listed entities as a direct member of a Hong Kong private company.

Mohan Datwani FCIS FCS(PE)
Senior Director and Head of Technical & Research of the Institute

For details of the Institute’s AML/CFT Charter please visit the Institute’s website: www.hkics.org.hk, or contact the author. The Institute would like to acknowledge the efforts of Natalia Seng FCIS FCS(PE); Samantha Suen FCIS FCS (PE); Paul Moyes FCSI FCS (PE); Edith Shih FCIS FCS(PE); Anthony Rogers GBS QC JP FCIS FCS; and Dr PM Kam FCIS FCS, on its AML/CFT Charter initiative.

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