The Financial Services & the Treasury Bureau has launched the second-round consultation on the detailed law proposals on customer due diligence and record-keeping requirements for financial institutions, and the regulation of remittance agents and moneychangers.

The bureau received 39 written responses to the first-round consultation on the conceptual framework of the legislative proposal to enhance the anti-money laundering regulatory regime for the financial sectors in October.

The majority of respondents agreed it is important for Hong Kong to comply with global anti-money laundering standards to maintain its status as an international financial centre. There was broad support for the proposed introduction of new laws to enhance the regulation of financial institutions and a licensing system to regulate remittance agents and moneychangers.

The proposal will address the lack of statutory backing and proper sanctions for customer due diligence and record-keeping requirements, and the absence of an anti-money laundering regulatory regime for remittance agents and moneychangers. The proposed law will comply with international standards on customer due diligence and record-keeping.

Proposal points

The consultation document details law proposals in the following areas:

* the categories of financial institutions to be subject to the requirements under the proposed law and the respective authority designated for each of these sectors for compliance supervision;

* the customer due diligence and record-keeping obligations of financial institutions, including the circumstances under which customer due diligence should be conducted, the extent of customer due diligence measures applicable to customers of different risk profiles, specific requirements on wire transfers and remittance transactions, requirements for ongoing due diligence, actions required when unable to complete customer due diligence and the types of records required to be maintained and the period for record retention;

* the powers available to authorities to supervise financial institutions' compliance with the obligations, including powers to conduct inspections and require information from financial institutions and other people, initiate investigation into suspected breaches, enter into premises under warrants, initiate summary prosecutions and share information with overseas regulators. Procedural safeguards to ensure proper exercise of powers by these authorities are also provided;

* the range of supervisory sanctions authorities can impose for breaches of financial institutions' obligations or breaches of officers' duty to take reasonable measures to prevent breaches of obligations by the financial institution, and the criminal liability for non-compliances committed with knowledge and intent;

* the establishment of an independent appeals tribunal to review decisions on supervisory sanctions and licensing matters of remittance agents and money changers made by authorities as checks and balances in the regulatory regime; and,

* the detailed licensing regime for remittance agents and moneychangers, including the Customs & Excise Department's functions and power as the licensing authority, coverage of the licensing regime, "fit and proper" criteria for remittance agent and moneychanger licensees, and the offence for unlicensed remittance agent and moneychanger operations.

Threshold revisions

The bureau has revised the proposed customer due diligence threshold for money changing transactions from $8,000 to $120,000 in view of the relatively low money-laundering risks involved in money-changing transactions and to ease remittance agents and money changers' concerns over the anti-money laundering regulation.

It also proposes to set a high threshold for mental elements such that only those who knowingly contravene the statutory obligations, or those who contravene the statutory obligations with intent to defraud, will attract criminal liability.

To facilitate normal business operations under a risk-based approach, financial institutions can conduct simplified due diligence in specified circumstances where money-laundering risks are low and, subject to specified conditions, rely on specified local professional sectors in conducting customer due diligence in business introduction.

The bureau will table the bill at the Legislative Council in the second quarter of 2010.

The two-month consultation will last until February 6. Click here for the consultation document. Views should be sent to the bureau by mail to Division 7, Financial Services Branch, Financial Services & the Treasury Bureau, 18/F Tower 1, Admiralty Centre, 18 Harcourt Road, Hong Kong, or by sending an email, or faxing 2865 6736.