Proposed changes to the SFC Guidelines on Anti-Money Laundering and Counter Terrorist Financing

​An analysis of the SFC's proposed changes to the Guidelines on Anti-Money Laundering and Counter Terrorist Financing, and the impact on Licensed Corporations in Hong Kong.


In the run-up to the Financial Action Task Force (FATF)’s on-site mutual evaluation assessment scheduled for later this year, the Securities and Futures Commission (SFC) published a consultation paper (Consultation Paper) in early July 2018 setting out proposed amendments to the current SFC Guidelines on Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT Guidelines). The AML/CFT Guidelines apply to all entities licensed by the SFC. Similar guidelines apply to banks and other financial institutions but consultations in relation to any similar changes have not yet been issued by other Hong Kong regulators.

The Consultation Paper sets out a number of proposed changes to the AML regime in Hong Kong. The SFC is now inviting comments from the public and market participants in writing by August 2018. The SFC expects the new AML/CFT Guidelines to take effect in November 2018.

Here we consider three changes which will impact Licensed Corporations (LCs) with respect to the know your customer (KYC) checks required when onboarding customers, namely: (i) the expanded categorisation of beneficial owners; (ii) further guidance on identifying a person purporting to act on behalf of a customer (PPTA); and (iii) the expanded definition of politically exposed persons (PEPs).

Beneficial owners

The current position is that LCs are required to identify and verify the ultimate beneficial owners of their customers. This refers to persons ultimately holding more than 25% of the shares of the customer, persons directly or indirectly entitled to exercise control of  more than 25% of the shares of the customer, and persons who exercise ultimate control over the management of the corporation. Where no such person exists, there is no obligation on LCs to identify or verify any individual.

The SFC propose to amend this such that, where no ultimate beneficial owner exists, LCs are instead required to identify and verify the person(s) holding the position of “senior managing official” of the customer. This is a new requirement which is not mandated pursuant to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The SFC has stated that in making this change it has taken into account industry feedback and also the FATF standards. This proposed amendment will likely increase the administrative burden on LCs and, in the absence of a clear definition, will require LCs to exercise a level of discretion when selecting the relevant individuals at the customer who constitute “senior managing officials”.

The Consultation Paper states that LCs may obtain from the customer an undertaking or declaration as to the identity and relevant information relating to its beneficial owner. It also requires LCs to take reasonable measures to verify the identity of the beneficial owner (eg by corroborating the undertaking or declaration with publicly available information).

Persons purporting to act on behalf of a customer

The AML/CFT Guidelines contain a general rule that LCs should treat those persons authorised to give instructions for the movement of funds or assets as PPTAs and verify their identities. The SFC observed that some LCs have applied this general rule without exception, which might create an unnecessary compliance burden when the customer has a long list of dealers or traders who are authorised to give such instructions.

In the Consultation Paper the SFC has removed the reference to the above general rule. In determining whether a natural person is considered to be a PPTA, the SFC now propose that LCs should take into account the nature of the relevant person’s roles and the activities which he or she is authorized to conduct, as well as the ML/TF risk associated with these roles and activities. Clear policies should be implemented by LCs for determining who is considered to be a PPTA.

Politically Exposed Persons

The SFC propose to introduce a new category of  PEPs known as “international organisation PEP”. This new category includes members of senior management, ie directors, deputy directors and members of the board or equivalent functions, entrusted with a prominent function by an international organisation. Examples of international organisations set out in the Consultation Paper include the United Nations, the North Atlantic Treaty Organization and the World Trade Organisation. This proposed change is to keep Hong Kong in line with the latest FATF standards.

The SFC propose in the Consultation Paper that, for business relationships which are high risk, LCs should treat customers who are, or who have as beneficial owners, domestic PEPs or international organisation PEPs in the same was as they deal with foreign PEP relationships. This will require the LCs to obtain senior management approval, take reasonable measures to establish the source of wealth of the PEP and the sources of funds and conduct enhanced monitoring of the relationship.

The SFC remind LCs that, when using third party databases to identify PEPs, LCs should be aware of their limitations, for example, the databases are not necessarily comprehensive or reliable as they generally draw solely from information that is publicly available. LCs are advised to ensure that the databases that they use are fit for the purpose of identifying PEPs.


“Money laundering is a persistent risk globally and firms in Hong Kong should ensure they have robust systems and controls to combat it”, according to the latest Enforcement Reporter published by the SFC.

Senior management of LCs bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper AML procedures. The managers in charge of the anti-money laundering core function should review the adequacy and effectiveness of internal AML procedures in light of the proposed changes to the regime set out in the Consultation Paper.This article only includes a few of the changes relating to the KYC process for LCs.

 For further details of the changes, please contact Simmons & Simmons.

This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document. Simmons & Simmons is registered in China as a foreign law firm. We are permitted by Chinese regulations to provide information on the impact of the Chinese legal environment and also to provide a range of other services. We are not admitted to practise in China and cannot, and do not purport to, provide Chinese legal services. We are, however, able to co-ordinate with local counsel to issue a formal legal opinion should this be required.