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Anti-money laundering in Hong Kong

Tuesday 3 January 2012 – by Charlotte Robins

Hong Kong-based private fund managers are due to face new anti-money laundering regulations from 1 April 2012. Charlotte Robins, partner at Norton Rose Hong Kong, analyses the changes.

Financial intermediaries regulated in Hong Kong (whether by the Securities and Futures Commission, Hong Kong Monetary Authority or the Office of the Commissioner of Insurance) will need to reconsider their existing procedures in sufficient time to ensure that compliance occurs as of the effective date.

In particular, a private fund manager, licensed and regulated by the SFC will need to consider what, if any, changes need to be made to their existing customer due diligence (CDD) procedures (including in some cases CDD in relation to beneficial owners and controllers) as well as comply with the need to continually monitor the business relationship with customers and maintain related records.

Reasonable measures to safeguard against contravening AMLO requirements and mitigate money laundering and terrorist financing will also need to be introduced.

Definition of Customer

The AMLO itself does not define “customer”. However, the draft SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (Guideline), which is subject to public consultation, notes that for the purposes of CDD in the securities sector, customer refers to a client of the licensed corporation.

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“Client” is defined in the Securities and Futures Ordinance as a person for whom the licensed corporation provides a service, the provision of which constitutes a regulated activity.

As noted, in a private fund structure, the fund will be the customer of the licensed private fund manager. It will be the fund’s responsibility to conduct CDD on the fund investors and the private fund manager generally need only conduct CDD on the fund.

Simplified Due Diligence

CDD in respect of investment vehicles are specifically catered for in the AMLO and while such a term is undefined, a fund would fall within this broad category.

Simplified due diligence (SDD) may be conducted on the fund if the person responsible for carrying out measures similar to CDD in relation to the investors is one of the institutions listed in section 4(3)(d) of Schedule 2 of the AMLO.

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