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Building long-term business relationship with financial institutions

Background

Promoting compliant operation in the industry in accordance with the Hong Kong law is one of the objectives of the establishment of our Association. At the same time, we also aim to enhance the communication with respective financial institutions and governmental departments especially on ways to build a long term business relationship with banks.

As a member of the Financial Action Task Force ("FATF"), Hong Kong has the responsibility to implement international standards on anti-money laundering. During a briefing to the Legislative Council Panel on Financial Affairs on 15 November 2013, Mr Norman Chan, Chief Executive of The Hong Kong Monetary Authority ("HKMA"), mentioned that "Banks must observe stringent customer due diligence requirements, and detect and report any suspicious transactions". As such, licensed money changers must first prepare themselves in relevant compliant aspects in order to build a long term and positive relationship with banks.

Objectives of our Association

Through this webpage, our Association hopes to deliver the following messages to respective financial institutions on behalf of the money service industry:
  • To build long term and positive relationships with banks, licensed money service operators ("MSOs") must operate their businesses in compliance with the law (e.g. lay down and obtain understanding in compliance policies and procedures, including customer due diligence, on-going monitoring etc. and to put these relevant policies and procedures into practice). In addition, they should keep proper customer and transaction records and provide banks accurate information and adequate assistance during sample-testing of records
  • Licensed money changers are strictly required to abide by the Hong Kong Law Cap 34 Money Changers Ordinance
  • Licensed money changers are strictly required to abide by the Hong Kong Law Cap 615 Anti-Money Laundering and Counter-Terrorist Financing Ordinance and Guideline on Anti-Money Laundering and Counter-Terrorist Financing (For Money Service Operators)
  • Licensed money changers are required to comply with relevant licensing and licence renewal requirements as well as other regulations and guidelines licensees should abide by
  • According to the law, Money Service Supervision Bureau of the Hong Kong Customs and Excise Department ("HKC&ED") is required to continuously monitor licensed MSOs (including site inspection, interviewing licensees by appointment, telephone inquiries, requiring periodic return for statement of transactions from licensees, approving application of licensees' new partner/director/ultimate beneficiary owner etc.) to ensure that their businesses are compliant and legal

Licensing System and Supervision

The Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Cap. 615 ("AMLO") came into operation on 1 April 2012. Under the AMLO, a person who wishes to operate a remittance and / or money changing service (i.e. money service as defined under the AMLO) is required to apply for a licence from the Commissioner of Customs & Excise ("CCE"). The HKC&ED will assess whether a licence applicant is fit and proper to be licensed to operate a money service. It will also monitor licensees' implementation of customer due diligence and record-keeping requirements and compliance with other licensing conditions on a continuous basis, as well as combat any unlicensed money service operation. Operating a money service without obtaining a MSO licence from the CCE is an offence and liable to a fine of HK$100,000 and imprisonment for six months. To ensure that licensed MSOs comply with the requirements stipulated in the AMLO, MSO licensing matters and supervision system include:

Summary of Application Procedures:
  1. Supporting Documents of the Applicant's Particulars Application Form
  2. Supporting Documents of Particulars of each premises
    • A copy of stamped tenancy agreement or record of ownership of the premises
    • Floor plan of the premises
  3. Interview at the HKC&ED Headquarters
  4. In determining whether a person is a fit and proper person, the CCE must, in addition to any other matter that he considers relevant, have regard to whether the applicants convicted of an offence in Hong Kong or elsewhere (The provisions in section 2 of the Rehabilitation of Offenders Ordinance, Chapter 297 do not by reason of Section 4 of that Ordinance apply to proceedings related to a person's suitability to be granted or to continue to hold a licence. No conviction will be regarded as 'spent' and details of all convictions must therefore be included
  5. Authorized officers of the HKC&ED will conduct on-site inspection at the premises provided in the application form
  6. If the MSO licence is granted, relevant records will be kept in the Register of Licensees maintained by the CCE. The Register is kept at the office of the Money Service Supervision Bureau and is uploaded to the HKC&ED website. The register is available for inspection by members of the public without charge during normal office hours and issued licences will be updated in a timely manner

On-going Monitoring
  1. Conduct ad hoc compliance inspections and investigations (including performing on-site examinations)
  2. Interview licensees by appointment
    • Written request to MSO requiring them to attend meeting with authorized HKC&ED officials on a specified date. MSO will be required to bring along their explanation on policies as well as customer records, transaction records and bank statements etc for a specified period of time for review and questioning. According to the AMLO, if the above requirements are not followed, the licensee may be prosecuted under the AMLO and liable on summary conviction to a fine of HK$50,000 and to imprisonment for 6 months
  3. Conduct telephone inquiries
  4. Require periodic return for statement of transactions from licensees
  5. Approve application of licensees' new partner/director/ultimate beneficiary owner

As mentioned earlier, while MSOs are subject to the licensing system and on-going monitoring of the HKC&ED, banks in Hong Kong are regulated by the HKMA. As a result, banks must comply with approval procedures required by law during their operations which in turn will help further strengthen the position of Hong Kong as an international financial centre. Being part of the financial services industry, all MSOs should cooperate with banks and proactively enhance their compliance level during businesses. Following are some of the areas which some of the MSOs have done to further enhance their compliance level in order to increase their competitiveness in the industry.

Key Points in Business Reporting
( I ) : State the following items clearly to banks:
  • Business nature
  • Major trading currencies and estimation of transaction amount
  • Major sources of funds and remittance location
  • Corporate structure and management responsibilities
  • Appointment of Compliance Officer and Money-laundering Reporting Officer
  • Anti-money laundering and counter-terrorist financing policies and procedures implemented by the company etc.
( II ) : Besides (I), if there are any changes, MSOs should proactively provide explanation or report to banks within a reasonable timeframe. MSOs are also suggested to proactively appoint a third-party professional person (e.g. Compliance Officer, accountant, lawyer etc) to conduct annual compliance review in order to understand how the control and procedures for combatting risks in money laundering/terrorist financing are being implemented and to reflect the emphasis MSOs put on the legal and monitoring requirements set out for financial institutions.

Key Points in Record-keeping
( I ) : Besides requesting documents during the customer due diligence process, original and/or copy of such documents, along with the transaction data or information, should be kept as part of the transaction record. Such record must be kept for 6 years beginning on the date on which the business relationship of a customer with the MSO ends for review purposes
( II ) : Besides (I), documents and information can also be kept in computer systems. Some computer systems are even equipped with anti-money laundering monitoring and warning capabilities. Information can be provided promptly upon request by banks for review purposes

Operating a compliant business not only enables MSOs to act in accordance with the Government's law but also enhances MSOs status in the industry and even in society. At the same time, banks should keep an open mind towards licensed MSOs in order to balance the relationship between banks and MSOs. This will help to build a long-term and stable business relationship between the two parties as well as laying a solid foundation for Hong Kong as an international financial centre. Our Association would like to reiterate that MSOs must prepare themselves in relevant compliant aspects in order to build a long-term and positive business relationship with banks.

Our Association is more than happy to meet with any banks to discuss about the sustainability of the business relationship between banks and MSOs and to understand compliance requirements of respective banks.

Supervisory Authority

The Hong Kong Monetary Authority ("HKMA") established a new division within the Banking Supervision Department to further strengthen and consolidate the resources available for AML/CFT supervision, allowing an increased number of on-site examinations and desktop reviews and a more proactive approach in mitigating emerging money-laundering and terrorist-financing risks. At the same time, HKMA will continue to actively participate in various international AML forums (such as Financial Action Task Force) to ensure Hong Kong's risk-based approach to AML supervision is consistent with international practice and allow more effective use of resources to address areas of higher risks. As part of the financial services industry, all licensed money changers must assist the Hong Kong government, HKMA and banks in combating money laundering and terrorist financing activities in order to strengthen the international financial centre position of Hong Kong.

  • All Money Service Operators should note that the Hong Kong Monetary Authority (“HKMA”) has provided the Contact Information of 20 Retail Banks in Hong Kong on its website, which includes the required information and documents needed for opening a bank account
  • HKMA has also provide an Enquiry Hotline for Account Opening and Maintenance:
    • Enquiry Hotline: (852) 2878 1133
    • E-mail: accountopening@hkma.gov.hk
  • Should a Money Service Operator consider that the bank has not handled the account opening application properly, he/she can make a complaint to HKMA. Details of Complaint Processing Centre (For bank complaints) are as follow:
    • Enquiry Hotline: (852) 2878 1378
    • Fax: (852) 2509 3990
    • E-mail: bankcomplaints@hkma.gov.hk

Events

Given that banking service is one of the crucial elements for licensed money changers to do business, our Association is committed to strive high quality business environment for MSO industry. Our work performed:

Relevant legislations for reference:
Chapter 34: Money Changers Ordinance, Laws of Hong Kong
Chapter 615: Anti-Money Laundering and Counter-Terrorist Financing Ordinance, Laws of Hong Kong

Relevant guidelines for reference:
HKC&ED - Guideline on Anti-Money Laundering and Counter- Financing of Terrorism (For Money Service Operators)
HKC&ED - Money Service Operators Licensing Guide
HKC&ED - Money Service Operators Disciplinary Fining Guideline
HKC&ED - Money Service Operators Guidelines on Criteria for Determining Fitness and Propriety