A Beginner's Guide to AML, KYC, CFT for Hong Kong

During the outbreak of the COVID-19 pandemic, people were exposed to the advantages of the fintech industry. For example, there was an acceleration in the use of digital banking services during this time. In Hong Kong’s fund management industry, meanwhile, online trading of equities and exchange-traded funds was the fastest growing online product.

Unfortunately, these rapid developments also brought forth the rise in online fraud. To fight this, Customer Due Diligence (CDD) measures must continue improving along the way.

Read on to find out more on the basics of conducting Anti-Money Laundering (AML), Know Your Customer (KYC) and Combating the Financing of Terrorism (CFT) practices in Hong Kong.

What are AML and CFT?

AML and CFT are procedures carried out by financial institutions and other regulated entities to prevent financial crimes and terrorist financing. Money laundering is the process of concealing the illegal origin of income from crimes while terrorist financing is the collection of funds for terrorism. These activities negatively impact a country’s society and the economy as well as international financial systems.

KYC is just one component of this program and acts as the first step to combat money laundering and terrorism financing. With a proper KYC system of identification and verification coupled with risk scoring, can greatly assist any business in protecting itself while complying with the guidelines.

What is KYC in Hong Kong?

Like in any relationship, getting to know your client or customer is an important part of establishing a connection with them. KYC is the process of gathering a customer’s personal data and checking if this data is accurate. In other words, it is a process of identification and verification of the client’s data.

The Hong Kong government has released several regulations for KYC.

In 2018, the Hong Kong Monetary Authority (HKMA) released a Guideline on Anti-Money Laundering (AML) and CounterFinancing of Terrorism (CFT) (For Authorized Institutions) while the SFC issued an updated Guideline on Anti-Money Laundering (AML) and CounterFinancing of Terrorism (CFT) (For Licensed Corporations) last September 2021.

The Cap. 615 Anti-Money Laundering and Counter-Terrorist Financing Ordinance emphasises the requirements relating to CDD for financial institutions and designated non-financial businesses/professions.

Hong Kong KYC Requirements - Identity Verification

As per the requirements of Hong Kong regulations, these are the following ID data required for identifying a natural person (Individual) using official documents.

● Full Name; 

● Date of Birth; 

● Nationality; 

● Unique Identification Number (e.g. identity card number or passport number) and document type.

Identity Verification

The following documents can be used to verify one’s identity in Hong Kong:

● National Identity Card (HKID); 

● Driver’s Licence; 

● Passport.

Address Verification

The following documents are considered in Hong Kong as proof of address:

● A current utility bill (such as gas, electricity, telephone or mobile phone bill); Bill must be issued no later than three months ago with the client’s address and name;

● Bank statement (issued no more than three months ago that shows the End-user’s address and name); 

● A document issued by a government department that shows the applicant’s name and address.

To verify the above information, businesses will require their clients to provide documents to support the data. Examples of documents are Hong Kong identity cards or passports and billing statements. Though for the proof of income, this can range from bank statements where funds are being deposited to company-issued payroll.

Hong Kong Fintech 2025 Strategy

Last June 2021 the HKMA created a strategy to complete the digitalisation of financial institutions by 2025. Upon the publication of the strategy, Hong Kong’s government encouraged the country’s financial sector to build new and improved measures to combat the possible rise of money laundering and fraud challenges that will pop out upon the complete digitalisation.

Three months after the strategy was issued, the SFC issued an updated version of the guidelines. Its amendments are the following:

• evaluating the risks associated with new or existing business relationships approach  to simplified and enhanced Customer Due Diligence (CDD) requirements;

• establishment of institutional risk assessment with the primary purpose of assessing Money Laundering/Terrorist Funding vulnerability levels;

• identifying indicators for suspicious transactions involving third-party deposits and payments by considering the nature of their customer transactions;

• updated CDD requirements and measures for cross-border correspondent banking relationships.
  
  
  

How Lanturn conducts KYC & AML checks in Hong Kong

In a rapidly evolving Hong Kong financial industry it grows ever more important to stay up to date and comply with the country’s guidelines. Lanturn can assist you not only with our fund formation and administration services but also with conducting KYC & AML checks. As it is a vital part of any risk management strategy, having proper KYC performed would lessen any possible reputational or financial risk.

Here at Lanturn, our KYC & AML checks come in two tiers:

* Basic Checks – Verifying the information obtained on the identity of potential/existing clients, shareholders, and investors.

* Enhanced Checks – For funds involving higher-risk customers, where a deeper understanding of the target individual/entity’s activities is needed to mitigate associated risks.

We offer one-off or ongoing KYC and AML checks for Hong Kong fund managers, and investors. You can review our Compliance Services to understand the types of documents and information that we will collect to execute the checks.

All our services include:
* Collection and verification methods that comply with Data Protection regulations

* A four-eyes quality check for all documents/information collected

* Secure digital record-keeping

If you subscribe to our “Outsourced Compliance Monitoring & Support” services, we will conduct KYC reviews of your shareholders and investors on a regular basis.

Let Lanturn assist your company stay up to date with KYC/AML requirements in Hong Kong.Get in touch with us today.

Interested to know the KYC practices in Singapore? Read our article here: Customer Due Diligence: Guide to KYC, CFT, AML Singapore