InternationalInternational Standards on Regulating DNFBPs &The way forward

Mr Peter KWOKAssistant Secretary for Security

27 February 2009

Narcotics Division, Security Bureau

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Agenda

Financial Action Task Force (FATF) requirements on Trust & Company Service Providers (TCSPs)

Highlight of the FATF recommendations relevant to TCSPs

Way Forward in regulating TCSPs

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Designated Non-Financial Businessesand Professions (DNFBPs)

DNFBPs as defined by Financial Action Task Force (FATF) are:

Lawyers Accountants TCSPs Real Estate Agents Dealers in Precious Metals/ Stones Casinos

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FATF Requirements

FATF requirements on Trust & Company Service

Providers (TCSPs)

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FATF Requirements for TCSPs

• CDD (Rec. 5)

• Record Keeping (Rec. 10)

• Suspicious Transaction Reporting (Rec. 13)

Requirements to be specified in law:

Other requirements:• Internal Controls (Rec. 15)• Sanctions (Rec. 17)

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FATF Requirements for TCSPs

Other requirements:• Politically Exposed Persons (PEPs) (Rec. 6)

• New technology/ Non-face-to-face Business (Rec. 8)

• Reliance on 3rd parties/ intermediaries (Rec. 9)

• Complex / unusual transactions (Rec. 11)

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FATF Requirements for TCSPs

Other requirements:• No tipping-off (Rec. 14)

• Special attention to parties from non-complying jurisdictions (Rec. 21)

• Self Regulatory Organisation (SRO)(Rec. 24)

• Competent authorities to establish guidelines (Rec. 25)

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FATF Requirements for TCSPs

When Trust and Company Service Providers

• Acting as a formation agent of legal person;

• Acting as a director or secretary of a company;

• Providing a registered office, etc for a company;

• Acting as a trustee of an express trust;

• Acting as a nominee shareholder for another person.

They have to comply with Rec 5, 6 & 8-11.

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Highlight

Highlight of FATF recommendations

relevant to TCSPs

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Rec. 5 and 9 (CDD)

• To identify the customer and verify his ID

• To identify the beneficial owner

• The purpose and intended nature of the business relationship

• On-going CDD and enhanced CDD

• Reliance on 3rd parties/ intermediaries

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Rec. 10 (Record Keeping)

• To retain all documents relating to transactions

• At least 5 years after the completion of transactions

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Rec. 13 and 14 (STRs)

• Suspicious Transactions Reporting (STR) requirements

• Protection from criminal/ civil liabilities

• No tipping-off

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Rec. 15 (Internal Control)

• To establish/ maintain internal policies/ procedures to prevent ML/TF

• To ensure high standards in hiring employees

• On-going staff training

• Audit function to test the system

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Rec. 24 and 25 (SRO & Guidelines)

• Government authority or Self-regulatory Organisation (SRO) to monitor and ensure compliance with

AML/CFT requirements

• Power to sanction in case of non-compliance

• Government authority or SRO to establish guidelines

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Rec. 17 (Sanctions)

• Sanctions are effective, proportionate and dissuasive

• Sanctions can be meted out by Government authority or SRO

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Rec. 6 (PEPs)

• Have appropriate risk management systems to determine whether clientsare Politically Exposed Persons (PEPs)

or not

• Senior management approval for having business relationships

• To establish source of wealth/ fund

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Rec. 8 (New Technology)

• To prevent misuse of technological developments for ML

• To address risk associated with non-face-to-face business relationships

To take measures:

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Rec. 11 (Complex Transactions)

• To pay special attention to all complex, unusual large transactions and unusual patterns of transactions

• To examine the background/ purpose of such transactions

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Rec. 21 (Special Attention)

• To give special attention to dealings with parties from countries which do not comply with the FATF Recommendations

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FATF Recommendations relevant to DNFBPs

1 2 3 4 5 6 78 9 10 11 12 13 1415 16 17 18 19 20 2122 23 24 25 26 27 2829 30 31 32 33 34 3536 37 38 39 40 41 4243 44 45 46 47 48 49

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• The Third round of Mutual Evaluation (ME) is underway

• 23 jurisdictions have been assessed

• www.fatf-gafi.org

Mutual Evaluation by FATF

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Way Forward

Way Forward in regulating TCSPs

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• Establishment of Central Co-ordinating Committee (CCC), chaired by Financial Secretary, in April 2008

• To steer & co-ordinate the strategic development of HK’s AML/CFT regime in line with internationally recognised standards

Way Forward (1)

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• FSTB assumes the role of overall co-ordinator for AML/CFT matters and with specific responsibilities on financial sectors

• SB (Narcotics Division) is to look after DNFBPs and Non-profit Organisations

Way Forward (2)

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• Phase I : Financial Sectors

• Phase II: DNFBPs

• No time table and open-minded

Way Forward (3)

Legislation on CDD & Record Keeping

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• To prepare for Phase II, SB will step up outreaching activities to raise awareness on AML/CFT and work closely with regulatory/ professional bodies

• CPD Seminars

• Sector Specific Guidelines

• Revised Interactive Training Kit

Way Forward (4)

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Thank you!