On Jan. 6, 2017, the Financial Services and Treasury Bureau (FSTB) released for public consultation two proposals dealing with the regulation of designated non-financial businesses and professions (DNFBPs) and enhanced transparency of corporate beneficial ownership. The FSTB has asked for written comments on or before March 5, 2017 with a view to implementing legislation before the next mutual evaluation by the Financial Action Task Force (FATF) in 2018. As a result, draft legislation can be expected in the near future.
The proposed changes, if adopted, will have far reaching implications for trustees and corporate service providers in particular, but also for other DNFBPs such as accountants and lawyers. In substance, the proposal is to introduce a licensing regime for trust and corporate service providers and to expand the scope of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) to cover all DNFBPs. All trust and corporate services providers would be required to be licensed within 90 days of a date to be determined. Specifically, the AMLO would be amended to:
(a) prescribe statutory customer due diligence (CDD) and record-keeping requirements applicable to solicitors, accountants, real estate agents and for trust or company service providers (TCSPs) when these professionals engage in specified transactions; and
(b) introduce a licensing regime for TCSPs for the purpose of overseeing their compliance with AML/CFT requirements, whereby they’ll be required to apply for a license from the Registrar of Companies and satisfy a “fit-and-proper” test before they provide trust or company service as a business for the public.
It will be a criminal offence to operate a TCSP business without a license. The licensing requirements, mainly involving a “fit-and-proper” test for applicants, and the proposed sanctions for operation without a license, will be modeled on the licensing regime for money service operators under the AMLO.
As customer due diligence is concerned, it’s expected that DNFBPs will carry out the following customer due diligence in the usual circumstances (as well as enhanced due diligence for persons or situations with an enhanced risk of money laundering or terrorist financing):
(a) Identifying the customer or any person purporting to act on behalf of the customer;
(b) Verifying the customer’s identity using documents, data or information from a reliable, independent source;
(c) Identifying a beneficial owner where there is one, and take reasonable measures to verify the identity of the beneficial owner;
(d) Understanding the ownership and control structure of those customers who are legal persons or trusts (or other similar arrangements); and
(e) Obtaining information for the purpose and intended nature of the business relationship.
In addition to this consultation on the licensing regime, the FSTB is proposing the introduction of a mandatory register of people with significant control (PSC register) to be maintained by every Hong Kong incorporated company and available for inspection by the public. For the purposes of identifying such persons, it’s proposed that a beneficial owner will be defined as an individual meeting one or more of the following specified conditions:
(a) directly or indirectly holding more than 25 percent of the shares;
(b) directly or indirectly holding more than 25 percent of the voting rights;
(c) directly or indirectly holding the right to appoint or remove a majority of directors;
(d) otherwise having the right to exercise, or actually exercising, significant influence or control; or
(e) having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or a firm that isn’t a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company, or would do so if they were individuals.
Regarding the information to be maintained, the following is proposed:
(a) the name of the registrable individual or registrable legal entity;
(b) the number of the identity card, or the number and issuing country of any passport, of the registrable individual;
(c) the legal form of the registrable legal entity (including the law by which it’s governed) and the company registration number or the equivalent in its place of incorporation or formation;
(d) the correspondence address (excluding post office box number) of the registrable individual and the address of the registered or principal office of the registrable legal entity;
(e) the date when the person became a registrable individual and the date when the legal entity became a registrable legal entity; and
(f) the nature of the control of the registrable individual or of the registrable legal entity over the company in accordance with the specified conditions.
It’s further proposed that to facilitate cooperation with law enforcement, companies will be required to enter into the PSC register details of an authorized person responsible for providing information and further assistance to the law enforcement agencies when the need arises.
Non-compliance with the record keeping requirements will be a criminal offense.
As the consultation period is less than two months in duration and draft legislation is expected to follow shortly thereafter, it’s important that comments be provided quickly.