Following the public consultation early this year on proposals for a legislative framework to upgrade the current anti-money laundering (AML) regime in the financial sector, Hong Kong's Financial Services and Treasury Bureau (FSTB) has launched a second-round consultation. This two-month consultation, announced on 7 December 2009, covers detailed legislative proposals on customer due diligence and record keeping requirements for financial institutions, as well as the regulation of remittance agents and money changers (RAMCs).

Hong Kong's review of its AML regime follows a 2008 evaluation by the Financial Action Task Force, the international AML standards body, which concluded that the following deficiencies should be addressed:

1. The Customer Due Diligence (CDD) and record-keeping requirements for financial institutions should be contained in a statute, not just in guidelines.
   
2. Financial regulators should have greater supervisory and enforcement powers.
   
3. There should be criminal or supervisory sanctions for non-compliance.
   
4. There should be an AML regulatory regime for RAMCs.
   

Below are the key legislative proposals which will apply to authorised institutions (banks and deposit-taking institutions), SFC-licensed corporations, insurers, insurance agents and brokers, and RAMCs:

1. All financial institutions will be subject to the same rules and regulations with the relevant regulatory authority being responsible for supervision of compliance.
   
2. CDD will need to take place at both customer take-on stage and on an ongoing basis with enhanced CDD being required for high-risk customers.
   
3. Records of transactions and customer identification data will need to be maintained for a period of six years.
   
4. The regulator will have power to conduct routine inspections, access information and make enquiries and will be able to initiate investigations if it has reasonable cause to believe that statutory obligations may have been breached.
   
5. The regulator will have the power to impose a range of supervisory sanctions including fines and public reprimands.
   
6. The regulator will be able to share information with local and overseas regulators.
   
7. Currently RAMCs simply need to register their existence and they are not subject to AML requirements. Under the new regime they will require a licence from the Customs and Exercise Department to operate and will be subject to the same AML requirements as other financial institutions.
   
8. There is provision for both criminal sanctions and supervisory sanctions. Taking into account comments received in the first-round consultation, the proposed legislation provides that only those persons who knowingly contravene the statutory obligations will attract criminal liability. If the offence is committed with intent to defraud, a more severe level of criminal sanction will be imposed.

The second-round consultation ends on 6 February 2010 and the FSTB aims to introduce a bill into the Legislative Council in the second quarter of 2010.