International International Standards on Regulating DNFBPs & The way forward Mr Ping-Yiu MA Assistant Secretary for Security 4 March 2010 Narcotics Division, Security Bureau

2 Agenda  Financial Action Task Force (FATF) requirements on accountants  Highlight of the FATF recommendations relevant to accountants  Way Forward in regulating accountants

3FATF The Financial Action Task Force (FATF) :  an inter-governmental body  created in 1989 by ‘G7’  sets standards, develops and promotes policies to combat money laundering and terrorist financing  has published 40+9 Recommendations to achieve its purpose

4 Designated Non-Financial Businesses and Professions (DNFBPs) DNFBPs as defined by Financial Action Task Force (FATF) are:  Lawyers  Accountants  Trust and Company Service Providers (TCSPs)  Real Estate Agents  Dealers in Precious Metals/ Stones  Casinos

5 You Play an Important Role Designated Non-Financial Businesses and Professions (DNFBP) Trust and Company Services Providers Lawyers Accountants Casino Estate Agents Banks Securities House Insurance Firms Dealers in Precious Stones and Metals

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7 Be a Gatekeeper for Hong Kong

8 FATF Requirements on Accountants New Technology (Rec. 8) Accountants – operating individually or in a firm CDD (Rec. 5 & 9) Complex Transactions (Rec. 11) Record Keeping (Rec. 10) STRs (Rec. 13 & 14) Internal Control (Rec. 15) PEPs (Rec. 6) Special Attention (Rec. 21)

9 FATF Requirements on the Accounting Profession The Accounting Profession Sanctions (Rec. 17) Guidelines (Rec. 25) SRO (Rec. 24)

10 FATF Requirements on Accountants  Customer Due Diligence (Rec. 5)  Record Keeping (Rec. 10)  Suspicious Transaction Reporting (STR) (Rec. 13)  Risk-based Approach Guidance for Accountants Requirements to be specified in law:

11 When to Conduct CDD? When accountants prepare for or carry out transactions in relation to:  Buying and selling of real estates;  Managing of client money, securities or other assets;  Management of bank, savings or securities accounts;  Organisation of contributions for the creation, operation or management of companies;  Creation, operation or management of legal persons or arrangements, and buying and selling of business entities.

12 When to Conduct CDD? When accountants act as Trust and Company Service Providers and  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, 21.

13 FATF Requirements on Accountants Other selected requirements:  Internal Controls (Rec. 15)  Self Regulatory Organisation (SRO) (Rec. 24)

14 Internal Controls  To establish / maintain internal policies / procedures to prevent ML / TF.  Policies / procedures to cover CDD, record keeping and STR obligations.  To communicate these to employees.  To develop appropriate compliance management (e.g. AML/CFT Compliance Officer at management level).

15 Internal Controls  On-going staff training.  Independent audit function to test compliance with the policies and procedures.  To put in place screening procedures to ensure high standards in hiring employees.  The type and extent of measures to be taken should commensurate with:  the level of ML / TF risk; and  the size of the business.

16 SRO – Responsibilities & Sanctions  Government authority or SRO to monitor and ensure compliance with AML / CFT requirements.  Power to sanction in case of non- compliance.  Effective, proportionate and dissuasive criminal, civil or administrative sanctions be available.

17 SRO - Sanctions  Range of sanctions available should be broad and proportionate to severity of non- compliance.  Sanctions should be available to legal persons, their directors and senior management.

18 SRO - Resources  Adequate structuring, funding, staff with sufficient technical and other resources to fully and effectively perform their functions.  Sufficient operational independence and autonomy to ensure freedom from interference.  Staff be of high professional standard & integrity and adequately trained for AML / CFT.

19 SRO - Guidelines  Government authority or SRO to establish guidelines to include the following:  ML / FT techniques and methods; and  any additional measures that accounting firms/accountants could take to ensure their AML / CFT measures are effective.

20 FATF Recommendations Relevant to DNFBPs * * *

21  Rec. 12 (applying Rec. 5, 6 & 8-11): NC  Rec. 16 (applying Rec & 21): NC  Rec. 24: NC Results of HK Mutual Evaluation

22  Establishment of Central Co-ordinating Committee (CCC), chaired by Financial Secretary.  To steer & co-ordinate the strategic development of HK’s AML/CFT regime in line with internationally recognised standards. Post ME Development (1)

23  Financial Services & the Treasury Bureau (FSTB) is the overall co-ordinator for AML / CFT matters and with specific responsibilities on financial sectors.  Security Bureau (Narcotics Division) looks after DNFBPs and Non-profit Organisations. Post ME Development (2)

24  Phase I : Financial Sectors  Phase II: DNFBPs Way Forward (1) Legislation on CDD & Record Keeping

25  FSTB Consultation on Legislative Proposals Against Money Laundering ended on 6 February  Proposes to allow continued reliance on unregulated Third Parties by Financial Institutions.  To be introduced into LegCo – Q Way Forward (2)

26  To prepare for Phase II, SB will step up outreaching activities to raise awareness on AML / CFT and work closely with professional bodies.  CPD Seminars.  Sector Specific Guidelines.  Revised Interactive Training Kit. Way Forward (3)

27 Consultation with Non-Financial Sectors  Timeline  Compliance costs  Regulatory Authority Issues

Timeline (1)

29 FATF 35 members Timeline (2)

30 Internal Control Systems Staff Training Audit Function Policies and Procedures Complianc e Officer Compliance Costs (1)

31 International Standards Compliance Cost Compliance Costs (2)

32 Professional Status and Reputation Business Costs and Legal Obligations Compliance Costs? (1)

33 Compliance Costs? (2)

34 Open-minded

35 Partnership

36 Thank you!