International International Standards on Regulating DNFBPs & The way forward Mr Peter KWOK Assistant Secretary for Security 27 February 2009 Narcotics Division, Security Bureau

2 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

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

4 FATF Requirements FATF requirements on Trust & Company Service Providers (TCSPs)

5 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)

6 FATF Requirements for TCSPs Other requirements: Politically Exposed Persons (PEPs) (Rec. 6) New technology/ Non-face-to-face Business (Rec. 8) Reliance on 3 rd parties/ intermediaries (Rec. 9) Complex / unusual transactions (Rec. 11)

7 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)

8 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.

9 Highlight Highlight of FATF recommendations relevant to TCSPs

10 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 3 rd parties/ intermediaries

11 Rec. 10 (Record Keeping) To retain all documents relating to transactions At least 5 years after the completion of transactions

12 Rec. 13 and 14 (STRs) Suspicious Transactions Reporting (STR) requirements Protection from criminal/ civil liabilities No tipping-off

13 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

14 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

15 Rec. 17 (Sanctions) Sanctions are effective, proportionate and dissuasive Sanctions can be meted out by Government authority or SRO

16 Rec. 6 (PEPs) Have appropriate risk management systems to determine whether clients are Politically Exposed Persons (PEPs) or not Senior management approval for having business relationships To establish source of wealth/ fund

17 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:

18 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

19 Rec. 21 (Special Attention) To give special attention to dealings with parties from countries which do not comply with the FATF Recommendations

20 FATF Recommendations relevant to DNFBPs * * *

21 The Third round of Mutual Evaluation (ME) is underway 23 jurisdictions have been assessed Mutual Evaluation by FATF

22 Way Forward Way Forward in regulating TCSPs

23 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)

24 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)

25 Phase I : Financial Sectors Phase II: DNFBPs No time table and open-minded Way Forward (3) Legislation on CDD & Record Keeping

26 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)

27 Thank you!