Hong Kong’s regulator has taken the unusual step of publicly flagging up its unease at inadequate internal controls by certain licensed firms in the special administrative region.
The Securities and Futures Commission’s (SFC) Enforcement Division is investigating a number of cases of SFC licensed brokerages with suspected inadequate anti-money laundering (AML) internal controls and it expects to bring a number of enforcement proceedings as a result.
Since licensees the SFC says are vulnerable to being used to launder the proceeds of crime and to finance terrorism, the SFC said it relies on them to implement effective AML measures to prevent and detect these criminal activities and expects them to take their AML responsibilities seriously.
During its onsite inspections of licensees and AML investigations, the SFC identified numerous areas of concern.
Among the most urgent concerns to be addressed the SFC highlighted licensees failure to scrutinise cash and third party deposits into customer accounts and ineffective monitoring of transactions in customer accounts.
Failure to Monitor and Supervise
Also flagged up was failure to take adequate measures to continuously monitor business relationships with customers which present a higher risk of money laundering and inadequate enquiries made to assess potentially suspicious transactions to determine whether or not it is necessary to make a report to the Joint Financial Intelligence Unit, and lack of documentation of the assessment results.
The onsite inspections also found a failure to monitor and supervise the ongoing implementation of anti-money laundering and counter-terrorist financing policies and procedures.
Since the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (Guideline) came into force in 2012, the Hong Kong regulator emphasised to licensees that they are expected to enhance their AML internal controls immediately as they have had ample time to develop their internal controls.