Legal update: TCSP licensees – assessing risk and keeping records

Since 1 March 2018 any person who intends to carry on a trust or company service business in Hong Kong (i.e. a trust and company service provider (“TCSP”)) is required under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”) to apply for a licence from the Registrar of Companies (“Registrar”) before undertaking such business.

Further, a TCSP licensee is required to comply with its obligations under AMLO. Generally, a TCSP licensee is required to take all reasonable measures to mitigate the risk of money laundering and terrorist financing (“ML/TF”), and to ensure that, amongst others, the anti-money laundering and counter-terrorist financing requirements under the AMLO are complied with. To fulfil these obligations, TCSP licensees must assess the ML/TF risk of their businesses, and develop and implement policies, procedures and controls on certain areas, including, for example, risk assessment and customer due diligence measures.

A requirement of TCSP licensees is to assess the ML/TF risks of a client. There is no “one size fits all” method for conducting such an assessment. A TCSP licensee should develop a method of assessment of ML/TF risks of clients that is appropriate to its business. Nevertheless, the following factors may be taken into account when assessing ML/TF risks of clients:

1. Where the client is resident or connected with. Attention should be paid where the client is resident or connected with a high risk jurisdiction such as a country that is subject to sanctions, embargoes or similar measures, or a country believed to have strong links with terrorist activities.
2. The activities of the client. Attention should be paid where the client conducts business in an unusual manner or has a complicated or unusual structure which makes it difficult to identify the true owners or beneficial interests. Also, where the client is a politically exposed person (known as a “PEP”), or where the client’s business is cash intensive or otherwise generates a lot of cash (eg money service operators businesses), these should be taken into consideration.
3. The nature of the products or services required by the client. For example, if the client requires the incorporation of a company but which is to be held by nominee shareholders.
4. The manner in which the client asks for the products or services to be delivered. For example if all products or services are to be provided through an intermediary, and the client will not meet face to face with the TCSP licensee.

A TCSP licensee should use various information sources to assist in its ML/TF risk assessments such as the United Nations, FATF, and other regulatory authorities. The TCSP licensee should assign a risk rating to the client (eg low, medium, high) following its assessment. The risk assessment method and the result of the assessment must be recorded with relevant documents kept in the record to show how the client’s ML/TF risks were assessed.

To ensure compliance by TCSP licensees of their obligations, it is recommended that the licensee consider all relevant legislation and guidelines, and when in doubt seek professional advice. A failure to comply with the requirements of AMLO could result in enforcement action from the Registrar.

Edmond Leung

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

If you would like to discuss any of the matters raised in this article, please contact:

Edmond Leung
Partner | E-mail

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.