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FSTB Consultation on Enhancing Beneficial Ownership Regime and Extending AML Obligations



Introduction

The Financial Services and the Treasury Bureau (“FSTB”) issued two consultation papers from 6 January to 5 March 2017 to enhance anti-money laundering and counter-terrorist financing (“AML/CTF”) regulation in Hong Kong and published the consultation conclusions on 13 April 2017. The consultations will amend the Companies Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”) to strengthen the Hong Kong AML legislation in accordance with the FATF recommendations.

Key Proposals

  • Hong Kong companies are required to maintain a register of “beneficial owners” or “persons with significant control,” (“PSC register”) but with an exception for listed companies;

  • Increase the beneficial ownership threshold from “not less than 10%” to “more than 25%”;

  • Solicitors, accountants, real estate agents, and trust or company service providers (“TCSPs”) are required to perform customer due diligence in certain circumstances;

  • New licensing regime for TCSPs; and

  • Expand the scope of the AML/CTF Tribunal to cover appeals against future decisions made by the Registrar of Companies in implementing the licensing and disciplinary regime for TCSPs.

Enhance Transparency of Beneficial Ownership of Hong Kong Companies

To provide for a statutory regime on disclosure of beneficial ownership, all companies incorporated under the Companies Ordinance in Hong Kong must keep a register of people with significant control over the company. Listed companies are exempted as they are already subject to more stringent disclosure requirements under the SFO.

Content and Format of PSC Register

The PSC register must be kept in either English or Chinese and must contain required particulars of registrable individuals (i.e. beneficial owners) and registrable legal entities (i.e. the vehicles through which beneficial owners exercise control of a company). The required particulars include:

  • The name of the registrable individual or registrable legal entity;

  • The number of the identity card, or the number and issuing country of the passport of the registrable individual;

  • The legal form of the registrable legal entity (including the law by which it is governed) and the company registration number or equivalent in its place of incorporation;

  • The correspondence address (not a post office box number) of the registrable individual and the address of the registered or principal office of the registrable legal entity;

  • The date when the person became a registrable individual, and the date when the legal entity became a registrable legal entity; and

  • The nature of the control of the registrable individual or of the registrable legal entity over the company in accordance with the specified conditions to become a beneficial owner.

Companies must nominate in the PSC register an authorised person who will serve as a contact point for providing information about the PSC register and assistance to law enforcement agencies. Companies can designate either a natural person resident in Hong Kong or a designated non-financial business and profession (“DNFBP”) which is subject to proper AML/CTF regulation as the authorised person. It is the responsibility of the company to keep the PSC register and the authorised person will not be liable for anything other than if he/she provides deceptive, false or misleading information.

Record Keeping Requirement

The PSC register must be kept for 6 years at a company’s registered office or prescribed place.

Sanctions for Non-compliance

Companies and responsible persons will be criminally liable and are subject to a fine of HK$25,000 and a further daily fine of HK$700 for failing to keep a PSC register.

If any person knowingly or recklessly makes in the PSC register a statement which is misleading, false or deceptive in any material particular, he/she may commit an offence and be liable on conviction on indictment to a fine of HK$300,000 and to imprisonment for two years; or on summary conviction to a fine of HK$100,000 and to imprisonment for six months.

Beneficial Ownership – Definition

The proposed definition of beneficial owner in relation to a company is an individual who meets one or more of the following specified conditions:

  • Directly or indirectly holding more than 25% of the shares;

  • Directly or indirectly holding more than 25% of the voting rights;

  • Directly or indirectly holding the right to appoint or remove a majority of directors;

  • Otherwise having the right to exercise, or actually exercising, significant influence or control; or

  • Having the right to exercise, or actually exercising, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions (in their capacity as such) in relation to the company, or would do so if they were individuals.

CDD and Record-keeping Requirements to DNFBPs

Hong Kong’s CDD and record-keeping framework under the AMLO will be expanded to capture solicitors, accountants, real estate agents and TCSPs (referred to as “DNFBPs”), only when engaged in specified transactions


Proposed CDD Measures

DNFBPs should undertake the following CDD measures:

  • Identifying the customer or any person purporting to act on behalf of the customer;

  • Verifying the customer’s identity using documents, data or information from a reliable, independent source;

  • Identifying a beneficial owner where there is one, and take reasonable measures to verify the identity of the beneficial owner;

  • Understanding the ownership and control structure of those customers who are legal persons or trusts (or other similar arrangements); and

  • Obtaining information on the purpose and intended nature of the business relationship.

Risk-based Approach

DNFBPs are expected to apply a risk-sensitive approach, whereby the CDD measures be commensurate with the risk profiles of customers and business natures. DNFBPs may apply simplified CDD when dealing with specified customers or products in low-risk situations. DNFBPs must undertake customary CDD measures in normal circumstances, and enhanced CDD measures when dealing with customers presenting high ML/TF risks.

Regulatory authorities will issue sector-specific guidelines which guide DNFBPs through the application of the risk-based approach, having regard to the business nature and risk profile of the respective sectors.


Record-keeping Requirement

DNFBPs must maintain identification data, account files, business correspondence and records of transactions for 6 years.


Designation of Regulatory Authority

The Law Society of Hong Kong, the Hong Kong Institute of Certified Public Accountants and the Estate Agents Authority will take on statutory oversight for monitoring and ensuring compliance of their respective professions with the AMLO requirements. For TCSPs, as there is currently no statutory regulatory regime for companies providing trust or company formation services in Hong Kong, the Registrar of Companies will license TCSPs to enforce CDD and record-keeping requirements.

Licensing Regime for TCSPs

Any person providing trust or company services as a business must obtain a license from the Companies Registry subject to the applicant and its directors/partners/ultimate owners (where applicable) meeting the below fit-and-proper test. Providing such services without a license will be a criminal offence and the offender is liable to a fine of HK$100,000 and imprisonment of six months. Banks and licensed corporations which are providing TCSP service as an ancillary to their principal business are exempted from the licensing requirements. Accountants and solicitors operating TCSP business with non-accountants or solicitors must obtain a TCSP license from the Companies Registry


Fit and Proper Test/Criteria

Criteria of a fit-and-proper test include consideration of the following:

  • Criminal and bankruptcy records of the applicant (for natural persons), any ultimate owners, or the partners/directors (in cases of partnership/legal persons);

  • Where the applicant is a corporation, whether it is in liquidation or receivership; and

  • Any failure to comply with the requirements under the AMLO and guidelines to be issued by the Companies Registry.

Transitional Period

There will be a 120 days transitional period for the existing TCSP operators’ migration to the licensing regime.


Validity of TCSP License

The TCSP licenses will be valid for a period of 3 years and is renewable on application.

Review Tribunal

The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Review Tribunal will be re-constituted to cover appeals against future decisions made by the Registrar of Companies in implementing the licensing and disciplinary regime for TCSPs.

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