2013-04-25
Added · Updated
Authorized institutions must ensure senior management actively oversees AML/CFT controls, including allocating adequate resources and discussing risk culture at the Board or regional compliance level. Institutions must maintain up-to-date policies, appoint effective Money Laundering Reporting Officers with sufficient seniority, and implement robust transaction monitoring and suspicious transaction reporting processes. Failure to report known or suspected proceeds of indictable offences constitutes an offence under s. 25A(1), while disclosing such matters may violate s. 25A(5) tipping off provisions.
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Our Ref.: B10/1C
B1/15C
25 April 2013
The Chief Executive
All authorized institutions
Dear Sir/Madam,
Supervisory Measures following Seminars on Anti-Money Laundering I am writing to follow up on a series of seminars on anti-money laundering and counter-financing of terrorism (AML/CFT) organised by the Hong Kong Monetary Authority (HKMA). The HKMA held a high-level AML/CFT seminar on 12 April 2013 for the Chief Executive or Alternate Chief Executive of all authorized institutions (AIs) and two technical seminars on 22 and 23 April 2013 respectively for compliance officers of AIs. The presentation materials from the two seminars are at Annex A and B respectively for your reference. The objective of the seminars was to emphasise and illustrate the importance of maintaining strong and effective AML/CFT controls. At the high-level seminar, Mr Norman Chan, Chief Executive of the HKMA, highlighted amongst other issues the paramount importance for the senior management of AIs to foster a strong risk culture embraced by all levels of staff and to forge good risk management practices in respect of AML/CFT controls. To follow up on this key message conveyed in the high-level seminar, I am writing to reiterate that the top management, including the Board of Directors in the case of locally incorporated AIs and the regional/global compliance office in the case of foreign bank branches, should explore effective ways to strengthen or reinforce the risk culture of your institution and to take proactive steps to fill all identifiable gaps in respect of AML/CFT controls.
As a first step, we expect that the issues covered in the high-level seminar should be discussed by the Board in the case of locally incorporated AIs and in the regional/global compliance meeting in the case of foreign bank branches. The discussion should focus on identifying concrete actions that can be taken to set an appropriate tone on risk culture regarding AML/CFT and to further translate the institution’s risk culture into effective AML/CFT controls. To facilitate the discussion, we will in due course provide you with further guidance on the issues that should be covered in the aforesaid deliberation as well as a template for collecting information on the steps that have been or will be taken by your institution to strengthen AML/CFT controls. If you have any questions, please contact Mr Stewart McGlynn on 2878 1095 or Ms Joyce Chan on 2878 8281. Yours faithfully, Henry Cheng Executive Director (Banking Supervision) Encl.
High-Level Seminar on
Anti-Money Laundering
Norman T.L. Chan
Chief Executive
Hong Kong Monetary Authority
12 April 2013
Continued growth of bank deposits, loans and assets Hong Kong as an International Financial Centre (1) Source: Hong Kong Monetary Authority 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 (HKD trillion) Total loans and advances Total deposits Total assets HK$6.0 trn HK$14.9 trn
Hong Kong as an International Financial Centre (2) Growing payment activities in Hong Kong RTGS system average daily transaction value Source: Hong Kong Monetary Authority and staff calculation HKD USD HKD USD RMB HKD USD RMB 2003 13,801 4,058 -- 2012 23,054 15,744 4,600 RTGS system average daily transaction volume USD 5 bn HKD 353 bn HKD 504 bn USD 17 bn RMB 214 bn
Loss in cost competitiveness
Erosion of professional competence and market
integrity
Inadequate or inappropriate supervision
Failure in AML work
Potential Threats to Hong Kong’s Future IFC Status
Compliance with international standards and
obligations to combat money laundering
Dire consequences for AML failures, both for
the bank concerned and HK as a whole
Allocation of adequate resources by banks,
regulators and law enforcement agents
Ownership by all stakeholders, including
commitment of the Boards and senior management of Banks, to strong AML culture and controls A Robust AML Regime is Crucial for Hong Kong as an IFC
Review of banks’ anti-money laundering systems and controls Stewart McGlynn Anti-Money Laundering Banking Supervision Department Hong Kong Monetary Authority 12 April 2013
Disclaimer
This presentation provides guidance to authorized institutions (“AIs”) on issues relating to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”) and the AMLO Guideline. The presentation is provided for training purposes and does not form part of the formal legal and regulatory requirements of the HKMA. It should not be substituted for seeking detailed advice on any specific case from an AI’s own professional adviser. The HKMA is the owner of the copyright and any other rights in the PowerPoint materials of this presentation. These materials may be used for personal viewing purposes or for use within an AI. Such materials may not be reproduced for or distributed to third parties, or used for commercial purposes, without the HKMA’s prior written consent.
Regulatory Regime
Mature Anti-Money Laundering (AML) Regime
ML/TF Risk Management
Senior Management Oversight
Policies and Procedures
Management of AML/CFT Function Internal Audit and Compliance Reviews Correspondent Banking Transaction Screening Transaction Monitoring Suspicious Transaction Reporting
Senior Management Oversight
Expectation is senior management should take clear responsibility for managing ML risks
Senior Management Oversight
Participation by management at sufficiently high level is needed Senior management should receive informative and objective information sufficient to discharge AML obligations Must be strategy or evidence of self improvement
Policies and Procedures
Must have in place up-to-date P&P that are appropriate to its business. These P&P must be readily accessible, effective and understood by all relevant staff. We expect banks to check whether P&P are applied consistently and effectively
Money Laundering Reporting Officer the MLRO should have sufficient resources, experience, access and seniority to be effective the MLRO should fully understand the rationale of policies they were overseeing The MLRO should have sufficient awareness and oversight of the highest risk relationships Money Laundering Reporting Officers (MLRO) are responsible for oversight of the banks compliance with its AML/CFT obligations and should act as a central reference point for reporting suspicious transactions. For example:
Money Laundering Reporting Officer Our Requirements:
MLRO should not simply be that of a passive recipient of ad hoc reports of suspicious transactions MLRO should play an active role in the identification and reporting of suspicious transactions This may also involve regular review of exception reports or large or irregular transaction reports as well as ad hoc reports made by staff
Internal Audit & Compliance Reviews Banks approach to reviews of effectiveness of AML systems must be comprehensive Scope of review must address Bank’s risks Findings of recent IA and compliance reviews on AML controls must drive change
Risks of Correspondent Banking The correspondent AI often has no direct relationship with the underlying parties to a transaction Banks often have limited information regarding the nature and purpose of the underlying transactions Correspondent banking is therefore regarded as highrisk from a ML/TF perspective Special due diligence requirements for correspondent banking relationships apply
Are the banks transaction monitoring systems adequate, given their business activities and size? How does the bank ensure systematic investigations into unusual transactions and potential STRs? Transaction Monitoring
Transaction Monitoring
Depending on nature and scale of the bank, automated TM systems may be important for effective AML controls Must ensure sufficiently detailed system review Should have a clear understanding of what the system could deliver / limitations
Suspicious Transaction Reports To what extent does the bank understand and carry out, their detection and reporting obligations on the suspected proceeds of crime?
Suspicious Transaction Reports STR reporting is not only a legal necessity, rather it is a matter of real concern for banks All internal reports must be subject to meaningful analysis to determine whether disclosure is required Processes for dealing with repeat internal / external STRs must be sufficiently robust to protect the bank
Opportunity for Intervention
Customer
On Boarding
Ongoing
Monitoring
STR and Post
Reporting
Actions
Robust CDD
Ongoing
Monitoring
STR and Post
Reporting
Actions
Protect the institution from further ML risks
ML/TF Risk Management
Senior management must demonstrate leadership on AML Policy and procedures must reflect that leadership AML function needs experienced people and adequate resources AML responsibility lies with all staff but CO/MLRO play a central role Effectiveness of controls must be regularly reviewed ML risks should be understood and mitigated Banks should demonstrate willingness to exit where there are unacceptable ML risks
Stewart McGlynn
Tel. 2878 1095 smcglynn@hkma.gov.hk
Supervisory Response of the HKMA Arthur Yuen Deputy Chief Executive Hong Kong Monetary Authority 12 April 2013
Well-focused Supervision
Our programme of in-depth AML examinations will continue and at the same time be strengthened Thematic AML examinations will remain a key part of our supervisory approach A thematic review of the private banking sector will begin in the coming weeks AML examinations will also test banks’ controls and vigilance to combat the risks of tax evasion
What to expect?
We intend to be more proactive, adopting a more forward looking approach We will review the frequency, intensity and scope of our on-site and off-site examinations We are significantly strengthening the resources dedicated to AML supervision and are reviewing our follow-up processes We will be prepared to take early intervention to tackle root cause rather than waiting for risks to accumulate
Key Questions
Is the tone from the top clear in your bank? Have you discharged your responsibility to ensure that the AML function is equipped with sufficient resources to perform effectively? Are measures in place to ensure that your AML programme is systematic? Is your AML programme subject to regular review? Have you taken all reasonable measures to mitigate ML risks?
Hong Kong must have a robust AML regime International standards and obligations on AML must be met Effective AML measures in the banking sector are essential as it acts as a gatekeeper Resources afforded to AML work must be adequate The obligation to implement the AML rules fully and in good faith must always come before business interests HKMA will be ready to take tougher actions, including the use of our powers under AMLO. Also very important for banks to raise senior management attention in AML matters
~ Thank You ~
Review of banks’ anti-money laundering systems and controls Stewart McGlynn Anti-Money Laundering Banking Supervision Department Hong Kong Monetary Authority 22 & 23 April 2013
Disclaimer
This presentation provides guidance to authorized institutions (“AIs”) on issues relating to the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (“AMLO”) and the AMLO Guideline. The presentation is provided for training purposes and does not form part of the formal legal and regulatory requirements of the HKMA. It should not be substituted for seeking detailed advice on any specific case from an AI’s own professional adviser. The HKMA is the owner of the copyright and any other rights in the PowerPoint materials of this presentation. These materials may be used for personal viewing purposes or for use within an AI. Such materials may not be reproduced for or distributed to third parties, or used for commercial purposes, without the HKMA’s prior written consent.
Regulatory Regime
Mature Anti-Money Laundering (AML) Regime
ML/TF Risk Management
Senior Management Oversight
Policies and Procedures
Management of AML/CFT Function Internal Audit and Compliance Reviews Correspondent Banking Transaction Screening Transaction Monitoring Suspicious Transaction Reporting
Senior Management Oversight
Expectation is senior management should take clear responsibility for managing ML risks
Senior Management Oversight
Participation by management at sufficiently high level is needed Senior management should receive informative and objective information sufficient to discharge AML obligations Must be strategy or evidence of self improvement
Policies and Procedures
Must have in place up-to-date P&P that are appropriate to its business. These P&P must be readily accessible, effective and understood by all relevant staff. We expect banks to check whether P&P are applied consistently and effectively
Money Laundering Reporting Officer the MLRO should have sufficient resources, experience, access and seniority to be effective the MLRO should fully understand the rationale of policies they were overseeing The MLRO should have sufficient awareness and oversight of the highest risk relationships Money Laundering Reporting Officers (MLRO) are responsible for oversight of the banks compliance with its AML/CFT obligations and should act as a central reference point for reporting suspicious transactions. For example:
Money Laundering Reporting Officer Our Requirements:
MLRO should not simply be that of a passive recipient of ad hoc reports of suspicious transactions MLRO should play an active role in the identification and reporting of suspicious transactions This may also involve regular review of exception reports or large or irregular transaction reports as well as ad hoc reports made by staff
Internal Audit & Compliance Reviews Banks approach to reviews of effectiveness of AML systems must be comprehensive Scope of review must address Bank’s risks Findings of recent IA and compliance reviews on AML controls must drive change
Risks of Correspondent Banking The correspondent AI often has no direct relationship with the underlying parties to a transaction Banks often have limited information regarding the nature and purpose of the underlying transactions Correspondent banking is therefore regarded as highrisk from a ML/TF perspective Special due diligence requirements for correspondent banking relationships apply
Correspondent Banking
Must consider the ML risk of Correspondent Bank Should have adequate P&P on how to deal with respondents Should not apply a one size fits all Reliance on assessments that exist elsewhere within a group, without local nexus, may not be sufficient Ensure robust monitoring of respondents identified as presenting higher risks
Transaction Screening
Does the bank maintain a comprehensive and up-todate watch list database for effective identification of names that may trigger suspicion?
Transaction Screening
Should ensure the designated parties database and high-risk / sanctioned jurisdictions list are complete The algorithm used in the screening system should be able to identify names with minor alterations (e.g. reverse order or partial name) Screening system must support Chinese characters / commercial code OR written guidance must be provided to mitigate this risk Should have formal P&P for handling transactions connected with high-risk / sanctioned jurisdictions
Good Practices
Clear P&P to ensure timely updating of the designation parties database and high-risk / sanctioned jurisdictions list Conduct testing on the names of newly added designated parties to ensure completeness and accuracy of database Establish internal P&P to provide guidance to staff handling transactions with sanctioned jurisdictions taking into account the restrictions imposed in sanction programmes, including the requirement for review, EDD etc
Are the banks transaction monitoring systems adequate, given their business activities and size? How does the bank ensure systematic investigations into unusual transactions and potential STRs? Transaction Monitoring
Transaction Monitoring
Depending on nature and scale of the bank, automated TM systems may be important for effective AML controls Must ensure sufficiently detailed system review
Good Practices
Conduct detailed assessments prior to the launch of TM systems to ensure adequate coverage Give careful consideration to thresholds and parameters and consider validation by independent third parties No “one size fits all” - categorize thresholds and parameters according to customer’s business size and nature Conduct regular (e.g. annual) review and enhancements on TM system by internal department or use external consultants where the system is complex or internal experience is insufficient
Suspicious Transaction Reports To what extent does the bank understand and carry out, their detection and reporting obligations on the suspected proceeds of crime?
Suspicious Transaction Reports STR reporting is not only a legal necessity, rather it is a matter of real concern for banks All internal reports must be subject to meaningful analysis to determine whether disclosure is required Guidance should be provided on connected accounts to ensure understanding Should conduct an appropriate review of business relationship upon filing, to mitigate the risk Processes for dealing with repeat internal / external STRs must be sufficiently robust to protect the bank Consent System must be clearly understood
Good Practices
Mandatory trigger event review & thorough process to determine applicability of risk classification etc Robust P&P underpinning these actions, including escalation, to mitigate risk Policy on repeat internal / external STRs Termination of relationships where unacceptable ML risks existed and indicate this in the initial disclosure to the JFIU Use of internal / external reporting experience to identify weaknesses in CDD, branch controls; evidence of active learning Clear P&P regarding timeframe for analysis; clear guidance for escalation where immediate risk existed Conduct regular reviews of resources allocated to these tasks, and ensure the Board act upon the findings of the review
Looking Forward
Alerts
WARNING!
Handling of alerts must be effective Actions performed must address risk
Opportunity for Intervention
Customer
On Boarding
Ongoing
Monitoring
STR and Post
Reporting
Actions
Robust CDD
Ongoing
Monitoring
STR and Post
Reporting
Actions
Protect the institution from further ML risks
Key Takeaways
Senior management must demonstrate leadership on AML Policy & procedure must reflect that leadership AML function needs experienced people and adequate resources – requirement to review AML responsibility lies with all staff but CO/MLRO play a central role Effectiveness of controls must be regularly reviewed – Transaction Monitoring and STR are pillars ML risks should be understood and mitigated Banks should demonstrate willingness to exit where there are unacceptable ML risks
Stewart McGlynn
Tel. 2878 1095 smcglynn@hkma.gov.hk
Joint Financial
Intelligence Unit
Suspicious Transaction Report
Trends and Quality Improvement Chief Inspector Bernard LAW Joint Financial Intelligence Unit Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Important Notice
All rights, including copyright, in this PowerPoint file are owned and reserved by the Hong Kong Police Force. Unless prior permission in writing is given by the Commissioner of Police, you may not use the materials other than for your personal learning and in the course of your official duty. 重要告示 香港警務處持有並保留本簡報檔案包括版權在內的所有權益。除預 先獲得警務處處長書面許可外,本簡報檔案只可用作個人學習及處 理公務上用途。 Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Agenda
Joint Financial
Intelligence Unit
Reporting
Institutions
FIUs
LEAs
AML/CFT role
Importance of Reporting Institution Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Different Players and Roles
Reporting
Institutions
FIUs LEAs
Joint Financial
Intelligence Unit
Reporting
Entities
STR
FIU’s
Other
Intelligence agencies
Police/
Prosecuting authorities
Intelligence products
Evidence in case
INFORMATION context
Transformation process
Transformation process
Information Flow
Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Legislation
Reporting Obligation
Organized and Serious Crimes Ordinance “OSCO”
Section 25A(1)
A person knows or suspect that any property (directly or indirectly) represents any person’s proceeds of an indictable offence should disclose that knowledge or suspicion to an authorized officer within a reasonable time Suspicious Transaction Report (STR) Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Joint Financial
Intelligence Unit
Typologies
Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Typologies
A series of ML or TF arrangements which are conducted in similar manner or using the same methods. In general term, the study of methods, techniques and trends used by money launderer and terrorist financier. Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
To help the reporting institutions in understanding the trend and identifying the vulnerable areas used by the Money Launderer and Terrorist Financier Typologies Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Corporate Vehicle
Joint Financial
Intelligence Unit
Trade-based Transaction
Joint Financial
Intelligence Unit
Indicators
Joint Financial
Intelligence Unit
1087111678 140291350514,55715,45714,83816062 1969020287 23282 10000 15000 20000 25000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Joint Financial
Intelligence Unit
Quality Reporting
Sufficient information?
Suspicion identified?
Precise and
Concise?
CDD and KYC process?
Evaluation?
Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Sufficient Information
Joint Financial
Intelligence Unit
Joint Financial
Intelligence Unit
KYC and CDD Process
Joint Financial
Intelligence Unit
Precise and Concise
Joint Financial
Intelligence Unit
Evaluation
Joint Financial
Intelligence Unit
“Compliance is not a ‘check-the-box’ exercise, but rather requires financial institutions to exercise their judgement, as informed by our guidance and assistance.” Bill Fox, ex-FinCEN Director Conclusion Hong Kong Police Force owns the copyright of this document
Joint Financial
Intelligence Unit
Thank You
Hong Kong Police Force owns the copyright of this document
Supervisory Response of the HKMA Stewart McGlynn Banking Supervision Department Hong Kong Monetary Authority 22 & 23 April 2013
Well-focused Supervision
Our programme of in-depth AML examinations will continue and at the same time be strengthened Thematic AML examinations will remain a key part of our supervisory approach A thematic review of the private banking sector has just commenced AML examinations will also test banks’ controls and vigilance to combat the risks of tax evasion
What to expect?
We intend to be more proactive, adopting a more forward looking approach We will review the frequency, intensity and scope of our on-site and off-site examinations We are significantly strengthening the resources dedicated to AML supervision and are reviewing our follow-up processes We will be prepared to take early intervention to tackle root cause rather than waiting for risks to accumulate
Key Questions
Is the tone from the top clear in your bank? What steps have you taken to foster a strong risk culture? How do you ensure that the AML function is equipped with sufficient resources to perform effectively? Do you oversee measures to ensure that your AML programme is systematic? Is your AML programme subject to regular review? Do you play a central and proactive role?
Key Takeaways
International standards and obligations on AML must be met Effective AML measures in the banking sector are essential as it acts as a gatekeeper Resources afforded to AML work must be adequate The obligation to implement the AML rules fully and in good faith must always come before business interests HKMA will be ready to take tougher actions, including the use of our powers under AMLO.
~ Thank You ~
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Source: Hong Kong Monetary Authority — original document · Summary generated with machine assistance and reviewed before publication; the authoritative text is the regulator's original document. How RegAlert works
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