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Policy Statement & Submission

2009/10/08

Anti-Money Laundering Consultation

8 October 2009


Miss Au King Chi, JP
Permanent Secretary for Financial Services and the Treasury
(Financial Services)
18/F, Tower I, Admiralty Centre
18 Harcourt Road
Hong Kong


Dear King Chi,

Anti-Money Laundering Consultation


The Hong Kong General Chamber of Commerce is pleased to offer its views on the important issue of anti-money laundering (AML) legislation. We firmly believe that any world-class business and financial centre must rigorously enforce the highest standards in this area, and strongly support the government's efforts to ensure that Hong Kong remains classified as one of the most responsible financial centres, anywhere.

The Consultation Document proposes to introduce a new legislation in Hong Kong to implement the Financial Action Task Force (FATF) requirements on customer due diligence (CDD) and record-keeping by financial sector firms (i.e. banks, deposit-taking companies, securities house, insurance companies, remittance agents and money changers). In this connection, our members will invariably be affected by this new legislation including those to be regulated as well as members using such services.

We offer the following comments to the proposed conceptual framework in the Consultation Document:

1. In general we support the principles set out in paragraph 2.4 of the Consultation Documents. It is paramount that the new legislation on CDD and record keeping be benchmarked against other competent international financial centres so as to maintain our competitiveness while at the same time complying with FATF standards. We are, however, mindful of the compliance cost incurred by the financial sectors which need to be reasonable on an on-going basis. Stringent CDD and record-keeping requirements will inevitably adversely affect Hong Kong's competitiveness.

2. In particular, some smaller businesses may be significantly affected by the proposed legislation as a result of any required technology implementation, staff training and the provision of storage space for records for compliance purpose. In this connection, we propose that the following factors should be taken into account when the Government draws up statutory provisions for the CDD measures:

(a) The CDD measures to be put on a statutory footing should as far as practicable be no more than the minimum FAFT's AML requirements;

While we fully agree and acknowledge that an appropriate minimum level of CDD should be applied to all new customers of the regulated financial institutions irrespective of the services they have signed up for, a clear risk based approach should be applied in the proposed legislation. Customers should be classified with different categories, and each category would bring with it varying specified levels of CDD.

(b) Under the United Kingdom FSA's CF11 control function, a designated person approved by the regulator holds all anti-money laundering responsibility. In light of criminal liabilities for senior officers and directors, we may wish to adopt this approach in Hong Kong.

3. It is proposed that any failure in complying with CDD and record keeping requirements will constitute a criminal offence and that criminal and supervisory sanctions will be imposed upon the corporates as well as their individual officers and managers. This change should not be introduced without very careful consideration, with the legal basis for criminal sanctions, in particular, personal liability properly evaluated and established; and requiring an appropriate level of knowledge or deemed knowledge on the part of the individuals. It should be pointed out that CDD or record keeping requirements do not per se carry any criminal element, and criminal sanction is not mandatory under the relevant FATF Recommendation 17. Furthermore, any direct comparison of the offence and sanctions under the SFO should be reviewed carefully in light of the different nature of obligations of CDD and record-keeping. For better safeguarding of the management team or other officers of the regulated financial institutions, we suggest that the proposed legislation should include a general defence provision which provides protection to any person acting in compliance, or purported compliance with certain provisions, such as any suspicious transaction reporting provisions, from any action, suit, or proceeding (civil or criminal).

4. We have no issue with the legislation designating four regulators (i.e. HKMA, SFC, IA and Customs & Excise Department for remittance agents and money changers) as the authorities to supervise the Anti-Money Laundering compliance activities. However, it is important to ensure consistency and a level playing field in the enforcement standards of regulators, and therefore amongst their respective industries, especially in light of the potential criminal sanctions which may be imposed. It follows that one common set of CDD and record keeping requirement/guideline for all financial sectors shall be established to avoid confusion amongst the financial sectors and equally the customers. This is particular important to authorized institutions in Hong Kong as many of them provide a comprehensive range of banking, insurance, securities and other financial services.

5. Given the complex legal and regulatory policy issues involved in the principles of the new legislation, there should be phases of consultation for reasonable periods so that stakeholders can examine the issues adequately and provide feedback appropriately. Similarly, the new legislation should come into effect by different stages, so that the regulated financial institutions will have sufficient time for implementing the legislative measures in an orderly manner.

I trust this submission will assist you and your colleagues as you compile final drafting instructions and prepare the way for introducing this important bill to the Legislative Council.


Sincerely,




Alex Fong
CEO

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