8 June 2004
The Chief Executive
All authorized institutions
Dear Sir / Madam,
I am writing to inform you that the HKMA is issuing today a revised version of the Supplement to the Guideline on Prevention of Money Laundering which takes into account the revised Forty Recommendations issued by the Financial Action Task Force on Money Laundering (FATF) in June 2003 and some further refinements, together with a set of Interpretative Notes which provide practical guidance on implementing the requirements of the Supplement and explain the use of a risk-based approach. These have been developed in collaboration with an Industry Forum comprising representatives from the HKMA, the Hong Kong Association of Banks and the DTC Association. The two documents, which form part of the Guideline on Prevention of Money Laundering, will be published shortly by notice in the Gazette under Section 7(3) of the Banking Ordinance.
The Supplement sets out the latest "Know-Your-Customer" principles, taking account of the requirements of the paper "Customer Due Diligence for Banks" issued by the Basel Committee on Banking Supervision in October 2001 and the revised FATF Forty Recommendations. Major changes since the earlier version of the Supplement include the use of simplified due diligence procedures for domestic retail customers, subsidiaries of listed companies and state-owned enterprises, and the application of a practical approach to private banking customers and to the use of intermediaries.
The HKMA expects authorized institutions to review and revise, as appropriate, their policies and procedures on the prevention of money laundering so as to comply with the requirements stipulated in the Supplement as soon as possible, and in any case not later than 31 December 2004. Failure to adhere to such requirements is a serious matter and may result in supervisory actions being taken.
It should be noted that the revised FATF Forty Recommendations suggest that the basic obligations relating to customer due diligence, record keeping and reporting of suspicious transactions should be put into law. In Hong Kong, although the obligation to report suspicious transactions has already been laid down in law, the legislative process to put the other two obligations into law will take some time. These two obligations are, nonetheless, set out in the Guideline and the Supplement as supervisory requirements. AIs should ensure compliance with these requirements. Failure to do so may expose AIs and individuals not only to possible supervisory actions but also, to possible criminal prosecution when the new legislation comes into effect. AIs are therefore expected to devote adequate resources to implementing the requirements of the Guideline and the Supplement. This may require some system changes and more specialists and expertise than they may presently have.
Meanwhile, we are preparing a structured self-assessment framework to facilitate AIs' regular assessment of the extent of their compliance with the relevant supervisory requirements. This self-assessment framework will be distributed to AIs in due course.
Should you have any questions relating to the Supplement and the Interpretative Notes, please feel free to contact Mr Angus Chan on 2878-1287 or Mr Edmund Leung on 2878-8281. On-line access to these two documents is available under the icon of "Circulars and Guidelines" in the HKMA's public (http://www.hkma.gov.hk) and private web-sites.
Executive Director (Banking Policy)