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International Standards on Regulating DNFBPs & The way forward

International Standards on Regulating DNFBPs & The way forward. Narcotics Division, Security Bureau. Mr Peter KWOK Assistant Secretary for Security 27 February 2009. Agenda. Financial Action Task Force (FATF) requirements on Trust & Company Service Providers (TCSPs)

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International Standards on Regulating DNFBPs & The way forward

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  1. International Standards on Regulating DNFBPs &The way forward Narcotics Division, Security Bureau Mr Peter KWOK Assistant Secretary for Security 27 February 2009

  2. Agenda • Financial Action Task Force (FATF) requirements on Trust & Company Service Providers (TCSPs) • Highlight of the FATF recommendations relevant to TCSPs • Way Forward in regulating TCSPs

  3. Designated Non-Financial Businesses and Professions (DNFBPs) • DNFBPs as defined by Financial Action Task Force (FATF) are: • Lawyers • Accountants • TCSPs • Real Estate Agents • Dealers in Precious Metals/ Stones • Casinos

  4. FATF Requirements FATF requirements on Trust & Company Service Providers (TCSPs)

  5. FATF Requirements for TCSPs Requirements to be specified in law: • CDD (Rec. 5) • Record Keeping (Rec. 10) • Suspicious Transaction Reporting (Rec. 13) Other requirements: • Internal Controls (Rec. 15) • Sanctions (Rec. 17)

  6. FATF Requirements for TCSPs Other requirements: • Politically Exposed Persons (PEPs) (Rec. 6) • New technology/ Non-face-to-face Business (Rec. 8) • Reliance on 3rd parties/ intermediaries (Rec. 9) • Complex / unusual transactions (Rec. 11)

  7. FATF Requirements for TCSPs Other requirements: • No tipping-off (Rec. 14) • Special attention to parties from non- complying jurisdictions (Rec. 21) • Self Regulatory Organisation (SRO)(Rec. 24) • Competent authorities to establish guidelines (Rec. 25)

  8. FATF Requirements for TCSPs When Trust and Company Service Providers • Acting as a formation agent of legal person; • Acting as a director or secretary of a company; • Providing a registered office, etc for a company; • Acting as a trustee of an express trust; • Acting as a nominee shareholder for another person. • They have to comply with Rec 5, 6 & 8-11.

  9. Highlight Highlight of FATF recommendations relevant to TCSPs

  10. Rec. 5 and 9 (CDD) • To identify the customer and verify his ID • To identify the beneficial owner • The purpose and intended nature of the business relationship • On-going CDD and enhanced CDD • Reliance on 3rd parties/ intermediaries

  11. Rec. 10 (Record Keeping) • To retain all documents relating to transactions • At least 5 years after the completion of transactions

  12. Rec. 13 and 14 (STRs) • Suspicious Transactions Reporting (STR) requirements • Protection from criminal/ civil liabilities • No tipping-off

  13. Rec. 15 (Internal Control) • To establish/ maintain internal policies/ procedures to prevent ML/TF • To ensure high standards in hiring • employees • On-going staff training • Audit function to test the system

  14. Rec. 24 and 25 (SRO & Guidelines) • Government authority or Self-regulatory Organisation (SRO) to monitor and ensure compliance with AML/CFT requirements • Power to sanction in case of non-compliance • Government authority or SRO to establish guidelines

  15. Rec. 17 (Sanctions) • Sanctions are effective, proportionate and dissuasive • Sanctions can be meted out by Government authority or SRO

  16. Rec. 6 (PEPs) • Have appropriate risk management systems to determine whether clients are Politically Exposed Persons (PEPs) or not • Senior management approval for having business relationships • To establish source of wealth/ fund

  17. Rec. 8 (New Technology) To take measures: • To prevent misuse of technological developments for ML • To address risk associated with non- face-to-face business relationships

  18. Rec. 11 (Complex Transactions) • To pay special attention to all complex, unusual large transactions and unusual patterns of transactions • To examine the background/ purpose of such transactions

  19. Rec. 21 (Special Attention) • To give special attention to dealings with parties from countries which do not comply with the FATF Recommendations

  20. * * * FATF Recommendations relevant to DNFBPs

  21. Mutual Evaluation by FATF • The Third round of Mutual Evaluation (ME) is underway • 23 jurisdictions have been assessed • www.fatf-gafi.org

  22. Way Forward Way Forward in regulating TCSPs

  23. Way Forward (1) • Establishment of Central Co-ordinating Committee (CCC), chaired by Financial Secretary, in April 2008 • To steer & co-ordinate the strategic development of HK’s AML/CFT regime in line with internationally recognised standards

  24. Way Forward (2) • FSTB assumes the role of overall co-ordinator for AML/CFT matters and with specific responsibilities on financial sectors • SB (Narcotics Division) is to look after DNFBPs and Non-profit Organisations

  25. Way Forward (3) Legislation on CDD & Record Keeping • Phase I : Financial Sectors • Phase II: DNFBPs • No time table and open-minded

  26. Way Forward (4) • To prepare for Phase II, SB will step up outreaching activities to raise awareness on AML/CFT and work closely with regulatory/ professional bodies • CPD Seminars • Sector Specific Guidelines • Revised Interactive Training Kit

  27. Thank you!

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