Ongoing AML Obligations of SFC Licensed Corporations

In Hong Kong, the Securities and Futures Commission (“SFC”) is the cornerstone of financial regulation, overseeing the securities and futures markets to ensure their integrity and stability. Licensed Corporations (“LCs”), which are entities authorized by the SFC to conduct regulated activities, face stringent compliance obligations to uphold these standards. Among these, Anti-Money Laundering (“AML”) requirements are particularly critical, given the global emphasis on combating financial crimes. This article delves into the ongoing obligations of LCs under the SFC, focusing on AML requirements, the pivotal role of ongoing monitoring, and the severe consequences of non-compliance.

1. AML Requirements for Licensed Corporations

AML encompasses a set of laws, regulations, and procedures designed to prevent criminals from disguising illegally obtained funds as legitimate income. In Hong Kong, the SFC enforces these standards through the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC-licensed Virtual Asset Service Providers), which outlines comprehensive requirements for LCs to mitigate money laundering and terrorist financing (“ML/TF”) risks.

The following table summarizes the core AML obligations for LCs:

Requirement	Description
AML/CFT Systems	LCs should implement systems and controls proportionate to identified ML/TF risks, approved by senior management, and regularly reviewed.
Customer Due Diligence (“CDD”)	Before establishing business, relationships or conducting transactions above HK$120,000 (or HK$8,000 for wire transfers), LCs must verify customer identities, understand their business, and assess the purpose of establishing the business relationship.
Suspicious Transaction Reporting	LCs should report transactions suspected of involving ML/TF to the Joint Financial Intelligence Unit ("JFIU”).
Record-Keeping	Records of CDD, transactions, and related documents must be maintained for at least five years after the business relationship ends or transaction completes.
Risk-Based Approach (“RBA”)	LCs should assess institutional and customer risks to tailor their AML/CFT measures, ensuring higher scrutiny for high-risk scenarios.

2.1 Ongoing Monitoring Functions

Ongoing monitoring is a cornerstone of AML compliance, ensuring that LCs can detect and respond to potential ML/TF activities in real time. The SFC mandates that LCs continuously monitor their business relationships and transactions to ensure consistency with their knowledge of customers, their business activities, and risk profiles.

The following table outlines the key ongoing monitoring obligations:

Continuous Review Regularly update customer information to ensure it remains relevant and accurate.

Transaction Scrutiny Monitor transactions for consistency with customer profiles, flagging complex, unusually large, or unusual patterns lacking apparent economic or lawful purpose.

CDD Record Reviews Conduct periodic reviews of CDD records, with annual reviews (or more frequent) for high-risk customers like PEPs.

Systematic Monitoring Implement systems to monitor transactions, tailored to the LC’s size, complexity, and risk profile, providing timely data to relevant staff.

System Effectiveness Regularly review and validate transaction monitoring systems, including parameters and thresholds, to ensure adequacy.

2.2 Enhanced Monitoring for High-Risk Customers

For high-risk customers, LCs must apply enhanced measures, including obtaining senior management approval, establishing the source of wealth and funds, and conducting more frequent monitoring. SFC also requires LCs to use reliable data sources, such as publicly available information or commercial databases, to identify PEPs, while acknowledging the limitations of such databases.

3.1 Penalties for Non-Compliance with AML Guidelines

Non-compliance with AML regulations carries significant consequences, reflecting the SFC’s commitment to maintaining a robust financial system. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (“AMLO”) and SFC’s Disciplinary Fining Guidelines outline the penalties for violations.

The following table summarizes the consequences of AML non-compliance:

Fines: Up to HK$10 million or three times the profit gained from non-compliance, whichever is higher.
Regulatory Actions: Restrictions on business activities, license suspension, or revocation.

3.2 Enforcement Examples

SFC recently took disciplinary action against CSC Futures (HK) Limited (“CSC”) and its former responsible officer (“RO”), highlighting critical failures in AML compliance, including ongoing monitoring obligations.

SFC’s investigation, covering the period from January 2017 to December 2018 (the Relevant Period), uncovered two primary areas of non-compliance by CSC, with ongoing monitoring being a significant focus:

Inadequate Due Diligence on Customer Supplied Systems
Failure in Ongoing Monitoring of Client Accounts

Disciplinary Action

For LC: A HK$4.95 million fine and a public reprimand, signaling reputational damage and financial loss.

For RO: A six-month industry ban, reflecting personal accountability for oversight failures.

SFC emphasized that such lapses undermine market integrity and public confidence, necessitating strong deterrence.

For more details of the case, please refer to SFC – Enforcement News

4.1 Our Solution for Ongoing Monitoring

Effective ongoing monitoring relies heavily on technology to process large volumes of data and identify risks promptly. It is recommending LCs to implement systems that can integrate with existing infrastructure, provide real-time updates, and support holistic monitoring across multiple accounts and business lines. This is where Screen-X AML/CRM Solutions excel.

We recognize the complexities faced by licensed corporations in meeting the continuous monitoring requirements of SFC.

Screen-X AML/CRM Solutions — supported by data from the globally authoritative database Acuris Risk Intelligence and developed with input from and ComplianceOne Consulting Limited — provides a set of efficient and compliant AML solutions. It also supports API connections, is easy to operate, and offers seamless API integration, flexibly adapting to the compliance needs of institutions of different sizes.

4.2 Key Features of Screen-X AML/CRM Solutions

The following table highlights how our solution supports ongoing monitoring:

Feature	Benefit
Global Blacklist Matching	Automatically checks customers against over 1.4 million PEPs and 5 million high-risk records, ensuring comprehensive risk identification.
Real-Time Updates	Sanctions updated within 30 minutes, PEPs within 24 hours, keeping data current.
Adverse Media Monitoring	Curated articles in native languages using advanced technology and human intelligence to detect reputational risks.
Company Credit Reports	Provides credit reports on approximately 200 million limited companies to assist in due diligence.
API Integration	Seamless integration with existing systems for real-time monitoring and data exchange.
High Data Growth	Adds up to 40,000 high-risk profiles monthly, ensuring coverage of emerging risks.
Historical Data Access	16 years of historical data for in-depth risk analysis.

Screen-X AML/CRM Solutions provide a powerful tool for LCs to navigate this regulatory landscape. With features like real-time blacklist matching, adverse media monitoring, and seamless API integration, our platform enables LCs to meet SFC requirements efficiently while focusing on their core business activities. By leveraging advanced technology, LCs can not only ensure compliance but also enhance their risk management capabilities, safeguarding their operations and reputation in Hong Kong’s dynamic financial market.

5.2 Conclution

The ongoing obligations of LCs, particularly in the realm of AML compliance, are both complex and critical. Implementing effective AML/CFT systems, conducting thorough CDD, and maintaining rigorous ongoing monitoring are essential to prevent financial crimes and uphold regulatory standards. The severe penalties for non-compliance—ranging from substantial fines to license revocation—emphasize the need for LCs to prioritize these obligations.

For more information on how our solutions can support your AML compliance needs, visit EDON website.

Any further assistance with other Compliance inquiries, please visit: https://www.complianceone.hk/ongoingcompliancesupportservice