The Anti-Money Laundering Ordinance establishes a regulatory framework for money service operators which is administered by the Hong Kong Commissioner of Customs and Excise ("CCE"). Under this framework, unless exempted, money service operators must apply for a license ("MSO license") to operate a money service and must comply with conduct of business requirements. These conduct of business requirements are primarily directed at customer due diligence and record keeping.
The Anti-Money Laundering Ordinance supplements other anti-money laundering and counter-terrorist financing legislation including the Organized and Serious Crimes Ordinance ("OSCO"), the Drug Trafficking (Recovery of Proceeds) Ordinance ("DTRPO") and the United Nations (Anti-Terrorism Financing) Ordinance ("UNATMO"). Amongst other things, these laws require the reporting of suspicion of money laundering and restrict dealings in property which are suspected to be proceeds of crime.
MSO Licensing Requirement
Under the Anti-Money Laundering Ordinance, a money service operator is a person who operates a money service, meaning a "money changing service" or a "remittance service".
Money Changing Service
A "money changing service" is a service for the exchanging of currencies that is operated in Hong Kong. In this regard, "currency" means a system of money in general use in a particular country.
A money changing service does not include a service that is incidental to a main business.
A "remittance service" is a service of one or more of the following that is operated in Hong Kong as a business—
- sending, or arranging for the sending of, money to a place outside Hong Kong;
- receiving, or arranging for the receipt of, money from a place outside Hong Kong; or
- arranging for the receipt of money in a place outside Hong Kong.
For this purpose, "money" means money in whatever form or currency.
Exemptions from MSO Licensing
The MSO licensing requirement generally does not apply to financial institutions which are otherwise regulated. So, for example, authorized institutions (i.e. banks, restricted licence banks or deposit-taking companies regulated by the Hong Kong Monetary Authority), corporations licensed by the Securities and Futures Commission, insurers authorized by the Insurance Authority ("IA") and insurance brokers or agents licensed by the IA are exempt from MSO licensing.
Eligibility for MSO License
Fitness and Properness to be Licensed as an MSO
To qualify for a MSO license, a money service operator must demonstrate that each of the following persons is fit and proper:
- if the money service operator is an individual, that individual and each ultimate owner of the business (if any);
- if the money service operator is a partnership, each partner and each ultimate owner of the partnership (if any); or
- if the money service operator is a corporation, each director and each ultimate owner of the corporation (if any).
In determining fitness and properness, the CCE must have regard to whether any of the foregoing persons has been convicted in Hong Kong or otherwise of a financial or criminal offence involving anti-money laundering, anti-terrorism, drugs trafficking, organized and serious crime, fraud, corruption, or dishonesty, or is an undischarged bankrupt or is in liquidation or subject to winding-up proceedings.
An ultimate owner in relation to a money service operator applying for a licence is:
|Applicant/Licensee||Ultimate Owner (each of the following, if any)|
|Individual||Another individual who ultimately owns or controls the money service business of the individual applicant/ licensee||Another person, of whom the individual applicant/ licensee is acting on behalf|
|Partnership||A person who is entitled to or controls directly or indirectly > 25% share of capital or profits of the partnership||A person who is directly or indirectly entitled to exercise or control the exercise of > 25% voting rights of the partnership||A person who exercises ultimate control over the management of the partnership|
|Corporation||A person who owns or controls directly or indirectly > 25% of the issued share of capital of the corporation||A person who is directly or indirectly entitled to exercise or control the exercise of > 25% voting rights of the corporation at general meetings||A person who exercises ultimate control over the management of the corporation|
A money service operator must have a compliance officer ("CO"). The CO acts as the focal point within the money service operator for the oversight of all activities relating to the prevention and detection of money laundering/terrorist financing. The CO provides support and guidance to the senior management to ensure that money laundering/terrorist financing risks are adequately identified, understood and managed.
Money Laundering Reporting Officer
A money service operator should appoint a money laundering reporting officer ("MLRO"). The MLRO serves as the central reference point for suspicious transaction reporting and as the main point of contact with the Joint Financial Intelligence Unit ("JFIU") and other law enforcement agencies. The MLRO should play an active role in identifying and reporting suspicious transactions.
The premises for operation of the "money service operator" business must be suitable. Such premises must be registered with the Customs and Excise Department ("C&ED"). Sharing of premises with others will not be accepted.
If there are no particular premises for operating the money service (e.g. the service is provided over the Internet), there must be a local management office ("LMO"), a correspondence address, and a local place for storage of books and records ("LPS").
The LMO is a physical office which can be reached in person and through telephone by officers of the C&ED to perform the functions under the Anti-Money Laundering Ordinance, as well as receive documents and correspondence from C&ED such as circulars and notices.
The LPS is a physical place for keeping the full set of books and records in respect of its money service transactions.
Residential premises or care-of addresses will not be accepted as the LMO or LPS.
MSO License Application Procedures
An applicant for an MSO license needs to complete an application form and submit a (i) Business Plan, and (ii) AML/CFT policies ("AML Policy").
The business plan should be a comprehensive overview of the business, which includes but not limited to such components as detailed operation mode, organizational structure, payment system, target customer, staffing, and finance of the company. The Money Service Supervision Bureau ("MSSB") will look into the applicant's entire business operation from an anti-money laundering and counter-terrorist financing ("AML/CFT") perspective.
The AML Policy should set out, a money service operator's own policies, procedures and controls in the relevant operational areas with a view to mitigating the money laundering and terrorist financing risks ("ML/TF risks") to which the money service operator is exposed and fulfilling the relevant statutory and regulatory requirements having regarded to the money service operator's particular business risk profile.
After submitting all the required documents, the money service operator must attend an interview and must nominate an eligible person(s), i.e. sole proprietor, partner(s) or director(s) of the applicant to attend a Competence Assessment.
The Competence Assessment is conducted to ensure that the senior management of the applicant has clear understanding of ML/TF risks to which it is exposed, and is capable of implementing effective AML/CFT systems to adequately manage and mitigate the ML/TF risks identified in order to meet the statutory AML/CFT obligations.
Whilst the processing time may vary and depend on various factors including the time taken in collecting requisite documents from the applicant, on-site inspection at the business premises, the time required in obtaining records from other authorities to perform a fit and proper person test, and the time taken for completing the Competence Assessment, C&ED has set a performance target of 33 working days in processing an MSO license application which contains all necessary documents and information.
Expiry and Renewal of MSO License
An MSO license will normally be valid for 2 years. A money service operator should apply for renewal not later than 45 days before the licence is due to expire.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.