On 17 February 2023, the Financial Action Task Force (FATF) issued its first regular follow-up report on Hong Kong's compliance with the FATF Recommendations. The FATF Recommendations are a globally recognised set of measures that combat money laundering and terrorist financing.
In its report, FATF concluded that while Hong Kong has not yet implemented all the new requirements under Recommendation 15 for virtual asset service providers (VASPs), it has made sufficient progress in addressing the technical compliance deficiencies concerning the Designated Non-Financial Business or Profession (DNFBP) sector previously identified under Recommendation 28.
In more detail:
Obligations Relating to VASPs (Recommendation 15 – New Technologies)
- This recommendation was revised in 2019 to include obligations relating to VASPs. These obligations include (i) assessing money laundering and terrorist financing risks associated with virtual asset activities or operations of VASPs, (ii) requirements for VASPs to be licensed, (iii) requirements for anti-money laundering and counter-terrorist financing supervision to VASPs to be conducted by a competent authority, and (iv) requirements to apply preventive measures and international co-operation to VASPs.
- While FATF downgraded Hong Kong's rating from “largely compliant” to “partially compliant”, it recognised that this was predominantly due to timing. At the time of FATF's assessment, Hong Kong had not yet passed the new regulatory regime for VASPs under the amended Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), extending supervision to centralised virtual assets exchanges trading non-security tokens.
- With the new VASP regime under the amended AMLO coming into force on 1 June 2023, Hong Kong will likely be able to improve its rating in the next round of assessment.
Obligations Relating to DNFBPs (Recommendation 28 – Regulation and Supervision)
- FATF upgraded Hong Kong's rating from “partially compliant” to “largely compliant”, the third highest grade out of four.
- This upgrade reflects the improvements Hong Kong has made in addressing technical compliance deficiencies that were identified by FATF in 2019.
- In particular, Hong Kong has implemented risk-based anti-money laundering and counter-terrorist financing supervision for most DNFBP sectors, including accountants, real estate agents and trust and company service providers. Risk-based supervision of the legal sector has commenced (although not yet fully implemented) and the regime under the amended AMLO that applies to dealers in precious metal and stones will come into force on 1 April 2023.
FATF will be conducting further regular follow ups on Hong Kong's progress.
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