How Hong Kong banks can fight financial crime in 2018

Banks will continue to develop the use of technology and data analytics for AML.

As we move into 2018, the Hong Kong Monetary Authority (HKMA) continues to make significant efforts to increase the effectiveness of the city’s financial system by encouraging greater use of technology and promoting closer collaboration between the industry, regulators and the government.

KPMG believes that with regulatory scrutiny of anti-money laundering (AML) and counter-terrorist financing increasing – as well as the costs of compliance – the HKMA will continue to focus on banks posing the greatest money laundering and terrorist financing risks in 2018, as well as issue more guidance to help banks assess and understand risk.

Here's more from KPMG:

Banks in Hong Kong have increasingly explored the use of technology and data analytics around AML – to enhance transaction monitoring, onboarding and CDD processes, for example – and we think this will continue in 2018. The HKMA has also voiced its strong support for banks that seek to leverage technology – the regulator has recently installed a designated officer as an AML contact point, and continues to work closely with its technology-risk team to provide banks with practical and timely advice.

We expect to see changes to certain aspects of the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO), as well as the Guideline on Anti-Money Laundering and Counter-Terrorist Financing (for Authorised Institutions). The changes – which could take effect in mid-2018 – are expected to make onboarding more efficient, improve the overall customer experience and align Hong Kong’s rules with international standards.

One of the major amendments is to the requirement on non-face-to-face account opening to allow greater flexibility and scope to leverage technology. The proposed changes also include raising the threshold of beneficial ownership from 10 percent to 25 percent, broadening the range of suitable intermediaries to make customer due diligence (CDD) more efficient, and amending the requirements on wire transfers to align with the revised Financial Action Task Force (FATF) standards.

Hong Kong’s regulators and banks are gearing up for FATF’s mutual evaluation of the city in June/July 2018. As part of this preparation, Hong Kong is undertaking its first money laundering/terrorist financing National Risk Assessment (NRA), which is expected to be published before the end of 2017. While banks in Hong Kong have improved their understanding and assessment of money laundering risks, we believe that there is still room for improvement. Banks should continue to adopt a risk-based approach in the coming year, and use the NRA to improve their own institutional risk assessments to allow them to focus on key risks and design their own controls and mitigating measures.