InternationalInternational Standards on Regulating DNFBPs &

The way forward

Mr Ping-Yiu MA

Assistant Secretary for Security 4 March 2010

Narcotics Division, Security Bureau

2

Agenda

Financial Action Task Force (FATF) requirements on accountants

Highlight of the FATF recommendations relevant to accountants

Way Forward in regulating accountants

3

FATFFATF

The Financial Action Task Force (FATF) : an inter-governmental body created in 1989 by ‘G7’ sets standards, develops and promotes po

licies to combat money laundering and terrorist financing

has published 40+9 Recommendations to achieve its purpose

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Designated Non-Financial Businessesand Professions (DNFBPs)

DNFBPs as defined by Financial Action Task Force (FATF) are:

Lawyers

Accountants

Trust and Company Service Providers (TCSPs)

Real Estate Agents

Dealers in Precious Metals/ Stones

Casinos

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You Play an Important Role

Designated Non-Financial Businesses and Professions (DNFBP)

Trust and Company Services

Providers

Lawyers

Accountants

Casino

Estate Agents

Banks

Securities House Insurance

Firms

Dealers in Precious

Stones and Metals

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7

Be a Gatekeeper for Hong Kong

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FATF Requirements on Accountants

New Technology (Rec. 8)

Accountants – operating individually or in a f

irm

CDD (Rec. 5 & 9)Complex Tran

sactions (Rec. 11)

Record Keeping

(Rec. 10)

STRs (Rec. 13 & 14)

Internal Control

(Rec. 15)PEPs

(Rec. 6)

Special Attention

(Rec. 21)

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FATF Requirements on the Accounting Profession

The Accounting Professio

n

Sanctions(Rec. 17)

Guidelines(Rec. 25)

SRO(Rec. 24)

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FATF Requirements on Accountants

Customer Due Diligence (Rec. 5)

Record Keeping (Rec. 10)

Suspicious Transaction Reporting (STR) (Rec. 13)

Risk-based Approach Guidance for Accountants

Requirements to be specified in law:

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When to Conduct CDD?

When accountants prepare for or carry out transactions in relation to: Buying and selling of real estates;

Managing of client money, securities or other assets;

Management of bank, savings or securities accounts;

Organisation of contributions for the creation, operation or management of companies;

Creation, operation or management of legal persons or arrangements, and buying and selling of business entities.

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When to Conduct CDD?

When accountants act as Trust and Company Service Providers and

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, 21.

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FATF Requirements on Accountants

Other selected requirements:

Internal Controls (Rec. 15)

Self Regulatory Organisation (SRO)

(Rec. 24)

14

Internal Controls

To establish / maintain internal policies / procedures to prevent ML / TF.

Policies / procedures to cover CDD, record keeping and STR obligations.

To communicate these to employees.

To develop appropriate compliance management (e.g. AML/CFT Compliance Officer at management level).

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Internal Controls

On-going staff training.

Independent audit function to test compliance with the policies and procedures.

To put in place screening procedures to ensure high standards in hiring employees.

The type and extent of measures to be taken should commensurate with:

the level of ML / TF risk; and

the size of the business.

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SRO – Responsibilities & Sanctions

Government authority or SRO to monitor and ensure compliance with AML / CFT requirements.

Power to sanction in case of non-compliance.

Effective, proportionate and dissuasive criminal, civil or administrative sanctions be available.

17

SRO - Sanctions

Range of sanctions available should be broad and proportionate to severity of non-compliance.

Sanctions should be available to legal persons, their directors and senior management.

18

SRO - Resources

Adequate structuring, funding, staff with sufficient technical and other resources to fully and effectively perform their functions.

Sufficient operational independence and autonomy to ensure freedom from interference.

Staff be of high professional standard & integrity and adequately trained for AML / CFT.

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SRO - GuidelinesSRO - Guidelines

Government authority or SRO to establish guidelines to include the following:

ML / FT techniques and methods; and any additional measures that accounting

firms/accountants could take to ensure their AML / CFT measures are effective.

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FATF Recommendations Relevant to DNFBPs

1 2 3 4 5 6 7

8 9 10 11 12 13 14

15 16 17 18 19 20 21

22 23 24 25 26 27 28

29 30 31 32 33 34 35

36 37 38 39 40 41 42

43 44 45 46 47 48 49

*

*

*

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Rec. 12 (applying Rec. 5, 6 & 8-11) : NC

Rec. 16 (applying Rec. 13-15 & 21) : NC

Rec. 24 : NC

Results of HK Mutual Evaluation

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Establishment of Central Co-ordinating Committee (CCC), chaired by Financial Secretary.

To steer & co-ordinate the strategic development of HK’s AML/CFT regime in line with internationally recognised standards.

Post ME Development (1)

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Financial Services & the Treasury Bureau (FSTB) is the overall co-ordinator for AML / CFT matters and with specific responsibilities on financial sectors.

Security Bureau (Narcotics Division) looks after DNFBPs and Non-profit Organisations.

Post ME Development (2)

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Phase I : Financial Sectors

Phase II: DNFBPs

Way Forward (1)

Legislation on CDD & Record Keeping

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FSTB Consultation on Legislative Proposals Against Money Laundering ended on 6 February 2010.

Proposes to allow continued reliance on unregulated Third Parties by Financial Institutions.

To be introduced into LegCo – Q2 2010.

Way Forward (2)

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To prepare for Phase II, SB will step up outreaching activities to raise awareness on AML / CFT and work closely with professional bodies.

CPD Seminars.

Sector Specific Guidelines.

Revised Interactive Training Kit.

Way Forward (3)

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Consultation with Non-Financial Sectors

Timeline

Compliance costs

Regulatory Authority

Issues

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20102011

20122013

20142015

2016

Timeline (1)

29

FATF35 memb

ers

Timeline (2)

30

Internal Control System

s

Staff Training

Audit Function

Policies and Proced

uresCompliance Officer

Compliance Costs (1)

31

International Standard

s

Compliance Cost

Compliance Costs (2)

32

Professional Status and Reputatio

n

Business Costs and Legal Obligatio

ns

Compliance Costs? (1)

33

Compliance Costs? (2)

34

Open-minded

35

Partnership

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Thank you!