Hong Kong Gets Mixed Ratings in Latest FATF Report for AML Compliance | Perspectives & Events

Different author Sara Troughton, Professional Assistance Attorney (Litigation)

On 17 February 2023, the Financial Action Task Force (FATF) published its first regular follow-up report on Hong Kong’s compliance with the FATF Recommendations. The FATF Recommendations are a globally recognized set of measures to combat money laundering and the financing of terrorism.

In its report, the FATF concluded that while Hong Kong has not yet implemented all of the new Recommendation 15 requirements for Virtual Asset Service Providers (VASPs), sufficient progress has been made in addressing the technical compliance deficiencies related to the Designated Non- Financial Business or Profession (DNFBP) sector previously identified under Recommendation 28.

In more detail:

Obligations related to VASPs (Recommendation 15 – Emerging Technologies)

• This Advisory was revised in 2019 to include obligations related to VASPs. These obligations include (i) the assessment of money laundering and terrorist financing risks associated with virtual asset activities or operations of VASPs, (ii) requirements for licensing of VASPs, (iii) requirements for anti-money laundering monitoring of VASPs, and conduct terrorist financing by a competent authority, and (iv) requirements to apply preventive measures and international cooperation to VASPs.
• While the FATF downgraded Hong Kong’s rating from “largely compliant” to “partially compliant,” it acknowledged that it was mainly due to timing. At the time of the FATF’s assessment, Hong Kong had not yet adopted the new regulatory regime for VASPs under the Amended Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) (AMLO), which extended supervision to centralized virtual asset exchanges who do not trade -security tokens.
• With the new VASP regime coming into force under the amended AMLO on June 1, 2023, Hong Kong is expected to improve its rating in the next round of assessments.

Obligations related to DNFBPs (Recommendation 28 – Regulation and supervision)

• The FATF upgraded Hong Kong’s rating from partially compliant to broadly compliant, the third-highest grade of four.
• This upgrade reflects improvements made by Hong Kong in addressing technical compliance deficiencies identified by the FATF in 2019.
• In particular, Hong Kong has introduced risk-based anti-money laundering and counter-terrorist financing supervision for most DNFBP sectors, including accountants, real estate agents and trust and corporate service providers. The risk-based supervision of the legal area has started (but not yet fully implemented) and the regime of the AMLO amendment applicable to precious metal and gemstone dealers will come into force on April 1, 2023.

The FATF will continue to conduct regular follow-up on progress in Hong Kong.