In its circular promoting “Access to Banking Services for Corporate Customers” (the Circular), Hong Kong’s Monetary Authority (the HKMA) encourages banks to “support virtual asset service providers licensed and regulated by the Securities and Futures Commission (SFC) on their legitimate need for bank accounts in Hong Kong”. Published on 27 April 2023 ahead of the implementation of Hong Kong’s new licensing regime for virtual asset service providers (VASPs) on 1 June 2023, the Circular paves the way for VASP licensing applicants to meet the SFC’s requirement that it receives applicants’ bank account details before approving their licensing applications. However, bank account details do not need to be submitted at the same time as the VASP licensing applications.1
Supporting the Hong Kong Government’s push to become a global Web3 and crypto hub (as detailed in its October 2022 “Policy Statement on Development of Virtual Assets in Hong Kong”) the HKMA Circular urges banks to adopt “a forward looking approach … and strengthen their understanding of new and developing sectors” and a risk-based approach (RBA), rather than “a wholesale de-risking approach”.
For further details of Hong Kong’s New VASP licensing regime, please see Charltons’ newsletters “SFC Circular on Implementing new Licensing Regime for Virtual Asset Trading Platform Operators” (June 2023) and “Hong Kong Licensing Regime for Virtual Asset Exchanges to Take Effect on 1 March 2023”2 (July 2022).
The HKMA has also revised its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (for Authorized Institutions) effective 1 June 2023. The revised Guideline requires authorized institutions (i.e. banks) that are SFC-licensed VASPs to additionally comply with the anti-money laundering and counter-terrorist financing obligations provisions relating to virtual assets which are set out in Chapter 12 of the SFC’s newly issued SFC Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC licensed Virtual Asset Service Providers).
Three Key Areas for Banks’ Attention
In the Circular, the HKMA asks banks to review their account opening procedures and customer due diligence (CDD) measures to balance their management of money-laundering / financing of terrorism risks with the provision of inclusive access to banking services. The HKMA draws banks’ attention to three areas in particular.
- Initial Customer Contact
- Understanding of Market Developments
- Risk Management vs Wholesale De-risking
The HKMA also suggests that banks support the Tiered Account Services initiative and offer Simple Bank Accounts to meet the needs of SMEs and start-ups where appropriate. The HKMA’s Tiered Account Services initiative was set out in its April 2019 Circular “Introduction of Tiered Account Services” and encouraged banks to offer a limited set of banking services (Simple Bank Accounts) requiring less extensive CDD measures to small- and medium-sized enterprises, start-ups and some offshore companies establishing a presence in Hong Kong. Guidance on the HKMA’s RBA is set out in Chapter 2 of its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorized Institutions).
Key Observations and Good Practices
The Annex to the HKMA Circular sets out observations and good practices for on-boarding corporate customers.
- Processing Account Opening Applications
- Requesting Information from Customers
- Individual Risk Assessment
- CDD Measures
Updated Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (for Authorized Institutions)
Since the publication of the April 2023 Circular, the HKMA has published an updated version of its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (for Authorized Institutions). With the implementation of Hong Kong’s new licensing regime for virtual asset service providers, the revised guideline requires banks (i.e. authorized institutions) to additionally comply with the requirements of the SFC Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and SFC licensed Virtual Asset Service Providers) for:
- securities, futures and leveraged foreign exchange businesses (e.g. definition of customer, provisions on cross-border correspondent relationships, illustrative indicators of suspicious transactions and activities in the securities sector, etc.); and
- addressing the risks relating to virtual assets set out in Chapter 12 of that Guideline.