Hong Kong has changed the rules to identify the beneficial owners of corporations, as part of wider amendments to its anti-money laundering (AML) and counter-terrorist financing ordinance for authorised institutions.
Previously, an individual had to own or control no less than 10% of the issued shares of a company, voting rights or profits in a partnership to be defined as the beneficial owner, under AML guidelines.
The number has now been bumped up to more than 25%, effective 1 March, to bring it in line with international standards such as the EU’s Fourth Anti-Money Laundering Directive and (US) Fincen Customer Due Diligence Final Rule.
‘This is a welcome development for institutions that operate AML processes across multiple jurisdictions,’ Peter Stein, managing director at Hong Kong’s Private Wealth Management Association told Citywire Asia.
Trust ownership rules have also been re-defined, with an individual required to be entitled to vested interests in more than 25% of the capital of the trust property to be deemed a beneficial owner.
‘The impact to the clients would be similar to banks, with regards to lesser operational burden in reporting the CDD requirements of their UBO’s. This would also apply to an easier reporting of an ongoing changes in ownerships,’ said Rahul Oberai, Accuity’s Asia-Pacific South regional director.
This should translate into higher ultimate beneficial ownership thresholds at banks with a resultant increase in expectations of better compliance to due diligence procedures, he added.
Hong Kong authorities have also expanded the categories of intermediaries which authorised institutions can reach out to for customer due diligence checks. This includes foreign financial institutions within the same financial groups.
Additionally, the latest amendments have reduced the required record-keeping duration to five years from six for authorised institutions, as is done internationally.
Moreover, AIs have been encouraged to adopt the use of technology to improve the efficiency and reduce unnecessary compliance burden in the customer due diligence process.
According to the Financial Action Task Force (FATF), the international anti-money laundering watchdog, a beneficial owner is defined as a natural person who ultimately owns or controls a customer or the natural person on whose behalf a transaction is being conducted.
A review by FATF in 2012 noted deficiencies in Hong Kong’s Companies Ordinance for enforcing the record-keeping of beneficial owners in company registers.
Consequently, Hong Kong’s legislative council passed the Companies (Amendment) Bill 2017 in January this year.
Starting 1 March, companies incorporated in Hong Kong will be required obtain and maintain up-to-date beneficial ownership information by keeping a Significant Controllers Register.