Hong Kong remains at ‘high risk’ for laundering, says senior official

Hong Kong’s banking sector remains at “high risk” of being exploited for illicit fund flows, the territory’s most senior anti-money laundering (AML) official has warned. Carmen Chu, head of enforcement and AML at the Hong Kong Monetary Authority (HKMA), said the surge in digital financial services during the pandemic had given rise to a new set of financial crime risks. Chu was speaking at the Association of Certified Anti-Money Laundering Specialists (ACAMS) conference in Hong Kong.

Fintech had ushered in many benefits during the pandemic, particularly in facilitating “speedy remote bank account opening and operation”, conference delegates heard. This technological shift had also been abused, however, by fraudsters and money mules.

The HKMA is updating its ML/TF risk assessment to reflect the new financial services threat matrix, the conference heard. Chu said the territory’s risks remained elevated due to Hong Kong’s role as an international financial centre and the strong growth of digital financial services in recent years.

“Our risk assessment builds on detailed information on typologies and trends, which is shared day-to-day through public-private partnerships among banks, law enforcement agencies and the HKMA. This forms the baseline for our risk-based approach to AML,” she said.

Global threats

The ACAMS event heard that the global efforts to combat money laundering and terrorist financing (ML/TF) are under challenge. Chu said banks would need to rely on sophisticated technology to keep pace with the explosion in criminal threats.

“It requires speedy detection and disruption to address the emerging threats, and protect banks as well as their customers from resultant financial losses,” Chu said.

Conference delegates heard that regulators were also aiming to foster a healthy “regtech” ecosystem across the APAC region to manage the financial crime risks.

“Innovation in our response will not only make compliance more effective, but also achieve better outcomes, sustainable over the longer term,” Chu said.

“Analytics provides high-quality and actionable information to support other stakeholders in the AML ecosystem to disrupt fraud and financial crime.”

The ACAMS event also heard that rules-based transaction monitoring also needs to evolve to match the new threat landscape.

Innovation

“Technology firms are offering innovative ideas and add-on enhancements that promise to make such systems more effective and efficient,” Chu said.

In the coming year, the HKMA will be expecting firms to take a nuanced approach to managing customer onboarding risks. Whether this is done remotely or face to face, the same standards apply.

“The onboarding process is not a zero-failure concept. It is impossible to stop all criminals from entering the financial system solely by the on-boarding process,” Chu said.

Sophisticated transaction monitoring by financial institutions is the second line of defence.

“This is extremely important for detecting and reporting suspicious transactions early, and assisting investigations by law enforcement agencies to disrupt bad acts,” Chu said.

The HKMA is carrying out a thematic review of banks’ transaction monitoring systems. The regulator will also update its guidance for customer screening, transaction monitoring and suspicious transaction reporting.

Nathan Lynch is an experienced writer, public speaker, manager and technology enthusiast in the field of financial regulation and risk management. At Thomson Reuters, Nathan leads a team of experts who provide breaking news, deep analysis and practical guidance to risk practitioners in the global financial services sector.
Nathan manages Thomson Reuters’ award-winning Regulatory Intelligence team across the Asia-Pacific region, tracking developments in financial services law, regulation, financial crime and risk management.
Nathan has been involved in building innovative, tech-based businesses in the financial services “regtech” sector — including Complinet Australia and the Thomson Reuters Risk business.

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