1、September 2022Cementing Hong Kongs Role as a Premier Private Wealth Management Hub in AsiaFSDC Paper No.55ContentsExecutive SummaryOverviewDigitalisation in Private Wealth Management in Hong KongAML/CFT Practices in Private Wealth ManagementDigital Transformation in Anti-Money Laundering and Counter

2、-Financing of Terrorism(AML/CFT)ComplianceHong Kong Regulatory Response in Promoting Technologies for AML/CFTRegulatory Challenges Faced by the Private Wealth Management IndustryLong Onboarding Time And High Costs for KYC/AML ComplianceOur RecommendationsThe Professional Investor Regime&Sophisticate

3、d Professional Investors in Hong KongCurrent PositionOur Recommendations Suitablity FrameworkIndustry ObservationsOur Recommendations Tax Complication for Private Wealth Management in Hong KongEducation and Talent DevelopmentEntry Level Undergraduates and PostgraduatesMid-career Transfer and Oversea

4、s/Mainland Chinese TalentContinued Skill EnhancementOur RecommendationsAppendicesAppendix 1.Key Features of Hong Kong AML/CFT RegimeAppendix 2.Development of Professional Investor Regime in Hong KongAppendix 3.Suitability Obligations under the Code of ConductAppendix 4.Circulars Issued since the 200

5、8 Global Financial Crisis in Relation tothe Suitability ObligationsAppendix 5.Example of“Investment Rationale Check-box”Used by Financial Institutions Appendix 6.Disclosure of monetary and Non-monetary Benefits Example of How Disclosures Are Generally MadeAppendix 7.Hong Kong-PI RegimeAppendix 8.Int

6、ernship Programmes Available for Undergraduate Students Glossary08229293237384042434446Executive SummaryPractitioners within the private wealth management(PWM)industry continue to operate in a rapidly changing and challenging environment.The trend of digital adoption

7、 has become inevitable as the tech-savvy younger generation seek out a more personalised experience in terms of strategic planning and delivery of product offerings.1 From a global perspective,this trend has shown stronger momentum in the Asia Pacific region,driven by higher levels of public access

8、to mobile technology and higher savings rates.For a long time,the PWM business has been a key contributor to the asset and wealth management sector in Hong Kong.In 2021,the total assets of the PWM industry decreased to HK$10.6 trillion,down 6%from the previous year,but the industry still saw net new

9、 fund inflows of HK$638 billion.2 Such growth could be attributed to the key developments in the Greater Bay Area(GBA)as well as the growing investment appetite of high-net-worth individuals(HNWIs).According to a report jointly published by the Private Wealth Management Association(PWMA)and KPMG,3 t

10、he number of HNWIs in Hong Kong had increased by 9.6%to 188,000 from 2019 to 2020.Meanwhile,41%of PWM institutions assets under management(AUM)was sourced from Mainland China,and this figure is expected to reach 51%over the next five years.In the essence of facilitating the digital experience of pri

11、vate wealth clients,especially for HNWIs and those from the GBA,it is crucial to maximise the industrys potential to capture relevant emerging opportunities.While Hong Kongs PWM industry has managed to maintain its quality-of-service during the COVID-19 period by transforming its working strategy an

12、d client expectations,4 the Financial Services Development Council(FSDC)also acknowledges the collective efforts made by the Financial Services and the Treasury Bureau(FSTB),Hong Kong Monetary Authority(HKMA),and Securities and Futures Commission(SFC)in recognising the importance of the PWM industry

13、 to Hong Kong.While we laud their intent to strike a balance between investor protection and principles-based regulation,there remains a need to review certain key areas to enhance the citys competitiveness,as summarised in the following recommendations:Re Know Your Customer(KYC)Re Sophisticated PI

14、Re Asset Based PI KPMG,Assessing the impact of digitalisation on wealth management,April 2019,https:/home.kpmg/cn/en/home/insights/2019/04/assessing-the-impact-digitalisation-wealth-management.html SFC,Asset and Wealth Management Activities Survey 2021,July 2022,https:/www.sfc.hk/-/media/EN/files/CO

15、M/Reports-and-surveys/AWMAS-2021_final_e.pdfPWMA&KPMG,Hong Kong Private Wealth Management Report 2021,October 2021 https:/assets.kpmg/content/dam/kpmg/cn/pd-f/en/2021/10/hong-kong-private-wealth-management-report-2021.pdfIbid1234Aligning the regimes dealing with Anti-Money Laundering(AML)KYC,suitabi

16、lity KYC,and professional investor(PI)KYC across the financial services industry.Introducing a sophisticated PI classification into the Code of Conduct in respect of individual and corporate professional investors(based on the existing assets test)in respect of which Suitability Obligations can be e

17、xempted on an opt-in basis.Introducing a higher assets test into the Code of Conduct in respect of individual and corporate professional investors,in respect of which the Suitability Obligations can be exempted on an opt-in basis where such investors have a portfolio of no less than HK$40 million or

18、 total assets(excluding main residence)of no less than HK$80 million.1Re Suitability Reviewing the current Suitability Framework and Suitability Obligations with regards to the assessment for dis-applying Suitability Obligations and the portfolio approach regime introduced by the HKMA in 2012 for th

19、e private banking industry.Re Tax Reviewing current tax regime to ensure that individual asset owners are treated on an equal footing regardless of whether they are Hong Kong residents or not.Re Education Further developing the talent pipeline for the industry through growing talent at the entry lev

20、el,attracting mid-career transfer,and enhancing the quality of talent throughout the pipeline.2OverviewDigitalisation in Private Wealth Management in Hong KongDigitalisation is a well-established trend in the banking industry.Banks have adopted digital solutions to modernise customer service and imp

21、rove customer experience,reduce operating costs,improve financial inclusion,and enhance regulatory compliance capabilities and risk management.The onset of COVID-19 has significantly accelerated digital transformation as a result of permanent behavioural changes in firms and people.There is also a g

22、reater market demand for multi-access channels.The use of non-face-to-face engagement has created huge opportunities,particularly for retail banking and brokerages.As an illustration,there has been an exponential growth in the use of the Faster Payment System(FPS),with 7.8 million registrations reco

23、rded at the end of July 2022,5 and an average daily turnover reaching 673,000 real-time transactions(worth HK$5.4 billion and RMB136 billion)at the end of 2021,90%higher than that in 2020.6 Hong Kong also has a robust smartphone penetration rate of 92.1%,7 the second fastest internet speed(ranked by

24、 median download speeds)in the world,8 and a widespread accessibility of 4G internet connectivity at a rate of 94.1%.9 These provide a solid foundation for financial services firms to serve clients,especially the more technologically adept younger generation,who prefer to have financial services pri

25、marily delivered via digital means.According to the Hong Kong Private Wealth Management Report 2021 jointly published by PWMA and KPMG,wealth managers were of the view that their digital offering continued to meet their clients expectations.From the private wealth clients perspectives,despite a slig

26、ht drop in the figure compared with the previous year,78%of the private wealth clients still rated their relationship managers(RMs)digital performance as mostly meeting,or exceeding expectations.10 In a global wealth research report published by EY in 2021,11 more than one in three clients indicated

27、 that their relationship with their wealth manager had become less personal(e.g.,less face-to-face communication),and the figure is even higher among millennial clients(Next Gens)and those who prefer digital-led or hybrid engagement models.When clients increasingly call for more tailored and special

28、ised services,smart technology tools with behavioural analytics can be engaged by RMs to deliver bespoke services at a low cost to meet client expectations.Hong Kong is home to about three-fourths of the worlds largest 100 banks.12 The total AUM of the asset and wealth management business rose to HK

29、$35 trillion with a 2%year-on-year increment in 2021.The total AUM held by private banks in Hong Kong also stood at around HK$10.5 trillion.13 Whilst the digital strategy of global banks is often centralised at the parent level,Hong Kongs strategy will largely be driven by,and focuses on the key fac

30、tors of(a)culture,(b)customer experience,(c)distribution and sales,and(d)opportunities relating to the Mainland Chinese market,each of which is explored below.In considering these factors,it is important to ensure that we enhance customer loyalty,not only to their current PWM platforms but also to H

31、ong Kong,and we position Hong Kong as best in class to be the PWM hub for China and Asia Pacific as a whole.Hong Kong Interbank Clearing Limited,FPS Statistics,July 2022,https:/.hk/eng/fps/about_fps/statistics.php Hong Kong Monetary Authority,2021 Annual Report,July 2022,https:/www.hkma.gov.hk/media

32、/eng/publication-and-research/annual-report/2021/AR2021_E.pdf Census and Statistics Department,Thematic Household Survey Report No.73,April 2021,https:/www.censtatd.gov.hk/en/data/stat_report/product/B1130201/att/BXXXXB0100.pdfFastmetrics,Report on Fastest Internet in The World 2020-Ranke

33、d By Median Download Speeds,August 2020,https:/ Quinlan and Associates,Branching Off,2021,https:/ Kong Private Wealth Management Report 2021,October 2021,https:/assets.kpmg/content/dam/kpmg/cn/pdf/en/2021/10/hong-kong-pri-vate-wealth-management-report-2021.pdfErnst&Young,Where will wealth take clien

34、ts next?2021 EY Global Wealth Research Report,April 2021,https:/ _gl/topics/wealth-and-asset-management/ey-2021-global-wealth-research-report-optimized-for-web-v2.pdf FamilyOfficeHK,Hong Kong A Leading Hub for Family Offices,2021,https:/www.investhk.gov.hk/sites/default/files/2021.04_HK_A%20Leading%

35、20Hub%20for%20 Family%20Offices_en.pdf SFC,Asset and Wealth Management Activities Survey 2021,July 2022,https:/www.sfc.hk/-/media/EN/files/COM/Reports-and-surveys/AWMAS-2021_final_e.pdf 56789101112133a.CultureThere has been a notable paradigm shift in PWMs demographics due to the following:b.Custome

36、r experienceIn the era of high-speed technology,clients expect their information to be immediately accessible.In order to provide personalised services,it is pivotal for banks to learn clients preferences in obtaining information.For example,enabling access to client information via an online portal

37、 has become a necessity for providing a better client experience not only for the younger generations,but for all clients.Additionally,clients want access to more details on market information,research,and product information to make better investment decisions on a more informed basis.At the same t

38、ime,these clients do not want to trigger“suitability”requirements simply because they are given more information and investment choices.As noted by a report published by the Boston Consulting Group(BCG)in June 2021,17 Next Gens tend to feel more comfortable with independently navigating many element

39、s of their wealth management,and are not inclined to pay high fees for activities which they believe they can manage on their own.Such activities include high-value alternative investments,impact investing,deal opportunities,private placements,and bespoke credit.In a survey published by Accenture an

40、d Orbium Wealth Management in 2020,18 the market is expected to evolve progressively towards a highly personal-ised segment focusing on individual clients wants and needs.Future engagement models will be driven by clients social,ethical,ecological,and personal values and lifestyle choices,as well as

41、 their needs linked to specific lifecycle events.generational wealth transfer in existing high-net-worth(HNW)/ultra-high-net-worth families based on a study by IQ-EQ(an investor services provider),14 over US$15 trillion worth of assets are scheduled to be passed to the Next Gens by 2030;and rising e

42、ntrepreneurial wealth in IT/new economy space in the US,among the 2021 top 400 wealthiest Americans,most of the 12 under-40 richest Americans have earned their fortune in the tech or social media sectors.15 Similarly,in China,out of the 878 billionaires as of 2020,60 were under the age of 40 and mor

43、e than half found their footing through setting up their own companies.16 With the client base gradually shifting to younger generations raised in the digital age who are heavily dependent on the internet in seeking out knowledge,RMs can add value through deploying technology in distilling and perso

44、nalising data,including market data,to meet client expectations.However,building trust and human relationships will remain important,which is consistent with the core pillar of the PWM business client relationship management.IQ-EQ,The Great Global Wealth Transfer,https:/ Forbes,“12 Under 40”,Septemb

45、er 2020,https:/ CNBC,“Chinas young billionaires are riding the tech boom”,October 2020,https:/ BCG,Global Wealth 2021,June 2021,https:/web- Accenture,Orbium,Survive and thrive to 2025-Insights from the Wealth Management C-Level,https:/ and salesMany banks are leveraging technology to improve their d

46、istribution and sales strategies;the convergence of big data and AI-driven automation has allowed private banks to deliver a targeted and personalised customer experience at scale and with relatively lower costs.To prepare for competition from new entrants,private banks must consider the following:i

47、ncreasing the use of innovative,multi-functional,and value-added features on mobile and online platforms,such as tools that offer trade ideas and execution-only functionalities;enabling greater access to market information and research;allowing a wider range of products to be sold and services to be

48、 offered online;developing new non-client facing tools to deliver seamless and affordable solutions;andinvesting in robo-advisory platforms.The size of the robo-advisory market in Hong Kong was around US$90 million in 2018 and is expected to grow to US$3.5 billion by 2022.19 Furthermore,the total AU

49、M for investments made with robo-advisors are US$6.4 billion in 2025.20 Market practitioners have reflected that they see more potential in robo-advisory platforms which support RMs instead of client-facing robo-advisory services.Through our research process,the FSDC has noted that a trend of incumb

50、ent RMs using hybrid robo-advisory models is already well-established.It is also noted that RMs often utilise the technology of automated platforms to enhance their service offerings to clients while simultaneously saving costs in the middle office.21(a)(b)(c)(d)(e)Deloitte,The rise of robo-advisers

51、 in Asia Pacific,2019,https:/ SCMP,“Hong Kong offers fertile ground for robo-advisory firms to grow and tap wealth management market in mainland China,Aqumon says”,February 2021,https:/ Redesigning Financial Services(RFS),The Future of Wealth Management,March 2021,https:/redesigning- 1920215d.Opport

52、unities relating to the Mainland Chinese marketMultiple studies have identified Mainland China as the global driver for investable wealth in the next few years.A report prepared by Credit Suisse estimates that by 2025,the number of millionaires in China will increase to a total of 10.17 million,i.e.

53、,an estimated 93%increase from that in 2020,which is the highest growth rate among all the countries listed in the report.Table 1.Number of millionaires in 2020 and 2025,by region and for selected countries22Source:Global Wealth Report 2021,Credit SuisseIn its global wealth report issued in June 202

54、1,BCG predicted that Hong Kong will overtake Switzerland to become the worlds largest cross-border wealth management centre by AUM in 2023,with a compound annual growth rate of 9%between 2020 and 2025.23 The GBA is expected to bring about considerable opportunities for Hong Kong.According to the Hur

55、un Global Rich List 2022,Mainland China is home to 1,133 billionaires and there are 276 billionaires living in the GBA alone.24 The GBA has also long been a piloting zone for innovative cross-border financial services and products.For instance,remote account opening by attestation of Mainland China

56、personal accounts(Type II and Type III)was piloted for Hong Kong citizens in 2019,with designated pilot banks in the GBA.Furthermore,with the launch of Wealth Management Connect in September 2021,cross-boundary collaboration among regulators and market participants has been further strengthened.Inno

57、vative and reliable platforms will continue to be critical in facilitating the development of cross border connectivity.Credit Suisse,Global Wealth Report 2021,June 2021,https:/www.credit- BCG,Global Wealth Report,June 2021,https:/web- Hurun,Global Rich List 2022,March 2022,https:/ 2223246Risks and

58、challengesDigitalisation has radically changed the way business is conducted.When used responsibly,technology can provide cheaper and more effective solutions in many aspects of the banking functions such as AML,suitability,disclosures,electronic trading,best execution,marketing,access to research a

59、nd market information,data privacy,outsourcing,and cyber security.Regulators such as the SFC and HKMA have voiced strong support for responsible financial innovation that is in line with their regulatory requirements.However,as PWM institutions continue to digitalise their services,the risk of data

60、breaches and other cyber security issues have understandably become a key concern.In a PWMA member survey published jointly with KPMG in 2020,nearly two-thirds of the surveyed member firms considered the risk of data leakage for confidential client information as one of the top three challenges arou

61、nd using technology;25 whilst in a joint report published by PWMA and KPMG in 2021,the surveyed members noted that back office cyber security was one of the top five digital transformation areas where investment had increased the most year on year.26 Notwithstanding the risk elements associated with

62、 digitalisation,Hong Kongs PWM sector must be committed to staying abreast of innovative technologies and business models in order to meet client expectations while also promoting responsible innovation.This will ensure that Hong Kong remains a competitive international financial centre while keepin

63、g up-to-date with global standards,including those set by the Financial Action Task Force(FATF).PWMA&KPMG,Hong Kong Private Wealth Management Report 2020,November 2020,https:/assets.kpmg/content/dam/kpmg/cn/pdf/en/2020/11/hong-kong-private-wealth-management-report-2020.pdf PWMA&KPMG,Hong Kong Privat

64、e Wealth Management Report 2021,October 2021,https:/assets.kpmg/content/dam/kpmg/cn/pdf/en/2021/10/hong-kong-private-wealth-management-report-2021.pdf 25267AML/CFT Practices in Private Wealth ManagementDigital Transformation in Anti-Money Laundering and Counter-Financing of Terrorism(AML/CFT)Complia

65、nceAs a member of the FATF since 1991,Hong Kong,together with other major jurisdictions in the world which have joined the organisation,is obliged to adhere to FATF standards in promoting effective legal,regulatory,and operational measures to combat money laundering and terrorist financing(ML/TF).Ho

66、wever,in implementing FATF standards,Hong Kong is afforded an appropriate level of flexibility with regards to local law and regulations as well as market practice.In its Mutual Evaluation Report on Hong Kong,published in September 2019,27 the FATF confirmed Hong Kongs strong legal foundation and ef

67、fective system for combating ML/TF and commendable effort in responding to ML/TF risks.A non-exhaustive list highlighting the key features of,among others,Hong Kongs AML/CFT regime and regulations/obligations,is set out in Appendix 1.In light of social distancing measures under the COVID-19 pandemic

68、,the FATF has encouraged the fullest use of responsible digital customer onboarding systems and delivery of digital financial services.28 One such application is the use of digital identification(ID),which can help improve security and privacy,and identify people closer to real time for both onboard

69、ing and conducting transactions.As documented in its 2018 paper,29 the FSDC also supports the use of digital ID and KYC utilities,and noted that reliable and independent digital systems with appropriate risk mitigation measures can effectively reduce the burden associated with compliance for client

70、due diligence(CDD)requirements.Heightened reliance on digitalisation,however,is not without risk.In its paper entitled“Opportunities and Challenges of New Technologies for AML/CFT”issued in July 2021,the FATF noted that the top three challenges faced in the development and/or implementation of new t

71、echnologies are regulatory practices,data privacy and protection requirements,and data quality.30 In this regard,mitigative measures such as manual review and human input remain crucial in managing residual risk.Hong Kong Regulatory Response in Promoting Technologies for AML/CFTIn recent years,Hong

72、Kong regulators have devoted much attention and resources to facilitate technology adoption.For instance,in its September 2020 report on AML/CFT supervision in the age of digital innovation,31 the HKMA acknowledges the benefits and opportunities of digitalisation in the AML/CFT processes;in particul

73、ar,the use of regulatory technologies(Regtech)and supervisory technologies(Suptech)has made financial services more accessible to clients and facilitated the process for financial institutions and regulators to conduct regulatory and supervisory work.FATF,Mutual Evaluation Report of Hong Kong,China,

74、September 2019,https:/www.fatf-gafi.org/media/fatf/documents/reports/mer4/MER-Hong-Kong-China-2019.pdfFATF,COVID-19 and measures to combat illicit financing,April 2020,https:/www.fatf-gafi.org/publications/fatfgeneral/documents/statement-COVID-19.html FSDC,Building the Technological and Regulatory I

75、nfrastructure of a 21st Century International Financial Centre:Digital ID and KYC Utilities for FinancialInclusion,Integrity and Competitiveness,June 2018,https:/www.fsdc.org.hk/media/05ieplto/kyc-paper_e_0.pdf FATF,Opportunities and challenges of new technologies for AML/CFT,July 2021,https:/www.fa

76、tf-gafi.org/media/fatf/documents/reports/Oppor-tunities-Challenges-of-New-Technologies-for-AML-CFT.pdf Deloitte and HKMA,AML/CFT Supervision in the Age of Digital Innovation,September 2020,https:/www.hkma.gov.hk/media/eng/doc/key-informa-tion/guidelines-and-circular/2020/20200929e1a1.pdf 27282930318

77、The HKMA made it clear in its white paper,published in November 2020,32 that it intends to realise its vision for Regtech by 2025 and expects banks to accelerate the adoption of Regtech in Hong Kong.Indeed,the HKMA remains committed to promoting Regtech adoption in AML/CFT in the banking sector,and

78、has cited case studies to demonstrate that data and network analytics allow authorised institutions(AIs)to more easily visualise connectivity of data and identify suspicious customer behaviours and attributes(such as IP addresses,customer name,transactional data,login attempts,and other data relatin

79、g to a customers digital footprint),thereby facilitating the identifi-cation of high-risk relationships and suspicious transactions.33 With remote engagements becoming more prevalent in light of the COVID-19 pandemic,both the HKMA and SFC have provided guidance on the use of technological means to h

80、elp the industry comply with AML/CFT requirements under a risk-based approach.In 2020,the SFC amended its Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission(Code of Conduct)to devise new approaches for account opening.The HKMA also issued several circula

81、rs between 2019 and 2021,setting out the guiding principles for remote onboarding,including a circular on remote onboarding of corporate customers,and a circular encouraging the wider adoption of“iAM Smart”(which stands for“internet Access by Mobile in a Smart way”)in remote onboarding arrangements.

82、34 Additionally,the launch of the mobile application“iAM Smart”by the Government in December 2020 represents a turning point for the industry.This is an acceptable technology solution that meets customer identification and verification requirements under the AMLO.As a next step,the Government intend

83、s to develop systems to recognise accredited foreign providers of eID services such as those in the European Union,as well as the development of an equivalent solution for accredited eID service providers in Hong Kong.It is acknowledged that the Government is in the process of amending the AMLO to e

84、nable the use of a recognised digital identification system that is a reliable and independent source.Moreover,iAM Smart is also recognised by the relevant regulatory authorities for customer identification and verification purposes.The iAM Smart mobile application is an example of a recognised digi

85、tal identification system;the FSDC is supportive of this development.To facilitate the exchange of data between financial institutions,appropriate third-party service providers,and government agencies,the HKMA launched an Open API framework35 in July 2018 and provided further updates in May 2021.36

86、The implementation of Phases III and IV of banking Open API would further facilitate KYC procedures and reduce authentication costs by streamlining processes through sharing customer profiles.HKMA,Transforming Risk Management and Compliance:Harnessing the Power of Regtech,Press release,November 2020

87、,https:/www.hkma.gov.hk/-media/eng/doc/key-information/press-release/2020/20201102e3a1.pdf Deloitte and HKMA,AML/CFT Regtech:Case Studies and Insights,January 2021,https:/www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2021/20210121e1a1.pdf HKMA,Remote on-boarding and iAM Smart

88、,May 2021,https:/www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2021/2021052 4e1.pdfHKMA,Open API Framework for the Hong Kong Banking Sector,July 2018,https:/www.hkma.gov.hk/media/eng/doc/key-information/press-release/2018/20180718e5a2.pdf Accenture and HKMA,The Next Phase of

89、the Banking Open API Journey,May 2021,https:/www.hkma.gov.hk/media/eng/doc/key-functions/ifc/fintech/The_Next_Phase_of_the_Banking_Open_API_Journey.pdf 32333435369Regulatory Challenges Faced by the Private Wealth Management Industry Long Onboarding Time and High Costs for KYC/AML Compliance A notabl

90、e challenge is associated with group-wide AML/CFT systems.In particular,the requirement in Hong Kong for an overseas branch or subsidiary undertaking a Hong Kong-incorporated AI to apply the higher requirements of:(i)the jurisdiction where the overseas branch or subsidiary undertaking is located(i.e

91、.,the host jurisdiction),and(ii)Hong Kong,if the AML/CFT requirements in the host jurisdiction and Hong Kong differ,and to the extent that the host jurisdictions laws and regulations permit,rather than allow,the host jurisdictions equivalent laws and regulations to prevail.40 In its circular on“De-r

92、isking and Financial Inclusion”published in September 2016,the HKMA emphasised that while it is vital for AIs to ensure AML/CFT controls are sufficiently robust and comply with all the relevant regulatory requirements,AIs are expected to adopt a risk-based approach and refrain from adopting practice

93、s that would result in financial exclusion,particularly in respect of bona fide businesses needing access to basic banking services.41 Based on the PWMA and KPMG annual survey in 2021,the average client onboarding time for PWM institutions has seen a slight improvement from 40 business days in 2020

94、to 36 business days in 2021.42 Notwithstanding the shorter time span in client onboarding,85%of the surveyed practitioners still considered KYC and AML/CFT as the regulatory areas requiring the most resources and budget.43 i.Promoting sound AML/CFT and KYC practicesIn view of the growing prominence

95、of digitalisation and the need for an aligned and more streamlined industry-wide solution,regulators(i.e.,the HKMA and SFC)have been providing up-to-date guidance from time to time in line with international standards.Additional best practice guidance or frequently asked questions(FAQs)developed fro

96、m the PWM industry(issued/endorsed by the HKMA and SFC)can help provide greater consistency and clarity in respect of client onboarding processes and ongoing AML/CFT obligations across PWM entities to ensure a consistent and aligned approach.Our RecommendationsNoting the importance of having adequat

97、e name screening systems and controls in place,in April 2018,the HKMA shared some feedback from its thematic reviews of AIs name screening systems which,among other factors,concluded that operating ineffective name screen systems brings significant legal and reputational risks,and that the cost of i

98、nefficient screening systems should not be underestimated.37,38 Given the dynamic nature of risk,as well as the volume and speed of data,the HKMA recognises the vital role played by technology and Regtech to help banks monitor,screen,and analyse information.39 Accordingly,name screening should be co

99、nsidered alongside and together with AML/CFT KYC in this context.HKMA,Feedback from Recent Thematic Review of AIs Sanctions Screening Systems,April 2018,https:/www.hkma.gov.hk/media/eng/doc/key-informa-tion/guidelines-and-circular/2018/20180412e1.pdf HKMA,Seminar on Thematic Review of AIs Sanctions

100、Screening Systems,April 2018,https:/www.hkma.gov.hk/media/eng/doc/key-functions/bank-ing-stability/aml-cft/Presentation_23_04_2018.pdf Deloitte and HKMA,AML/CFT Regtech:Case Studies and Insights,January 2021,https:/www.hkma.gov.hk/media/eng/doc/key-information/guide-lines-and-circular/2021/20210121e

101、1a1.pdfHKMA,paragraph 3.18 of Guideline on Anti-Money Laundering and Counter-Financing of Terrorism(For Authorized Institutions),October 2018,https:/ww-w.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/guideline/g33.pdf HKMA,De-risking and Financial Inclusion,September 2016,https:/

102、www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2016/20160908e1.pdfPWMA&KPMG,Hong Kong Private Wealth Management Report 2021,October 2021,https:/assets.kpmg/content/dam/kpmg/cn/pd-f/en/2021/10/hong-kong-private-wealth-management-report-2021.pdfIbid3738394041424310ii.Government

103、involvement and support in the use of technology in client onboardingFor a longer-term solution beyond the basic digital and non-face-to-face ID verification of individuals and entities,the industry urges that a sector-wide KYC utility is established,as unveiled in FSDCs paper published in June 2018

104、.44 While iAM Smart is viewed as an acceptable technology solution for remote onboarding for individuals,together with the Commercial Data Interchange which facilitates the secure movement of data for corporates,it would be beneficial to continue exploring efficient ways to promote client onboarding

105、.Such means should allow client information to be submitted,validated,and shared across institutions with a view to improving client experience and reducing compliance burden.For example,consideration should be given as to how the available big data,artificial intelligence,and analytics can be used

106、in KYC more broadly to facilitate the complete customer lifecycle,which includes,but is not limited to,onboarding,sanctions,suitability assessment,disclosure,and ongoing monitoring.iii.Developing a more facilitative regulatory regime for family officesThe set-up of family offices has gathered signif

107、icant momentum globally in recent years,and it has been identified as a key growth area in Hong Kong.According to the PWMA-KPMG Hong Kong Private Wealth Management Report 2021,77%of the surveyed PWM institutions agreed that family offices are an increasing source of business for their organisation.4

108、5 While attracting family offices to Hong Kong continues to be a focus for the PWM industry,certain regulatory risks must be addressed.For example,the types of activities routinely conducted by family offices are often similar in nature to those of regulated institutions,and are regarded by the FATF

109、 as potentially having higher ML/TF risks.Family offices are not regulated for AML/CTF purposes unless they are licensed trusts or company service providers regulated by the Registry of Trust and Corporate Service Providers within the Hong Kong Companies Registry,or licensed investment managers regu

110、lated by the SFC.We acknowledge that efforts have also been made by the Law Society of Hong Kong with regards to improving the regulatory framework in relevant areas such as family offices and trustee companies in Hong Kong dealing with private wealth.In this respect,the financial services industry

111、can benefit from better clarity and guidance from regulators regarding the framework applicable to Hong Kong-based family offices.The detailed policy recommendations can be found in the FSDCs paper on“Family Wisdom:A Family Office Hub in Hong Kong”(Family Office Paper)published in July 2020.46 FSDC,

112、Building the Technological and Regulatory Infrastructure of a 21st Century International Financial Centre:Digital ID and KYC Utilities for Financial Inclusion,Integrity and Competitiveness,June 2018https:/www.fsdc.org.hk/media/05ieplto/kyc-paper_e_0.pdf PWMA&KPMG,Hong Kong Private Wealth Management

113、Report 2021,October 2021,https:/assets.kpmg/content/dam/kpmg/cn/pdf/en/2021/10/hong-kong-private-wealth-management-report-2021.pdf FSDC,Family Wisdom:A Family Office Hub in Hong Kong,July 2020,https:/www.fsdc.org.hk/media/lrej3ikz/fsdc_paper?_no_45_family_wisdom_a_ family_office_hub_in_hong_kong_pap

114、er_eng.pdf 44454611The Professional Investor Regime&Sophisticated Professional Investors in Hong KongHong Kongs regulators have refined and streamlined the professional investor regime(PI Regime)over the years,in particular following the global financial crisis of 2008 and against the backdrop of si

115、gnificant individual investor losses stemming from mis-selling of investment products to HNWIs by financial institutions.Please refer to Appendix 2 for the implemented changes in the PI Regime.When the current PI regime was being contemplated,questions were raised as to the wisdom of prescribing an

116、individual,an individuals investment holding corporation,and a corporation,each holding a portfolio of HK$8 million,as PIs.The figure of HK$8 million was not considered a massive amount in 2003.The regulators held the view that while an individual or a corporation holding a portfolio of HK$8 million

117、 has greater capacity to absorb investment losses,such an individual or corporation might not necessarily be a knowledgeable or sophisticated investor,and therefore should be afforded the same level of protection as non-PIs under the Securities and Futures Ordinance(Cap.571 of Hong Kong)(SFO),the Se

118、curities and Futures(Professional Investors Rules)(Cap.571D of Hong Kong)(PI Rules),and the Code of Conduct.Despite there being some merit to this view,when individuals and corporations opt in for PI status,industry participants believe that the PI Regime has overlooked the considerable compliance b

119、urden imposed on financial institutions.Specifically,such burden revolves around carrying out a detailed examination of their clients investment knowledge and sophistication,which is considered disproportionate to the level of client protection offered.It also fails to take into account the customer

120、 experience.As a result,a better balance needs to be struck between securing adequate investor protection and reducing the operational and regulatory burden currently borne by financial institutions in conducting client knowledge and sophistication assessments.Over a 19-year period since 2003,the SF

121、C has introduced amendments to the PI Rules and the Code of Conduct to allow more flexibility in their application.These include allowing certain asset types to be taken into account by Individual PIs in determining the value of their portfolios,expanding the definition of corporate PIs,and allowing

122、 alternative forms of evidence to demonstrate qualification as PIs.As the financial markets are currently trading in a more complex and sophisticated manner than they were in 2003,now may be an opportune time to revisit the net assets test for ascertaining whether an individual,an individuals invest

123、ment corporation,or a corporation may be treated as a PI,and if so,the type of PI which is applicable.Current PositionIn May 2013,the SFC issued a public consultation paper concerning the PI Regime,47 which included a proposal to define PIs under three categories in the Code of Conduct,namely Instit

124、utional PIs,Corporate PIs,and Individual PIs(Code of Conduct PIs).In September 2014,the SFC published its consultation conclusions48 and the amended Code of Conduct came into effect in March 2016.At that time,no change was introduced in respect of institutional PIs,who continue to be persons falling

125、 under paragraphs(a)to(i)of the definition of“professional investor”under the SFO for the purposes of the Code of Conduct.However,the remaining PIs,being the classes prescribed in the PI Rules made pursuant to paragraph(j)of the definition of“professional investor”under the SFO,were separated into t

126、wo distinct categories for the purposes of the Code of Conduct as follows:SFC,Consultation Paper on the Proposed Amendments to the Professional Investor Regime and the ClientAgreement Requirements,https:/apps.sfc.hk/edistributionWeb/api/consultation/openFile?lang=EN&refNo=13CP1 SFC,Consultation Conc

127、lusions on the Proposed Amendments to the Professional Investor Regime and Further Consultation on the Client Agreement Requirements,https:/apps.sfc.hk/edistributionWeb/api/consultation/conclusion?lang=EN&refNo=13CP1 474812Corporate PIs,being those falling under sections 3(a),(c),and(d)of the PI Rul

128、es,namely:(a)Individual PIs,being individuals falling under section 3(b)of the PI Rules,namely,those having a portfolio of no less than HK$8 million.Any such portfolio can be held on the individuals own account,jointly,or by the individuals wholly owned investment holding corporation.(b)A trust corp

129、oration entrusted with total assets of no less than HK$40 million;A corporation having a portfolio of no less than HK$8 million or total assets of no less than HK$40 million;A corporation whose principal business is the holding of investments and which is wholly owned by another type of PI;A corpora

130、tion which wholly owns a corporation having a portfolio of no less than HK$8 million or total assets of no less than HK$40 million;andA partnership having a portfolio of no less than HK$8 million or total assets of no less than HK$40 million;and(i)(ii)(iii)(iv)(v)While financial institutions dealing

131、 with Institutional PIs are automatically exempt from compliance with the obligations stipulated in paragraphs 15.4 and 15.5 of the Code of Conduct,the same exemption does not apply to financial institutions dealing with Corporate PIs.Separately,market participants have voiced their concerns that th

132、e interpretation of the Code of Conduct PIs has caused considerable confusion with the SFO definition of“professional investor”,as it regards private placement of safe harbours for offerings of securities and other investment products to investors in Hong Kong.The assessment of Code of Conduct PIs,o

133、n the other hand,is used to determine whether certain exemptions can be applied(e.g.,requirements for client agreement and suitability).Our RecommendationsGiven the evolution of the financial markets over the past two decades,increasing digitalisation of financial services,as well as individuals wea

134、lth growth,we believe that the PI framework should be reviewed in its entirety to reposition Hong Kong as a dynamic PWM hub,particularly in light of the opening up of the GBA.Such review should aim to improve the overall customer experience and facilitate the provision of a wider choice of investmen

135、t products and research to PIs,both face-to-face and online,in a more efficient manner and without necessarily triggering the suitability requirements.The FSDC is not,however,recommending the need to review the current product offering private placement safe harbours that have existed under the SFO

136、since 2003.In our view,the Hong Kong market can greatly benefit from addressing two areas of industry concern as a priority,namely(i)the financial thresholds for determining who qualifies as a PI,which have remained unchanged since 2003;and(ii),the suitability regime which is built upon a mix of pre

137、scriptive regulatory direction and a principle-based approach that is challenging for the industry to implement from a compliance perspective.The suitability regime is discussed in more detail in the next section.13Hong Kong49(Professional Investor)Singapore50(Accredited Investor)US51(Accredited Inv

138、estor)UK52(Elective Professional Client)Switzerland 53,54(Professional Client55)MonetarycriteriaA portfolio of not less than HK$8,000,000 for corporate professional investors(CPIs)that satisfy the eligible CPI criteria re investment experience and sophistication.All individuals and ineligible CPIs a

139、re treated as retail investors for suitability purposesFinancial instrument portfolio exceeds EUR500,000(equivalent to HK$4,255,000)HNWI and private invest-ment structures established for such individu-als who have a financial wealth of at least CHF2,000,000(equivalent to HK16,800,000)56 Net persona

140、l assets exceed a value of SG$2,000,000(equivalent to HK$11,500,000);Financial assets(net of any related liabilities)exceed a value of SG$1,000,000(equivalent to HK$5,740,000);orIncome in the preceding 12 months is not less than SG$300,000(equivalent to HK$1,723,000)Net worth exceeds US$1,000,000(eq

141、uivalent to HK$7,800,000),either alone or together with a spouse(excluding the value of primary residence);orIncome exceeds US$200,000(equivalent to HK$1,570,000)(or US$300,000(equivalent to HK$2,351,000)together with a spouse)in each of the prior two years,and reasonably expects the same for the cu

142、rrent yearDefinition of“professional investors”in various markets14HK e-Legislation,https:/www.elegislation.gov.hk/hk/cap571D Singapore Statutes Online,Securities and Futures Act 2001,https:/sso.agc.gov.sg/Act/SFA2001 U.S.Securities and Exchange Commission,Accredited Investors Updated Investor Bulle

143、tin,April 2021,https:/www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins/updated-3 Financial Conduct Authority,COBS 3.5 Professional Clients,https:/www.handbook.fca.org.uk/handbook/COBS/3/5.html Fedlex,Federal Act on Financial Services,Article 4

144、 Client Segmentation,https:/www.fedlex.admin.ch/eli/cc/2019/758/en#art_4J.P.Morgan,Classification Criteria under the Swiss Financial Services Act,https:/ Only individual professional client is taken into account in this comparison.Fedlex,Federal Act on Financial Services,Article 5 Opting out and Opt

145、ing in,https:/www.fedlex.admin.ch/eli/cc/2019/758/en#art_5 49505Hong Kong(Professional Investor)Singapore(Accredited Investor)US(Accredited Investor)UK(Elective Professional Client)Switzerland (Professional Client)Non-monetary criteriaApplication ruleNot applicableMeet the single monetary

146、 criterionNot applicableMeet any of the monetary criteriaOn the basis of training,educa-tion and profes-sional experi-ence or on the basis of compa-rable experi-ence in the financial sector,they possess the necessary knowledge to understand the risks associated with the invest-ments and have at thei

147、r disposal assets of at least CHF500,000(equivalent to HK$4,200,000)Meet at least one of the above criteriaProfessional certifications,designations and other credentials issued by an accredited educational institution“Knowledgea-ble employ-ees”of private fundsMeet any of the monetary or non-monetary

148、 criteriaMeet at least two out of three monetary and non-monetary criteriaCarrying out transactions in significant size on the relevant market at an average frequency of 10 per quarter over the previous four quartersWorking experience in the financial sector for at least one year in a profes-sional

149、position15Suitablity FrameworkOnce the suitability requirement is triggered for a PWM client,it then becomes necessary to consider how in practice it is being implemented by the wealth management industry and regulated by the HKMA and SFC.Hong Kongs Suitability Framework57 is complex and has evolved

150、 over time through amendments of the Code of Conduct as well as various guidelines and circulars58 issued by the SFC and HKMA since the global financial crisis of 2008.Many PWM practitioners consider that the Suitability Obligations imposed on them under the current Suitability Framework do not suff

151、iciently differentiate between a retail client and a private banking client59.Although it is generally agreed that wealth does not automatically equate to investment sophistication,equally treating both types of clients is not necessarily the right approach either.In any event,the FSDC does not cons

152、ider it unreasonable to give a private banking client the ability to make an informed decision whether to opt out from being treated as a retail investor,as discussed further below.Industry ObservationsIn view of the constantly evolving regulatory environment,as well as changes in investor demands a

153、nd behaviour,industry trends,and practices in other markets,the following areas have been identified as requiring change in order to facilitate industry development.a.Prescriptive-based regulationsSuitability Obligations have become overly prescriptive and discourage intermediaries from developing t

154、heir own framework and control mechanism to better reflect operating environment and business dynamics.Due to the prescriptive nature of the Suitability Obligations and the fear of being considered in breach of relevant rules/regulations,intermediaries have typically resorted to adopting a mechanica

155、l check-box approach to evidence compliance.60 This often translates to a mechanical review and matching of the clients risk profile and rationale in undertaking the suitability assessment,as well as a mechanical“read out”by front-line staff from a risk disclosure list prepared by the intermediary(c

156、heat sheet).While regulators endorse a“risk-based”approach,they may disagree with the intermediarys judgment on how the suitability assessment is implemented,and at worst,impose regulatory sanctions.b.Unsolicited productsParagraph 5.5 under“Know your client:complex products”in the Code of Conduct ca

157、me into effect on 6 April 2019,61 and requires an intermediary to follow the Suitability Framework when dealing in complex products,irrespective of whether the product is solicited or not.In practice,if the product involved is not offered by the intermediary and is instead initiated by the client(i.

158、e.,unsolicited),it is resource-intensive for intermediaries to undertake product due diligence,prepare risk disclosure,and provide relevant warning statements to the client prior to executing the clients instructions.It is not uncommon for an intermediary to simply decline a sophisticated clients re

159、quest,which in turn limits such a clients choice of products.Suitability Framework refers to the regulatory regime governing Suitability Obligations and Exemptions Please refer to Appendix 4 for a list of circulars issued by the SFC and the HKMA since the global financial crisis in relation to Suita

160、bility Obligations.Though certain measures demanded by the HKMA apply only to retail banking customers,e.g.physical segregation,audio recording,pre-investment cooling off period,companion requirement for vulnerable clients.See HKMA circular dated 25 September 2019“Investor Protection Measures in res

161、pect of Investment,Insurance and Mandatory Provident Funds Products,https:/www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2019/20190925e2.pdfPlease refer to Appendix 5 for an example of investment rationale heck boxes used by financial institutions.The paragraph reads“a licens

162、ed or registered person providing services to a client in complex products should ensure that(a)a transaction in a complex product is suitable for the client in all circumstances(b)sufficient information on the key nature,features and risks of a complex product is provided so as to enable the client

163、 to understand the complexproduct before making an investment decision575859606116c.Overlapping requirementsThe evolution of the Suitability Framework,which involves the addition of new requirements on top of existing practices,has resulted in a complex web of requirements which institutions have fo

164、und challenging to reconcile.As an example,from the Code of Conduct,paragraph 5.1A(KYC:investor characterisation)and paragraph 5.5(KYC:complex products)appear to contain certain common features in that they both deal with“riskier”products.As a result,financial institutions may find themselves applyi

165、ng different processes even when dealing with transactions of a similar nature.d.Suitability Obligations and contractual dutyEnsuring suitability is a regulatory obligation imposed on intermediaries under the Code of Conduct.While the intermediary owes a common law duty to its clients,it has been cl

166、arified by case law that the Suitability Obligations under the Code of Conduct“cannot override express contractual provisions”.62 A list of the key Suitability Obligations under the Code of Conduct is set out in Appendix 3.A new paragraph 6.2(i)was added to the Code of Conduct,effective from 9 June

167、2017 under the heading“Minimum content of client agreement”.Effectively,Suitability Obligations are“contracted-in”via paragraph 6.2(i).In other words,when the intermediary solicits/recommends a financial product,the intermediary is obliged to ensure the product is reasonably suitable for the investo

168、r.According to some practitioners,this has complicated the operating process,as it requires the intermediary to identify and segregate each transaction into“solicitation”and“non-solicitation”(as the case may be),and places heavy reliance on frontline staff to honour a contractual term.e.“Portfolio-b

169、ased”assessment of suitabilityThe HKMA accepts a“portfolio-based”approach to assess the suitability of products for an investor,as announced in its circular published on 12 June 2012.63 In particular,private banks may conduct a suitability assessment on a holistic basis,taking into account all the c

170、ircumstances of the client(including investment objectives and horizon,risk tolerance,investment experiences and knowledge,financial situation,investment objectives,or mandates outside the bank,etc.).In this regard,it is possible for a high-risk product to be considered reasonably suitable to be sol

171、d to a low-to-medium risk client,so long as the portfolio allocation and overall risk level agreed with the client is adhered to,and such high-risk products only constitute a proportionate part of the clients portfolio to ensure the clients portfolio as a whole remains a low-to-medium risk portfolio

172、.While the HKMAs circular seemingly provides a more workable framework or process by relaxing certain prescriptive requirements when conducting suitability,the full benefits offered by the circular have not materialised.In practice,the majority of private banks have not adopted or fully adopted the

173、portfolio-based approach,claiming that the significant cost required to implement new systems to support portfolio-based assessments outweighs the perceived benefits.64 Para.135,Reyes J,Kwok Wai Hing Selina v HSBC Private Bank(Suisse)SA,HCCL 7/2010HKMA,Circular“Selling of Investment Products to Priv

174、ate Banking Customers”,12 June 2012,https:/www.hkma.gov.hk/media/eng/doc/key-informa-tion/guidelines-and-circular/2012/20120612e1.pdf For instance,some claim that the requirement of“investment mandate”does not truly reflect how the advisory account are being conducted(i.e.,advisory account would not

175、 require the client to sign an investment mandate)62636417f.Exemption of Suitability ObligationsCurrently,the Suitability Obligations may not be waived when dealing with an individual investor,even if they meet the HNW threshold and demonstrate a high level of sophistication,knowledge,and investment

176、 experience.Furthermore,many Corporate PIs do not qualify for exemptions because they do not have the relevant corporate structure and investment process and controls in place.As a result,many clients(i.e.,HNW and Corporate PIs)must be treated the same way as a retail client in terms of the on board

177、ing,KYC,and Suitability Obligations.The PWM industry has indicated that there is a growing number of clients both onshore and offshore looking to access Hong Kong,who are sophisticated with substantial investment experience and knowledge.These clients,known as“sophisticated PIs”,have expressed their

178、 frustration to private banks65 concerning the applicability of Hong Kongs Suitability Regime to them and their inability to opt out of certain investor protection measures in order to streamline their onboarding process and expand the products and services that may be offered to them.The industry b

179、elieves that the Hong Kong regulatory regime should recognise the differential status in such sophisticated PIs and provide a degree of flexibility in the services and products offered to them.Our RecommendationsWe believe it is an opportune time for the Government and relevant regulators to revisit

180、 the Suitability Framework and Suitability Obligations in respect of the following:The above recommendations are being made in the context of addressing issues related to the current Suitability Framework under the Code of Conduct.Notably,we are not seeking to disturb the current product offering pr

181、ivate placement safe harbours under the SFO.Regulatory intent,application,and manner in which regulatory compliance is monitored by the HKMA and SFC;Review the current regime in respect of who can be exempt from the Suitability Obligations upon the consent of such investors.This could involve:i.ii.R

182、eview and streamline the“portfolio-based approach”regime which was introduced by the HKMA in 2012 for the private banking industry.iii.simplifying the Code of Conduct PI Regime to provide for only one class of investors who meet the designated eligibility criteria;amending the Code of Conduct to all

183、ow individual and corporate investors meeting certain eligibility criteria to be classified as Asset Based PIs eligible for suitability exemptions;introducing a new category of individual investors,i.e.,“Sophisticated PI”;and(a)(b)(c)65 Sophisticated Professional Investor is the term used by the Pri

184、vate Wealth Management Association in its communication with the SFC18i.Regulatory intent,application,and manner in which regulatory compliance is monitored bythe HKMA and SFCThe industry acknowledges that the role of the SFC and HKMA remains a challenging one,not least due to market cycles,increase

185、d investment and geopolitical risks,and industry aspirations for the PWM industry and regional competition to serve as the leading asset management hub all balanced against the ongoing requirement to ensure Hong Kong remains a jurisdiction where investor protection remains paramount.Hong Kongs finan

186、cial intermediaries face considerable challenges in complying with the Hong Kong Suitability Framework,which has,over the years,evolved into a complex plethora of SFC Codes,SFC and HKMA Circulars,Guidelines,FAQs,and thematic reviews.The industry also shares a perception that both the regulatory rout

187、ine inspection and investigatory actions measure suitability compliance against a high level of prescription.As a result,financial institutions remain hesitant to adopt a principle/risk-based approach,fearing any diversion from prescriptive compliance might be challenged by regulators.In view of the

188、 above,the industry would welcome both the SFC and HKMA in clarifying and reaffirming their position concerning the principle-based approach to suitability assessment,and to continue to work with the industry to dispel the concerns mentioned above.The involvement of both the SFCs Intermediaries and

189、Supervision and Enforcement Departments and the HKMAs Banking Conduct division in this exercise would be helpful for the industry to gain a better understanding of how a principle-based approach is applied in each of the review,monitoring,investigation,and enforcement functions.ii.Review the assessm

190、ent for dis-applying Suitability ObligationsSimplification of the Code of Conduct PI RegimeIn comparison to the Hong Kong Suitability Framework,the Singapore regime relies on an opt-in approach by the investor,and accredited investors are classified in accordance with one simple monetary threshold.W

191、ith appropriate disclosure,banks are exempt from complying with the suitability obligations in Singapore when dealing with all accredited investors who have opted in.66 Asset-based Professional InvestorsThe Code of Conduct can be amended to allow individual and corporate investors meeting certain el

192、igibility criteria to be classified as PIs eligible for suitability exemptions.For example,allowing Suitability Obligations contained in paragraphs 15.4(a)(ii)and(e)to be exempted when dealing with an individual or corporate who(either alone or with any of his/her associates on a joint account)has a

193、 portfolio of no less than HK$40 million or total assets(excluding main residence)of no less than of HK$80 million.67 Such exemptions should be subject to proper disclosure and the consent of the investor similar to the“opt-in”and disclosure mechanism adopted in Singapore.The consent provided by the

194、 investor should be in writing and must be updated on an annual basis.Banks have a detailed disclosure“Regulatory Safeguards that do not extend to AIs”,found commonly in the banks website.https:/.sg/per-sonal/accreditedinvestor/default.page,https:/www.credit- is made to comparable markets in section

195、 IV666719Sophisticated Professional Investors The Code of Conduct can be amended to include a new category of PIs(i.e.,“sophisticated PIs”)to cover both individual and corporate investors who by virtue of their experience and sophistication should be offered the ability to trade in a different manne

196、r to retail investors.The current test for assessing the eligibility of a corporate professional investor in paragraph 15.3A(b)of the Code of Conduct could be refined for use in assessing the experience and sophistication of an individual investor.It is envisaged that the category of sophisticated P

197、I would in practice be restricted to a relatively small number of individual investors by virtue of their experience and sophistication.However,it is believed that such individuals who opt-in to being treated as a“sophisticated PI”would benefit from a wider choice of investment products and services

198、 by virtue of having opted out of the suitability regime.We would also recommend that“standard”disclosures be prepared when addressing and seeking exemptions from the suitability requirements similar to the prescribed Risk Disclosure Statements as set out in Schedule 1 of the Code of Conduct.iii.Rev

199、iew the“portfolio-based approach for the PWM industryGiven its limited application,the“portfolio-based”assessment of suitability has not been fully utilised by the industry when providing services to private banking customers.We believe that it is an appropriate time for the HKMA or SFC to review an

200、d further streamline the regime in order to better facilitate the adoption of a portfolio-based approach in the private banking sector.20Tax Complication for Private Wealth Management in Hong KongCertain aspects in the current tax system in Hong Kong may have undermined the intention for ultra-high-

201、net-worth individuals(UHNWI),as asset owners,to further invest in Hong Kong-launched private management products and opt for Hong Kong private wealth managers.The potential adverse tax implications could have an indirect negative effect on the PWM industry in Hong Kong,and would go against industry

202、efforts to promote a more vibrant and comprehensive ecosystem in Hong Kong.In short,the overarching principle has long been that individuals are not taxed on their investment income in Hong Kong unless such gains are related to Hong Kong real estate and the like.UHNWIs have the flexibility to use di

203、fferent investment structures for their investments;that said,if they were to use a Hong Kong private wealth manager or invest in Hong Kong private wealth products,they may be subject to Hong Kong tax,which would not otherwise be charged against other individuals.To retain private wealth managers ta

204、lents in Hong Kong,attract more overseas private wealth managers to set up and run their operations in Hong Kong,and attract both foreign and local investors to have their assets managed by Hong Kong private wealth managers and allocated to Hong Kong wealth management products,the FSDC has called fo

205、r changes to the current tax regime to ensure that individual asset owners are treated on an equal footing regardless of whether they are Hong Kong residents or not.The tax policy recommendations are similar to those for promoting family offices set up in Hong Kong as both family offices and private

206、 wealth managers providing services mainly to HNWIs.The FSDC is pleased to see that the tax policy recommendations,as set out in the Family Office Paper,were acknowledged and addressed in the recent Budget Speeches.68 Additionally,the launch of a consultation on the proposal to provide a profits tax

207、 concession for family-owned investment-holding vehicles managed by single family offices in Hong Kong(the family office consultation)demonstrates that the government is actively taking steps to address the issues identified in Hong Kongs current tax system.The FSDC has reiterated the importance of

208、these additional enhancement measures,which could bring further clarity and benefits to asset owners,and indirectly,to private wealth managers(and family offices,and more broadly,the asset and wealth management industry in Hong Kong).i.Applying the same tax treatment for investment by personal inves

209、tment companies(PICs)as individualsPICs are a very common investment structure used by UHNWIs.As pinpointed in the Family Office Paper,the FSDC recommends the Inland Revenue Department(IRD)to recognise the investments of PICs as investments of the individuals themselves,and to apply the same tax tre

210、atments to such investments provided certain commercial conditions are met,including but not limited to the following conditions:more than 90%of the assets of the PICs must be financial assets;PICs cannot have control over investee companies;PICs cannot conduct other trades or businesses;andPICs nee

211、d to be owned by an individual or a trust with all beneficiaries as individuals,and that these relevant individuals are not engaged in the business of securities trading or dealing.-68 FSDC,FSDC welcomes 2022-23 Budget,February 2022,https:/www.fsdc.org.hk/en/media/fsdc-welcomes-2022-23-budget 21Same

212、 tax treatments for investment by PICs and that by individuals can be achieved by the IRD adopting a more liberal interpretation of the existing law and guidelines on what is considered“carrying on a trade or business”via a look-through approach(by referring to the tax exemption regime on special pu

213、rpose entities under the UTE Regime for Funds).As set out in the Family Office Paper,measures can also be put in place to avoid inadvertent abuse by individuals who set up PICs to carry on other trades or businesses.ii.Removing the existing deeming provision under the UTE regimeAs put forth in the F

214、amily Office Paper,the FSDC believes that the existing deeming provisions under the UTE regime are broadly restrictive,which may discourage UHNWIs who are residents of Hong Kong or intend on becoming residents of Hong Kong from investing in locally managed private funds making use of the UTE regime.

215、The FSDC suggests a review of the existing deeming provisions with a focus on whether or not the existing deeming provisions would deter the genuine investors with no tax avoidance intention,including UHNWIs,to invest in locally managed funds.As mentioned above,individuals are generally not subject

216、to tax in Hong Kong in respect of their investment income.However,the fact that they can be caught by the deeming provisions under the UTE regime would deter them from making investments in locally managed funds.The FSDC recommends that the deeming provision be removed for individuals.To reinforce H

217、ong Kongs status as a competitive,attractive,and inclusive asset and wealth management centre,various measures have been taken over the past few years to enrich the asset and wealth management ecosystem.These efforts include allowing the establishment of Hong Kong domiciled funds in the form of an o

218、pen-ended fund company or a Hong Kong limited partnership.If individuals are unable to invest in Hong Kong products or the locally managed private funds which have relied on the UTE regime due to the unfavourable tax implications,the Hong Kong fund platforms and UTE would not be put to good uses,and

219、 this would go against the policy intentions of the overall regime.With the above in mind,the FSDC has called for urgent changes in this regard.The FSDC welcomes the steps taken to date to facilitate the growth of family offices in Hong Kong.In particular,while the anti-avoidance provisions in the f

220、amily office consultation is modelled on the existing“deeming”provisions under the UTE regime for funds,it proposes two carve-outs,namely for(i)Hong Kong resident individuals,and(ii)Hong Kong resident entities that are passive investment-holding vehicles exclusively and beneficially owned by a singl

221、e family,or a single family office exclusively and beneficially owned by the single family,subject to certain anti-abuse measures including there should not be any arrangement of shifting taxable income from the single family to an family-owned investment holding vehicle for obtaining a tax benefit.

222、69 These carve-outs represent a positive step forward in providing tax certainty to investment-holding vehicles owned by UHNWIs and their family members,in order to attract family offices to be set up and operated in Hong Kong,and are in essence similar to the two additional enhancement measures pro

223、vided above.As such,the FSDC recommends that similar taxation principles and sentiments from the family office tax concession be extended to PICs/individuals,which would be advantageous for both the PWM industry and Hong Kong in further promoting Hong Kong as an asset and wealth management hub in th

224、e region,and to help the citys PWM industry reach new heights.KPMG,The Proposed Family Office Tax Exemption Regime in Hong Kong,March 2022,https:/home.kpmg/cn/en/home/insights/2022/03/tax-alert-03-hk-the-proposed-family-office-tax-exemption-regime-in-hk.html 6922Education and Talent DevelopmentBuild

225、ing a talent pipeline is essential to sustaining the growth of Hong Kongs wealth management industry.Attracting and retaining talent in Hong Kongs PWM industry requires an abundance of job openings and career development opportunities.In other words,it is vital to create an environment to attract as

226、set management companies or private banks to station and expand in Hong Kong,for both front and middle/back office.With reference to the various research findings on the PWM industry,70,71 and its ancillary sectors(e.g.,family office),72 talent supply is increasing but talent gaps remain,and the gre

227、atest talent gaps identified are associated with particular skillsets at the experienced level with the right/high competence level,e.g.,the RM position continues to be a“top three”role where talent supply is most critical.Experience and competency do not come overnight,but instead through a pipelin

228、e of growing talent at the entry level,attracting mid-career transfer into the pipeline,and enhancing the quality of talent throughout the pipeline.This section considers the current status of talent development in Hong Kongs wealth management industry,covering entry level,mid-career,and continued s

229、kill set enhancement,and to provide recommendations on further developing the talent pipeline from todays foundation.Entry Level Undergraduates and PostgraduatesCurrent Undergraduate/Postgraduate Programmes with Wealth Management FocusLocal universities supply a substantial number of business/financ

230、e graduates every year.The challenge is whether these graduates are aptly equipped,during their four years of study,with the required entry level of knowledge of the wealth management industry and other financial services sectors,such as banking securities and insurance.While foundation programmes a

231、nd academic courses are important to prepare students with the right technical mindset,it would be beneficial to the students in terms of strengthening the professional image of the wealth management industry and in preparing them for a wealth management career if more industry-related courses are e

232、mbedded into the curriculum.Without infringing each universitys independency in curriculum design,there may be opportunities for the industry to help universities build on this idea.The University of Hong Kong,for instance,launched the Bachelor of Finance programme(Asset Management and Private Banki

233、ng)(BFin(AMPB)in September 2017,73 with the first cohort graduating in May 2021.The BFin(AMPB)is the first(and the only as of today)undergraduate programme in Asia with a sector focus on building students career interest in asset management and private banking.Other than the core curriculum for busi

234、ness graduates,the programme offers a number of courses that deal with topics relevant to understanding the industry.As for post-graduate programmes,the Metropolitan University of Hong Kong launched a programme for Master of Applied Finance in Wealth Management in 2019.74 PWMA&KPMG,Hong Kong,a Leadi

235、ng Global Wealth Management Hub of the Future-2018 White Paper,https:/assets.kpmg/content/dam/kpmg/cn/pd-f/en/2018/09/hong-kong-a-leading-global-wealth-management-hub-of-the-future.pdf PWMA&KPMG,Hong Kong Private Wealth Management Report 2020,November 2020,https:/assets.kpmg/content/dam/kpmg/cn/pdf/

236、en/2020/11/hong-kong-private-wealth-management-report-2020.pdf FSDC,Family Wisdom,A Family Office Hub in Hong Kong,July 2020,https:/www.fsdc.org.hk/media/lrej3ikz/fsdc_paper_no_45_family_wisdom_a_family_ office_hub_in_hong_kong_paper_eng.pdf The University of Hong Kong,https:/www.fbe.hku.hk/ug/progr

237、ammes/bfin-ampb OUHK,About the MAFWMF Programme,http:/www.ouhk.edu.hk/wcsprd/Satellite?pagename=OUHK/tcSchWeb2014&l=C_BA&lid=81&c=C_BA&cid=97&lang=eng&sch=BA&mid=0707172737423Internship Programmes for UndergraduatesRecently,the FSTB co-organised the scheme of“Set Sail for GBA S

238、cheme for Financial Leaders of Tomorrow”with the Greater Bay Area Homeland Youth Community Foundation.75 Additionally,in 2017,the FSTB also launched a Pilot Programme to enhance talent training for the asset and wealth management sector(WAM Pilot Programme),76 for which the Hong Kong Investment and

239、Securities Institute(HKSI)was appointed as the implementation agent.Despite the WAM Pilot Programme being discontinued after 2022,continual effort should be devoted to nurturing talent for the asset and wealth management sector.The Pilot Apprenticeship Programme for Private Wealth Management was lau

240、nched in 2017.The Apprenticeship Programme is jointly organised by the HKMA and PWMA and administered by the Hong Kong Institute of Bankers(HKIB).77 The Apprenticeship Programme includes two consecutive summer internship experiences in the participating institutions(which are private banks and membe

241、rs of the PWMA),leading to a potential job offer with that institution after the apprentices have graduated.The Apprenticeship Programme is open to all full-time students in their first to third year of study in a university based in Hong Kong.Both the Apprenticeship Programme and the WAM Pilot Prog

242、ramme offer summer internship opportunities to non-final year undergraduates studying at a Hong Kong-based university,with an aim to enhance talent training and pipeline for the asset and wealth management sector,and to facilitate the sectors sustainable development in the long run.Please refer to A

243、ppendix 8 for further details on these internship programmes.A Need for Structured Training Programmes for Entry Jobs for Fresh GraduatesWhile the general banking industry(e.g.,retail banking or corporate/commercial banking)has been building its talent pipeline through hiring a meaningful number of

244、management trainees under a more structured training programme,the progress for the wealth management industry in offering structured training leaves much to be desired.Most wealth management firms or private banks do not have structured training programmes.For those handful firms,the recruitment pr

245、ocess of fresh graduates or postgraduates possibly only started in the last few years,and the overall number of trainee intake is small.This phenomenon likely stems from the fact that the PWM firms or private banks are geared towards immediate productivity from the added headcounts,as well as the fa

246、ct that most firms are not yet ready to provide a structured training programme.The Greater Bay Area Homeland Youth Community Foundation,Set Sail for GBA-Scheme for Financial Leaders of Tomorrow,https:/gbayouth.org.hk/en/-scope/set-sail-for-gba-scheme-for-financial-leader-of-tomorrow HKSI,Pilot Prog

247、ramme to enhance talent training for the asset and wealth management sector,https:/www.hksi.org/en/development/continuous-learn-ing/wam-pilot-programme/wam-pilot-programme/PWMA,Apprenticeship Programme,http:/pwma.org.hk/index.php/Index/content/id/6275767724Mid-career Transfer and Overseas/Mainland C

248、hinese TalentAs noted in earlier sections,a firm/private bank typically hires bankers from other firms/private banks,creating a“musical chairs”situation of bankers constantly moving around.This model is deemed unsustainable for the industry and does not add any new talent to the industry overall.Ano

249、ther route for hiring bankers or other staff is through attracting talent from sectors outside of the wealth management industry.The sectors that may have the best fit for the“mid-career”transfer would be the retail wealth management divisions of retail banks,corporate and commercial banks,accountin

250、g and audit,private equity,equity and fixed income research,and equity brokers/sales.With the lateral hire of bankers or staff from other industries,such mid-career employees could be better equipped with the necessary skills and knowledge of the PWM industry and increase their mobility to a new car

251、eer stream.For the employer,the risk of hiring transferees will be lowered correspondingly and can be better managed if the industry takes a more proactive approach in pre-empting potential risks.Attracting Mid-career Transfers from Other Sectors in Hong KongNotably,the HKIB,as the administrator for

252、 the Enhanced Competency Framework(ECF)on Retail Wealth Management(RWM),has provided the relevant training and examination.While the ECF on RWM is quite different and independent from the ECF on PWM,the ECF on the RWM industry can provide a preview for those interested in wealth management and becom

253、ing an employee in RWM firms.The ECF on RWM was launched in 2018 to provide professional certifications for staff working in the RWM industry.As of May 2022,there were a total of 1,684 professional qualification holders of the Associate Retail Wealth Professional(ARWP),and the Certified Retail Wealt

254、h Professional(CRWP),which are the Core Level and Professional Level certifications of the ECF on RWM,respectively.78 There are certain similar competencies in serving RWM clients and PWM clients,and some of the 1,684 accredited professionals79 in the RWM industry can certainly be a pipeline for car

255、eer transfer to the PWM industry.In light of the population size of those working in retail marketing,there is room for the HKIB to attract more retail banking industry practitioners to sit for the accreditation,80 which would be a solid pipe-line feeding into the wealth management industry.Other ta

256、rget sectors include but are not limited to corporate and commercial banks,accounting and audit,private equity,equity and fixed income research,and equity brokers/sales.The PWMA,HKIB,and HKSI,with input and encouragement from the HKMA,are currently working on a bridging programme of training and ass

257、essment.Retail wealth managers,who have passed the ECF on RWM and are certified as CRWP,would be allowed to qualify for Certified Private Wealth Professional(CPWP)under the ECF on PWM.Such a scheme is intended to encourage CRWPs to upskill and become PWM practitioners.HKIB,Registers of Certified Ind

258、ividuals(CI),https:/www.hkib.org/page/159IbidAs compared to 2,176 CPWP accredited professional in the PWM industry.78798025Attracting Talent from Overseas and Mainland ChinaThe Talent List of Hong Kong81 was first published by the Hong Kong Government in 2018,with the aim of attracting high-calibre

259、talent in an effective and focused manner to support Hong Kongs development into a high value-added and diversified economy.Upon review in 2021,the Talent List currently comprises 13 professions.The Talent List website displays the professions needed the most in terms of talent for Hong Kong.It also

260、 provides information for those that are eligible for the immigration facilitation under the Quality Migrant Admission Scheme(QMAS),which is a quota-based entrant scheme.With respect to finance talent,“asset management professionals”and“fintech professionals”are included on the Talent List,and speci

261、fically cover investment analysts,investment consultants,and fund managers.Such eligible professionals who meet the requirements of the Talent List may enjoy immigration facilitation and benefit from the government policy to propel the development of Hong Kongs asset and wealth management business.C

262、ontinued Skill EnhancementEnhanced Competency Framework for the Private Wealth Management IndustryThe ECF on PWM Industry,endorsed by the HKMA and the PWMA,was launched in 2014,with training programmes and examinations hosted by the HKSI and the HKIB.Candidates who pass the ECF on PWM Industry exami

263、nations,subject to a minimum of three years of relevant working experience,and are currently working in one of the member banks of PWMA,will be certified with CPWP certification.The CPWP certification was established to recognise and incentivise staff of PWMA member institutions who are seeking to e

264、nhance their skill set and advance their career within the PWM industry.82 It represents the competency of a frontline officer in the PWM industry.A competency standard has been adopted in assessing the candidate,taking into account factors of not only technical skills on investment,portfolio manage

265、ment,and risk,but also holistic expectations for frontline staff,including adherence to ethical standards,fair client treatment,and understanding regulations.The following table shows the number of certifications in CPWP over the past six years:2021820172016No.of current accredited CPWPAd

266、dition each yearDrop out each yearCurrent+cumulative drop-outs1,78150911,950268992,086228922,1591781052,2111641122,3262181032,838Source:PWMAHKSAR,Talent List Hong Kong,https:/www.talentlist.gov.hk/en/index.htmlHKMA,Update on Enhanced Competency Framework on Private Wealth Management(ECF-PWM),July 20

267、21,https:/www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2021/20210714e1.pdf 818226With a total of 2,326 certified CPWPs in 2021,the industry would either need to plan a talent-building pipeline from graduate level,or attract more mid-career transfers.A point to note is that a

268、 big part of the attrition from the CPWP certification might be due to experienced practitioners moving into the Family Office/External Asset Managers arena.This trend will continue as Hong Kong is positioned to develop into an Asian Family Office hub.In terms of expanding the talent pipeline into t

269、he wealth management industry,reference can be drawn from the CPWP Associate certification,which was introduced in June 2021.83 Any staff of PWMA member firms who pass the ECF examinations are eligible to apply for the certification,regardless of experience.Full CPWP status can be obtained once a st

270、aff member has obtained the required front-line experience.This approach may attract talent from graduates,from mid-career transfer and those working in the support functions of the wealth management industry,to ultimately move towards frontline job positions.Enhanced Training for Industry Practitio

271、ners and Potential Mid-career TransfersThe HKSI,PWMA,and HKIB frequently host training sessions and seminars on thematic topics related to the wealth management industry.A number of these training sessions/seminars hosted by HKSI and HKIB are eligible for financial reimbursement under the FSTB WAM P

272、ilot Programme.84 Under the Financial Reimbursement Scheme of the WAM Pilot Programme,attendees enrolled in the eligible courses can reimburse 80%of the course fees up to a cap of HK$10,000 for the WAM Pilot Programme.The Financial Reimbursement Scheme aims to upgrade the competency standards of ind

273、ustry practitioners as well as attract other professionals to learn about wealth management.The Financial Reimbursement Scheme was revised in 2020 to expand the eligibility of reimbursement in order to make the scheme more effective.Our Recommendationsi.Developing more robust masters programmes in w

274、ealth and asset management in Hong KongBack in 2018,the idea of“developing a flagship taught postgraduate degree to position Hong Kong as a hub for PWM learning and innovation”85 was put forward by the PWMA and KPMG in their joint White Paper.The same recommendation was also made in the Family Offic

275、e Paper.The FSDC proposes launching practice-based learning for the training of wealth management professionals at both undergraduate and postgraduate levels.Leveraging on the Undergraduate Programme at the University of Hong Kong and the Postgraduate Programme at the Hong Kong Metropolitan Universi

276、ty,there is room to further develop more robust Masters Programmes in wealth and asset management to attract and nurture mid-career talent to join or potentially join the PWM industry.PWMA,CPWP Associate,https:/www.pwma.org.hk/en/ecf/cpwpa/HKSI,Pilot Programme to enhance talent training for the asse

277、t and wealth management sector,https:/www.hksi.org/en/development/continuous-learn-ing/wam-pilot-programme/wam-pilot-programme/PWMA&KPMG,Hong Kong,a Leading Global Wealth Management Hub of the Future-2018 White Paper,September 2018,https:/assets.kpmg/con-tent/dam/kpmg/cn/pdf/en/2018/09/hong-kong-a-l

278、eading-global-wealth-management-hub-of-the-future.pdf 83848527ii.Nurturing direct collaboration between universities and the industryThe recommendation made in the Family Office Paper on establishing a designated task force to work with the industry on reviewing the programme design of relevant cour

279、ses should be further explored.In particular,embedding industry-related courses in a curriculum is an effective way to breed student interest in pursuing a career in the financial services industry.This is similar to the approach where universities have embedded courses into their curriculum relevan

280、t to the Hong Kong Institute of Certified Public Accountants(HKICPA)qualification or the Chartered Financial Analyst(CFA)qualification.One of the topics that could be incorporated into a business curriculum is Paper 1 of the Licensing Examination for Securities and Futures Intermediaries.86 The Pape

281、r itself provides a comprehensive overview of the securities industry,and will inculcate students with good entry-level knowledge of the securities and investment industry.The contents of the Paper can be delivered on both a research and application basis,which will be beneficial to students who are

282、 interested in entering the financial industry.Support from the industry will be necessary in various aspects,such as recommending or referring competent teachers with relevant industry experience,to foster collaboration between the educational institution and industry,as well as to provide more pra

283、ctical and tailor-made teaching materials for students.The same designated task force would also look into a more structured and coordinated out-of-classroom experience for students.With the extensive use of e-platforms,this may benefit a much wider student population.Extended smaller group interact

284、ions are also worth exploring.iii.Facilitating mid-career transfers and overseas/Mainland Chinese talent acquisitionIn line with the recommendations proposed in the Family Office Paper,the Government and regulators,together with the industry and professional associations,should put in place a compre

285、hensive suite of training programmes for talent development.87 Such training programmes should target talent from a specific sector within the financial services industry.For instance,it could be a certificate or diploma course on“Investment Theories and Portfolio Analysis”targeting corporate and co

286、mmercial bankers,or a“Investment Risk Management and Suitability”course targeting equity traders.The PWMA may also promote the ECF on PWM to attract talent from other industries.It would also assist with brand building and attracting overseas/Mainland Chinese talent to Hong Kong to take up positions

287、 within the wealth management industry in a broader sense,including sales/marketing,RMs,compliance,family office,etc.The Licensing Examination for Securities and Futures Intermediaries is operated by the Hong Kong Securities and Investment InstituteFSDC,Family Wisdom:A Family Office Hub in Hong Kong

288、,July 2020,https:/www.fsdc.org.hk/media/lrej3ikz/fsdc_paper_no_45_family_wisdom_a_family_ office_hub_in_hong_kong_paper_eng.pdf868728AppendicesAppendix 1-Key Features of Hong Kong AML/CFT RegimeHong Kongs effective system in combatting AML/CFT issues is enshrined in various ordinances supplemented b

289、y industry-specific guidelines,88 circulars,and FAQs published by the respective regulators from time to time.There are several ordinances pertaining to the AML/CFT regime in Hong Kong,including:The Anti-Money Laundering and Counter-Terrorist Financing Ordinance(Cap.615)(AMLO)The Organized and Serio

290、us Crimes Ordinance(Cap.455)(OSCO)The Drug Trafficking(Recovery of Proceeds)Ordinance(Cap.405)(DTROP)United Nations(Anti-Terrorism Measures)Ordinance(Cap.575)(UNATMO)United Nations Sanctions Ordinance(Cap.537)(UNSO)Weapons of Mass Destruction(Control of Provision of Services)Ordinance(Cap.526)(WMDO)

291、Regulations/Obligations on AML in Hong Kong AML regime The AMLO,which came into force on 1 April 2012,is the primary statute governing Hong Kongs AML compliance regime with the key provisions being found in Schedule 2.In addition to the AMLO,the money laundering offence in Hong Kong is contained in

292、section 25 of the OSCO and section 25 of the DTROP.89 CFT obligations can be found in the UNATMO,UNSO,and WMDO.In short,the UNATMO and regulations under the UNSO implement sanctions imposed by the United Nations Securities Council,while the WMDO regulates the provision of services that are suspected

293、 to be related to the proliferation of weapons of mass destruction.The main ones being the guidelines on AML and CFT published by the SFC for licensed corporations and associated entities(SFC AML Guideline),published by the HKMA for authorised institutions and stored value facility licensees(HKMA AM

294、L Guideline),published by the Insurance Authority(IA)for authorized insurers and reinsurers carrying on long term business,and licensed individual insurance agents,licensed insurance agencies,and licensed insurance broker companies carrying on regulated activities in respect of long term business(In

295、surance Ordinance(Cap.41)(IO)(IA AML Guideline).Section 25 of the OSCO provides that a person commits an offence if he or she deals with property,knowing or having reasonable grounds to believe that the property in whole or part directly or indirectly represents proceeds of an indictable offence.Sec

296、tion 25 of the DTROP is similar but applies to drug trafficking.888929Customer due diligence(CDD)The key AML compliance and CDD obligations are contained in Schedule 2 to the AMLO,under which financial institutions are required to undertake CDD measures under a risk-based approach.These involve:(i)i

297、dentifying their customers and verifying their identities using documents and information from reliable and independent sources,(ii)where there is a beneficial owner in relation to the customer,verifying the beneficial owners identity;(iii)obtaining information that should be commensurate with the r

298、isk profile of the customers and the nature of the business relationships,which amongst others,may include the initial and ongoing source(s)of wealth or income;and(iv)if a person purports to act on behalf of the customer,identifying the person and taking reasonable measures to verify the persons ide

299、ntity using documents,data,or information provided by a reliable and independent source;and verifying the persons authority to act on behalf of the customer.Enhanced CDD measures must be conducted in circumstances perceived to pose higher risks including:(i)where the customer is not physically prese

300、nt for identification purposes;(ii)where the customer or any of its beneficial owners is known to be a“politically exposed person”(PEP),90 or(iii)other situations that by their nature might present a higher risk of money laundering or terrorist financing.Ongoing monitoring of customersSchedule 2 to

301、the AMLO requires financial institutions to continuously monitor the business relationship with a customer by adopting a risk-based approach by,among others,(i)occasionally reviewing CDD documents and information relating to the customer to ensure that they are up-to-date and relevant;(ii)conducting

302、 appropriate scrutiny of transactions carried out for the customer to ensure that they are consistent with the customers profile;and(iii)identifying and examining transactions that are complex,unusual,and have no apparent economic or lawful purpose.Reporting obligationThe obligation to report suspic

303、ious transactions is contained in section 25A of the OSCO,section 25A of the DTROPO,and section 12 of the UNATMO.A reporting obligation arises where a person applying to any person,not just a regulated person who knows or suspects that any property(in whole or part,directly or indirectly)represents

304、proceeds of,or was,or is intended to be used in connection with an indictable offence,or drug trafficking,or is terrorist property.The person shall,as soon as it is reasonable for him or her to do so,disclose that knowledge or suspicion,or the information or matters on which the knowledge or suspici

305、on is based,by filing a suspicious transaction report with the Joint Financial Intelligence Unit.An employee may alternatively disclose to an appropriate person(the money laundering reporting officer)in accordance with the procedure established by his or her employer.Based on the information publicl

306、y known or in the possession of the financial institution.A PEP is an individual who has been entrusted with a prominent public function in a place outside the Peoples Republic of China and includes a head of state or government;senior politician;senior government,judicial,or military official;senio

307、r executive of a state-owned corporation,and important political party official,but does not include a middle-ranking or more junior official of any of these categories.A PEP includes such an individuals spouse,partner,child,or parent,as well as close associate(with which the individu-al has close b

308、usiness relations,or which is the beneficial owner of a legal person or trust set up for the benefit of the individual).9030Record keepingUnder Schedule 2 to the AMLO,financial institutions must keep records and documents relating to their CDD,customer accounts,correspondence,and transactions.Record

309、s of customer transactions must be kept for at least five years after the transaction is completed,while other customer records must be kept throughout the life of the business relationship with the customer and for a period of at least five years after the termination of the business relationship.E

310、stablishment of procedures,and senior management oversightPursuant to the HKMA AML Guideline and the IA AML Guideline,AIs and insurance institutions should conduct institutional risk assessments every two years to assess their risks in relation to their customers,the jurisdictions their customers ar

311、e from and in,the jurisdictions they have operations in,and their products,services,transactions,and delivery channels.The SFC AML Guideline similarly requires risk assessment in terms of country,customers,product/service,and delivery/distribution channel risks.Financial institutions should also imp

312、lement appropriate AML/CFT measures as provided for in Schedule 2 to the AMLO(and monitor their effectiveness and enhance or simplify procedures and controls as appropriate).The HKMA AML Guideline,the SFC AML Guideline,and the IA AML Guideline all require,at a minimum,oversight by the senior managem

313、ent91 and appointment of a compliance officer,92 and a money launder-ing reporting officer.93 Other than compliance management arrangements,AML/CFT systems should include an independent audit and review function,employee screening procedures,and an ongoing employee training programme.GroupsSchedule

314、2 to the AMLO requires Hong Kong incorporated regulated institutions with overseas branches or subsidiary undertakings that carry on the same business as a financial institution,as defined in the AMLO to implement group-wide AML/CFT systems,to apply the relevant requirements to all branches and unde

315、rtakings in the group.The HKMA AML Guideline,the SFC AML Guideline,and the IA AML Guideline allow financial institutions to rely upon their overseas intermediaries of the same financial groups to perform CDD measures.InspectionsSection 9 of the AMLO provides power on the part of relevant authorities

316、 such as the HKMA,SFC,IA,and Companies Registry to conduct routine inspections at business premises as well as inspect and make copies of and inquiries concerning records or documents to ascertain whether financial institutions or Trust or Company Service Provider(TCSP)licensees are complying with t

317、he AMLO,including Schedule 2.Including in implementing effective AML/CFT systems,and approving,for example,the establishment or continuance of high-risk business relationships and third-party payments.The compliance officer should be at management level and have overall responsibility for the establ

318、ishment and maintenance of the authorized institution/licensed corporations AML/CFT systems.The money laundering reporting officer should be a member of senior staff and act as the central reference point for suspicious transaction reporting.91929331Appendix 2-Development of Professional Investor Re

319、gime in Hong KongHistory&FrameworkSection 5(1)of the SFO prescribes the statutory functions of the SFC,including:To take such steps as it considers appropriate to maintain and promote the fairness,efficiency,competitiveness,transparency,and orderliness of the securities and futures industry(section

320、5(1)(a)of the SFO).To encourage the provision of sound,balanced,and informed advice regarding transactions or activities related to financial products(section 5(1)(e)of the SFO).To secure an appropriate degree of protection for members of the public investing in or holding financial products,having

321、regard to their degree of understanding and expertise in respect of investing in or holding financial products(section 5(1)(l)of the SFO).(a)(b)(c)Being protected from receiving advertisements,invitations,and documents relating to securities,structured products,or collective investment schemes,the i

322、ssue of which has not been authorized under the SFO(section 103(1)and(3)(k)of the SFO);Being protected from unsolicited calls by intermediaries(section 174(1)and(2)(a)of the SFO);andBeing protected from receiving offers to acquire or dispose of the securities of,or issued by,corporations,multilatera

323、l agencies,and government and municipal government authorities(section 175(1)and(5)(d)(i)of the SFO).(a)(b)(c)In view of these statutory functions,it is inevitable that the SFC feels obliged to actively promote investor protection through intermediaries.As such,intermediaries are required to provide

324、 their clients with informed advice concerning financial products and ensuring that such products are suitable for their clients.There can be no doubt that investor protection and market integrity loom large in influencing the SFC in the performance of its regulatory functions,including its approach

325、 to the manner in which licensed and registered persons must deal with their clients.Although the SFC has a statutory obligation to promote investor protection,the SFO provides that this function is conditional and must be balanced against other considerations.This is clear from section 5(1)(l)of th

326、e SFO,which requires the SFC to secure an“appropriate”degree of protection for members of the investing public.In recognition of this,the SFO included provisions for a class of investors,known as“professional investors”,who are considered not to require certain protections under the SFO,including:32

327、The term“professional investor”is defined in section 1 of Part 1 of Schedule 1 of the SFO by reference to institutions,such as financial intermediaries,insurers,and government agencies,which are sophisticated and clearly not in need of the same level of protection under the SFO as other less sophist

328、icated investors.These institutional PIs fall under paragraphs(a)to(i)of the definition of“professional investor”under the SFO.Additionally,paragraph(j)of the SFO definition of“professional investor”provides that the SFC may separately make rules under section 397 of the SFO,prescribing other classe

329、s of persons as being PIs.These rules are known as the PI Rules and have application to other types of corporate PIs and to Individual PIs.The PI Rules came into force on 1 April 2003 and prescribed the following four classes of PIs:For the purposes of the PI Rules,“associate”in relation to an indiv

330、idual was defined to mean a spouse or child,and“portfolio”was defined to mean securities,a certificate of deposit issued by a Hong Kong bank,restricted licence bank or deposit-taking company or by a foreign regulated bank,and money held by a custodian.The SFO permits the SFC to adjust regulatory req

331、uirements,which it is empowered to impose on licensed or registered persons in relation to their interaction with PIs.These adjustments are principally provided for under the Code of Conduct.In 2003,paragraph 15.1 of the Code of Conduct relieved licensed or registered persons,when dealing with PIs,f

332、rom the obligations to comply with certain regulatory requirements stipulated in paragraph 15.5,namely:A trust corporation entrusted with total assets of no less than HK$40 million;An individual,either alone or with any of his or her associates on a joint account,having a portfolio of no less than H

333、K$8 million or its equivalent in any foreign currency;A corporation having a portfolio of no less than HK$8 million or its equivalent in any foreign currency,or total assets of no less than HK$40 million or its equivalent in any foreign currency;andA corporation whose sole business was to hold investments and which was wholly owned by an individual who,either alone or with any of his or her associ