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Regulator’s Dialogue Recent Developments in the Supervision of Anti-Money Laundering and Counter-Financing of Terrorism 9 January 2020 DDisiscclalaimimere r The presentation is provided for training purposes and does not  form part of the formal legal and regulatory requirements of the HKMA. It should not be substituted for seeking detailed advice on any specific case from an AI’s own professional adviser. The HKMA and HKIB are the co-owners of the copyright and any  other rights in the PowerPoint materials of this presentation. These materials may be used for personal viewing purposes or for use within an AI. Such materials may not be reproduced for or distributed to third parties, or used for commercial purposes, without prior written consents of the HKMA and HKIB. 2 Agenda Agenda The Financial Action Task Force (FATF) Mutual Evaluation of  Hong Kong – findings, recommendations and implications for the banking sector Harnessing potential of technology in AML/CFT work  Thematic Review of AIs’ Application of AML/CFT Controls in  the SME Segment Q&A  3 Agenda Agenda The FATF Mutual Evaluation of Hong Kong  – findings, recommendations and implications for the banking sector 4 MMuututuaal lE Evvaalulautaiotino nof oHf oHnogn Kgo Kngo ng A good result for Hong Kong:  – Hong Kong’s AML/CFT regime recognised as being effective and in line with international standards – Top 5 in FATF and First in Asia Pacific achieving a “Pass” – Immediate Outcome: Out of 11 Immediate Outcomes, 6 rated “Substantial” and 5 “Moderate” – Technical Compliance: Most FATF Recommendations are “Compliant” or “Largely compliant” – Commitment of the banking sector in AML/CFT efforts has contributed significantly to this positive assessment 5 Effectiveness Ratings Effectiveness Ratings Immediate Outcome Rating * Immediate Outcome Rating * IO1 Risk, Policy & Coordination Substantial IO7 Money Laundering Moderate Investigation & Prosecution IO2 International Cooperation Substantial IO8 Confiscation Substantial IO3 Supervision Moderate IO9 Terrorist Financing Substantial Investigation & Prosecution IO4 Preventive Measures Moderate IO10 Terrorist Financing Preventive Substantial Measures & Financial Sanctions IO5 Legal Persons & Arrangements Moderate IO11 Proliferation Financial Moderate Sanctions IO6 Financial Intelligence Substantial * 4 Ratings of effectiveness level in decreasing order : High, Substantial, Moderate & Low 6 MMutuutaul aEl vEavluaalutiaotni oonf Hoof nHgo Kngon Kgo ng Key results of relevance to the banking sector (IO4):  – Large FIs and those in international financial groups have a good understanding of: • AML/CFT obligations and ML/TF risks and good levels of CDD and BO requirements implementation • Specific higher risk situations (e.g. correspondent banking) with commensurate EDD measures – Adequate systems and controls – Increased use of data analytics in monitoring by larger AIs and controls for correspondent banking is highlighted – Recognition of the sector’s proactive efforts including the Fraud and Money Laundering Intelligence Task Force (FMLIT) and the work around proliferation financing 7 MMuuttuuaall EEvvaalluuaattiioonn ooff HHoonngg KKoonngg Key results of relevance to HKMA (IO3):  – Robust entry controls (licencing, screening etc.) – Strong endorsement for HKMA’s risk-based AML/CFT supervisory model based on good overall understanding of ML/TF risks at sectoral and institutional level – Good range of guidance and outreach, HKMA noted to place emphasis on the understanding of risk and sharing information to mitigate the risks – Remedial and disciplinary actions being taken while their effectiveness and proportionality to be fully demonstrated over time 8 Post-Mutual Evaluation Post-Mutual Evaluation The HKMA appreciates the need to sustain the efforts and positive  results for the banking sector Where should we focus our efforts?  – Circular on “FATF Mutual Evaluation Report of Hong Kong”, 4 September 2019 – More guidance on our website: https://www.hkma.gov.hk/eng/key-functions/banking/anti-money- laundering-and-counter-financing-of-terrorism/ 9 Major themes (1) Agenda As ML/TF risks continue to evolve, so must our  understanding and response – Banks’ ongoing efforts to review and update understanding of ML/TF risks should continue – HKMA is also updating its own understanding of ML/TF risks, which will inform an updated jurisdiction-wide risk assessment – These will provide a critical element of the evidence base to determine the HKMA’s risk-based response in years to come 10