It has been reported in the media recently that the Hong Kong regulators have been investigating a number of financial institutions over whether their internal controls comply with the customer due diligence and record keeping requirements under Hong Kong’s anti-money laundering (“AML”) legislation.

On 9 July 2014, the Securities and Futures Commission (“SFC”) announced that it had taken enforcement action against a securities firm in relation to deficiencies in AML controls and, in particular, policies and procedures for dealing with suspicious client transactions which, under applicable legislation or regulations, must be reported to the SFC and the Joint Financial Intelligence Unit (a government body which receives, analyses and disseminates suspicious transaction reports to the appropriate investigative unit).

With the recent establishment of the Hong Kong Monetary Authority’s new Anti-Money Laundering and Financial Crime Risk unit, which is tasked with conducting an increasing number of on-site inspections of financial institutions in 2014 and beyond, more enforcement actions regarding AML failing could be expected.

U.K.: FCA Annual Report and Anti-Money Laundering Annual Report 2013/14 released

On 10 July 2014, the FCA published its second Anti-Money Laundering Annual Report (the “AML Report”). This suggests that the regulator still has considerable concerns about the extent to which firms, in particular members of the larger banking groups, are able to counter the risk that their organisations will be used to facilitate financial crime. The FCA has now conducted six of its new “deep dive” strategic AML reviews (“SAMLP”), which are designed to test the robustness of firms’ internal AML controls at every level of the organisation. It intends to conduct such assessments in respect of 14 of the major retail and investment banks operating in the UK. SAMLP, in conjunction with other thematic work, has revealed a number of common weaknesses in areas such as governance and oversight of AML risk, the management of high-risk customers, due diligence and decision-making, which have resulted in firms taking “unacceptable money-laundering risks”. Where inadequate systems have been identified, the FCA states that it has taken action to ensure that firms remedy the issues it has uncovered. This has included securing attestations from senior managers that the required work has been undertaken, in keeping with the FCA’s view that addressing financial crime risk should be a board level concern.

In accordance with its desire to intervene earlier to prevent regulatory issues arising, the report states that in the past year, six banks have provided assurances that they would not enter into certain types of high-risk relationships until they resolved weaknesses within their AML systems. Although it acknowledges that senior management in the larger banks are now engaging more with AML issues, the AML Report concludes that “large banks in particular still have a substantial amount of work to do”, even where members of their groups had previously been subject to regulatory action and notwithstanding the FCA’s clear focus on AML and anti-bribery controls in recent years. The FCA concludes that private banks and wealth management firms are now outperforming retail and wholesale banks in this area.

Both previous fines (even in unrelated business areas) and a failure to address issues to which the FCA has given clear and repeated public attention are considered to be aggravating factors when applying the FCA’s new fining policy. The risks to firms whose AML systems and controls are found wanting of incurring a substantial fine are, therefore, considerable. Ensuring that firms guard against financial crime risks remains firmly at the top of the FCA’s supervisory and enforcement agenda.

http://www.linklaters.com/Publications/Financial-Crime-Update/Financial-Crime-Update-July-2014/Pages/Policy-practice.aspx