HK SFC Strengthens Measures to Address Counterfeit Document and Money Laundering Risks, and Raises Account Opening Standards

Today, the Securities and Futures Commission (SFC) of Hong Kong issued a circular outlining the monitoring measures that should be implemented when opening accounts and maintaining client relationships. The circular follows the SFC’s review of account-opening practices at 12 securities brokerage firms. The review identified several significant deficiencies, including inadequate due diligence on account-opening documents, acceptance of suspicious or forged documents during the account-opening process, and weaknesses in managing cross-border agency relationships with overseas intermediaries. The SFC expressed serious concern about the risk that client accounts could be misused for suspicious or unlawful transactions—and thereby exacerbate money laundering and terrorist financing risks. The SFC requires all licensed corporations to conduct internal reviews as soon as practicable to detect whether any suspicious or forged documents were accepted for account opening. The SFC has also set out additional measures that licensed corporations must adopt when opening and managing accounts for Mainland Chinese investors. These additional measures include closing investment accounts opened using suspicious or forged documents; closing dormant investment accounts with zero balances; and, when opening new investment accounts, obtaining a written declaration from the investor and requiring that all settlement and fund withdrawal activities be conducted exclusively through bank accounts held in the investor’s name at qualified banks.