The Hong Kong Monetary Authority (HKMA) reviewed due diligence processes for green and sustainable products, published the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Bill 2022, and revised the supervisory policy manual (SPM) module CG-3 on Code of Conduct (effective date: July 01, 2023).
HKMA, as part of the thematic examinations, reviewed the due diligence processes for a range of corporate and retail green and sustainable products of authorized institutions. The products include green loans and green trade facilities, green mortgages, green personal loans, green deposits, sustainability-linked financing (including sustainability-linked loans and trade facilities), and green and sustainable investment products. The objective of the thematic examination was to ensure that the authorized institutions have put in place proper systems of control to ensure that these products and the related funds are managed in a way consistent with their climate strategies, thus reducing any potential exposures to greenwashing risks. Based on the findings of thematic examinations, HKMA identified some good practices and expects authorized institutions to consider these good practices in building their climate risk management capabilities. The Annex document sets out product-specific examples, along with the good practices that are grouped under five high-level principles:
- Setting up a robust product governance framework for green and sustainable products
- Conducting comprehensive “greenness assessments” of clients and transaction due diligence for green lending
- Performing post-offering monitoring and controls to ensure the proper management of green and sustainable products
- Enhancing transparency and accountability in respect of green and sustainable products
- Building appropriate expertise in product development and comprehensive due diligence processes
The amendment to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance introduces a licensing regime for virtual asset service providers and a two-tier registration regime for dealers in precious metals and stones. The amendments relevant to the banking sector include:
- amending the definition of “politically exposed person” to align with the FATF requirement
- facilitating a risk-based approach in determining the degree of customer due diligence that are subject to former politically exposed persons
- supporting the use of technology by clarifying that a recognized digital identification system can be used for the purposes of customer due diligence and satisfying the additional requirements where a customer is not physically present for identification purposes
- clarifying that, where a trust is concerned, a beneficial owner includes a trustee of the trust, a beneficiary and a class of beneficiaries of the trust entitled to a vested interest in the trust.
The revisions are intended to ensure alignment with the latest international standards set by the Financial Action Task Force (FATF). These amendments will come in effect on June 01, 2023. HKMA also plans to consult the banking sector on the corresponding changes to the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism as well as the specific guidance on topical issues.
Keywords: Asia Pacific, Hong Kong, Banking, AML CFT, Regtech, Sustainable Finance, ESG, Customer Due Diligence, Lending, Credit Risk, Greenwashing, HKMA
Next ArticleEBA Sets Out Roadmap on Sustainable Finance
The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.
The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.
The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.
The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.
The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.
The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.
The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.
The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.
The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.
The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.