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    HKMA Reviews Due Diligence for Green Products, Issues Other Updates

    December 09, 2022

    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

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