First Published Enforcement Action against a Stored Value Facility Licensee for Failing to Act on Intelligence from Law Enforcement Agencies
Overview
On 30 August 2024, the Hong Kong Monetary Authority (HKMA) imposed a HK$875,000 penalty on WeChat Pay Hong Kong Limited (WPHK) for compliance breaches under section 8Q of the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (PSSVFO). This is the first published enforcement action against a stored value facility (SVF) licensee for failing to act on intelligence from law enforcement agencies (LEA).
Section 8Q of the PSSVFO
Under section 8Q of the PSSVFO, a stored value facility (SVF) licensee must ensure that all the "minimum criteria" applicable in relation to the licensee are fulfilled. Part 2, Schedule 3 of the PSSVFO sets out such criteria, which encompass areas such as (i) principal business, (ii) financial resources, (iii) qualifications, knowledge and experience of executives, directors and controllers, (iv) risk management, (v) anti-money laundering and counter-terrorist financing measures, etc.
Anti-Money Laundering and Counter-Terrorist Financing Measures
Insofar as anti-money laundering and counter-terrorist financing measures are concerned, a SVF licensee will need to comply with the provisions of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 415) (AMLO) and measures promulgated by the HKMA. In that connection, the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (for Stored Value Facility Licensees) (AML Guidelines) further sets out the practical measures that a SVF licensee must take.
Major Findings
Failure to Conduct Customer Due Diligence (CDD) (Paragraph 5.2 of the AML Guidelines):
WPHK did not assess risks adequately upon receiving LEA intelligence related to potential scams. In that regard, LEAs requested information from WPHK about specific customers and/or business relationships. However, upon receiving such requests, WPHK failed to categorise such intelligence as trigger events, resulting in the omission of necessary CDD reviews.
Failure to Conduct Enhanced Due Diligence (EDD) (Paragraph 4.8.1 of the AML Guidelines):
In situations deemed high-risk, WPHK delayed EDD measures by 80 to 900 days for 98 accounts associated with 84 customers, despite receiving 1,827 pieces of LEA intelligence.
HKMA's Considerations
The decision took into account:
• The seriousness of the investigation findings.
• The necessity of sending a deterrent message to the industry about compliance.
• WPHK's efforts to implement remedial measures and its cooperative stance.
• WPHK's history of no previous disciplinary actions.
Key Takeaways
This action underscores the necessity for strong CDD and EDD frameworks in all licensees by the HKMA. Financial institutions should revisit their treatment of LEA intelligence to ensure they meet regulatory standards.
We are aware that, since 2022, the HKMA has taken 4 disciplinary actions against SVF licensees for deficiencies and failures under the AML Guidelines. Most recently, in December 2023, the HKMA reprimanded TNG (Asia) Limited and ordered it to pay a pecuniary penalty of HK$1.575 million for not having in place adequate and appropriate systems for transaction monitoring, effective risk management framework and operation to enable prevention or early detection of irregularities. Clearly, anti-money laundering has always been and is still a top priority on the regulatory agenda of the HKMA's supervision against SVF licensees. As the use of SVFs is increasingly prevalent and transaction volume escalates, it is anticipated that the HKMA would continue to exercise close scrutiny of anti-money laundering measures taken by SVF licensees so as to maintain Hong Kong's financial stability.
Accolades in 2024 for the HW Regulatory, Funds and Virtual Assets Practice
We are pleased to share with you that the Regulatory Team at Howse Williams and its members have been recognised multiple times in the past 12 months, including:
• "Fintech and Blockchain" firm by China Business Law Award
• Shortlisted for "Investment Funds Law Firm" and "Young Lawyer of the Year” by Asian Legal Business (Partner Jason Chan)
• Commended in the "Innovative Lawyers in Fintech and Digital Assets" category at the Financial Times' FT Innovative Lawyers Awards Asia Pacific.
These accolades are a reflection of the dedication, expertise, and client-centric approach that defines the Regulatory, Funds and Virtual Assets practice at Howse Williams. We are honoured by the trust and support of our valued clients, which has been instrumental in our continued success and growth in this specialised area of law. The HW Regulatory team now consists of two Partners, two Consultants and four Associates (many of whom joined from international law firms), and is one of the largest dedicated financial services regulatory practices in Hong Kong.
We advise on both contentious and non-contentious matters, and often in both capacities for the same clients; therefore making us unique in our ability to work with clients on all of their regulatory and compliance needs. Our clients include banks, brokers, listed companies, asset managers, financial advisors, financial investors, insurance companies and established businesses. We also advise senior management such as directors, responsible and executive officers, chief executives and licensed individuals.
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Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice. Please contact [email protected] if you have any questions about the article.