General
12.1 The characteristics of private banking relationships can represent an increased risk of ML/TF. On the whole, private banking is more complex and provides a more personalised service than retail banking. A unique characteristic of private banking is the close relationship between customer and relationship manager (RM) and the “all inclusive” money management services provided.
12.2 An AI should therefore ensure that it understands and manages the risks accordingly and make special provisions for private banking customers in its customer acceptance, CDD procedures and in its ongoing monitoring programmes.
CDD process for private banking
12.3 Generally, given the potentially higher ML/TF risks presented by private banking relationships, the level of due diligence carried out for a private banking relationship will be higher than that needed for normal retail banking purposes. Therefore, in addition to the CDD measures set out in Chapter 4, an AI should carry out the following additional measures when it establishes a private banking relationship with a customer:
(a) obtain additional customer profile information, including:
(i) business or employment background;
(ii) source of wealth (see paragraph 4.9.22);
(iii) source of funds (see paragraph 4.9.23);
(iv) family background, e.g. information on spouse, and where appropriate (e.g. in the case of inherited wealth), parents;
(v) anticipated account activity (e.g. products and services to be utilised by the customer; nature and level of business to be expected); and
(vi) references, where appropriate (e.g. introduced by whom and when and the length of relationship) or other sources to corroborate reputation information where available; and
(b) obtaining approval from the AI’s senior management.
12.4 The extent of additional measures as set out in paragraph 12.3 will depend on the nature and characteristics of the private banking services provided and the assessed ML/TF risk presented by the customer. For the avoidance of doubt, an AI should also apply appropriate EDD measures if the private banking relationship with a customer is assessed to be of high ML/TF risk in accordance with the guidance provided in paragraph 4.9.
12.5 For private banking, an AI should take reasonable steps on a risk-based approach to verify or corroborate information collected on source of wealth and source of funds. This means that, in the case of source of wealth, the steps taken should be sufficient to form a reasonable belief of how the wealth, or the majority of the wealth was acquired by the customer. The reasonable steps taken will therefore vary depending on the ML/TF risks.
12.6 An AI should perform adverse news screening on a potential customer, and any other persons known by the AI to be associated with the customer as far as practicable, before establishing the private banking relationship. The screening helps identify potentially questionable relationships for further examination and evaluation.
12.7 Complex corporate structure and vehicles often exist in private banking (e.g. use of offshore trust or shell companies; structure involving different jurisdictions). While using these structures may have a genuine and legitimate purpose, an AI should have appropriate policies and procedures in place to understand the reason and purpose for these structures, including any additional CDD measures required.
12.8 Meeting the customer is an important part of the overall CDD process and will assist in constructing a more comprehensive customer risk profile. In general, given the potentially higher ML/TF risks presented by private banking relationships, an AI should meet the customer before establishing a private banking relationship as far as possible. Meetings can take place in or out of Hong Kong. The AI can use technology to facilitate the meeting providing adequate safeguards are in place.
Ongoing monitoring
12.9 Following paragraph 5.2, an AI should conduct ongoing CDD of its private banking relationships to ensure that the documents, data and information obtained in relation to the customers are up-to-date and relevant. The AI should undertake a review of the existing records of its private banking customers on a regular basis and upon trigger events. The frequency of periodic review should be determined using an RBA. If the private banking relationship presents high ML/TF risks, it should be subject to a minimum of annual review.
12.10 An AI should meet their private banking customers on a regular basis as far as possible.
12.11 An AI should conduct transaction monitoring of its private banking relationships. The level and nature of transaction monitoring should be commensurate with the risks and the nature
of the private banking services being provided. The AI may refer to Chapter 5 for details.
Dedicated relationship management
12.12 As close relationships often develop between RMs and their customers, in order to mitigate the risk of ML/TF, the activities of RMs should be subject to frequent reporting to and review by their supervisors. An AI should also ensure that the account opening, including CDD documentation, adequacy of CDD and ongoing monitoring are subject to reviews conducted by staff independent of the RMs to demonstrate that any risks of abuse and/or conflict of interest are effectively mitigated.
GLOSSARY OF KEY TERMS AND ABBREVIATIONS
Terms / abbreviations Meaning
AI(s) Authorized Institution(s)
AMLO Anti-Money Laundering and Counter-Terrorist Financing
Ordinance (Cap. 615)
AML/CFT Anti-money laundering and counter-financing of terrorism AML/CFT Systems AML/CFT policies, procedures and controls
BO Banking Ordinance (Cap.155)
CDD Customer due diligence
CO Compliance officer
DTROP Drug Trafficking (Recovery of Proceeds) Ordinance (Cap. 405)
EDD Enhanced due diligence
FATF Financial Action Task Force
FI(s) Financial institution(s)
(Note: unless specified otherwise (e.g. an FI as defined in the AMLO), the term “financial institutions (FIs)” has the same definition as set out in the FATF Recommendations.)
HKMA Hong Kong Monetary Authority
JFIU Joint Financial Intelligence Unit
MLRO Money laundering reporting officer
ML/TF Money laundering and terrorist financing
OSCO Organized and Serious Crimes Ordinance (Cap. 455)
PEP(s) Politically exposed person(s)
Proliferation financing or PF Financing of proliferation of weapons of mass destruction
RA(s) Relevant authority (authorities)
RBA Risk-based approach
RI(s) Registered Institution(s), which is an Authorized Institution registered under the Securities and Futures Ordinance to conduct securities intermediary activities.
Schedule 2 Schedule 2 to the AMLO
SDD Simplified due diligence
STR(s) Suspicious transaction report(s)
UNATMO United Nations (Anti-Terrorism Measures) Ordinance (Cap. 575)
UNSO United Nations Sanctions Ordinance (Cap. 537)
WMD(CPS)O Weapons of Mass Destruction (Control of Provision of Services) Ordinance (Cap. 526)