As per new regulations, all Hong Kong businesses providing Trustee Services, including Corporate Service Providers will not be able to operate without a valid trading license after March the 1st 2018. The new scheme is designed to better regulate individuals carrying out services within the financial sphere in Hong Kong and will be overseen and administered by the Hong Kong Companies Registry.
Going forward, from March 1st 2018, it will be an offence to become a Director, Ultimate Owner or Partner in a Trust Company or Corporate Service Provider without the authorisation of the Companies Registry.
Fit & Proper Test
The Hong Kong Companies Registry will only grant the business license or approval of Directors or Ultimate Owners if the applicant is considered to be fit and proper.
In order to satisfy the fit & proper test, the following points will be considered:
- Whether the individual or company has been convicted of a criminal offence, relating specifically to money laundering or terrorist financing, including any drug related offenses.
- Whether the individual is an undischarged bankrupt or potentially subject to bankruptcy proceedings. For corporations, they cannot be in the process of liquidation or subject to a winding up order or striking off.
- The same test applies to the applicant that is carrying out business proceedings on behalf of the corporation in question, including any relevant Directors, Partners and Ultimate Owners.
The Ultimate Owner
The Ultimate Owner of a partnership is an individual who satisfies one or more of the following points:
- Controls more than a 25% share of the capital or profits of the partnership directly or indirectly,
- Owns more than 25% of the voting rights in a partnership or who exercises ultimate control over the management of the partnership.
The Ultimate Owner of a corporation is an individual who satisfies one or more of the following points:
- Controls more than 25% of the issued share capital directly or indirectly, including through a trust or bearer share holding.
- Owns or is entitled to exercise control of more than 25% of the voting rights of the corporation.
The Requirement for Enhanced Client Due Diligence
The Hong Kong Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Bill 2017 introduced a statutory requirement on Hong Kong Trust Companies or Corporate Service Providers, including Legal Advisors, Accountants and Estate Agents to carry out client due diligence in accordance with Schedule 2 of the Hong Kong Anti-Money Laundering and Counter-Terrorist Financing (Financial Institution) Ordinance.
The regulations include mandatory requirements to identify and verify full details of all their client base and information regarding Beneficial Owners, to establish the purpose and intended nature of business relationships with the client. Under rules administered by their professional bodies in Hong Kong, some of the professions noted above are already required to carry out similar due diligence requirements; however this change is notable as it introduces a new statutory basis for reporting.