What to Consider for TCSP Compliance
Adapting to the evolving anti-money laundering and counter-terrorist financing (“AML/CTF”) regime in Hong Kong is a priority for many businesses. This is particularly true for the Trust and Company Service Providers (“TCSP”) industry, where the licensing regime, implemented on 1 March 2018, introduced distinct regulatory requirements with the aim of ensuring that firms become more aligned with international AML/CTF standards. As part of its business-friendly approach, the jurisdiction’s TCSP licensing regime also welcomes companies incorporated outside of Hong Kong that have a place of business in the city. In this article, we will look at some notable aspects of TCSP licence requirements that firms should consider as part of their business strategy.
Choosing a Compliance Officer & Money Laundering Reporting Officer
All TCSP licensed firms need to appoint a Compliance Officer (“CO”) and Money Laundering Reporting Officer (“MLRO”) with certain requirements. Both officers in question typically need to either be based in Hong Kong or primarily working in Hong Kong and should be senior staff members within the TCSP licensed firm to be able to carry out their responsibilities. It is especially important that the CO is part of the senior management team to ensure effective oversight on the implementation of the firm’s internal AML/CTF systems. As the MLRO is the main point of contact with the Joint Financial Intelligence Unit and other law enforcement authorities, the officer’s name and contact details need to be made known to all staff within the firm to enable any internal reports of suspicious transactions and exceptions reports to be made. Due to the main responsibilities of the CO and MLRO, both officers must have sufficient knowledge of the TCSP Registry’s AML/CTF requirements and filing procedures. Therefore, the qualifications and relevant work experience of any candidates considered for the CO and MLRO roles would require careful evaluation by the TCSP licensed firm before determining which individuals to appoint.
Registered Office Requirements for TCSP Licensees
When applying for a TCSP licence, applicants should also take note of their registered office requirements when making their business plan. The registered office address must be based in Hong Kong and should not be a co-working desk space, post office box address or residential address. As of 31 January 2025, basic operational costs for a small office space are expected to be at least US$400 per month for the first year, with an expected rent or mortgage payment of around US$3,000 per month, and where applicable, office renovation costs should be considered. Alternative options would be to use the office address of the applicant’s company secretary, if it can be considered as a proper address for staff to carry out office work, or a small private office unit in a co-working space, which is expected to cost around US$500 to US$900 per month. While the registered office requirements for applicants can be accommodated with the options outlined above, note that the address should enable staff to feasibly perform office and administrative duties.
AML/CTF Policy
Applicants also need to submit an internal AML/CTF policy that adheres to the TCSP Registry’s guidelines. Notable requirements for this policy include statements on the firm’s statutory obligations, outlining the definitions of commonly used terms in AML/CTF legislations, customer due diligence (“CDD”) and suspicious transaction reporting procedures, risk assessment criteria, staff training and the roles of senior management, the CO and MLRO within the firm. The internal policy should also include the frequency of anti-money laundering system audits to be conducted by an independent unit of the firm or third-party service provider. Depending on the overall AML/CTF risk profile of the firm’s current or expected engagements, such audits may be performed every 1-3 years. Furthermore, the internal policy will be subject to further review and amendment after the TCSP licence is issued to reflect any recent updates to the TCSP Registry’s guidelines or the firm’s business activities. Although the drafting and subsequent revisions of the internal AML/CTF policy are normally delegated to the CO and MLRO, the senior management of the firm are still ultimately responsible for ensuring that the AML/CTF systems outlined in the policy can address the firm’s identified money laundering or terrorist financing risks.
Fit and Proper Test
The proposed directors and UBOs, owning directly or indirectly more than 25% of the applicant company, need to undergo a standard fit and proper test as part of the TCSP licence application. This test is also done each time a licence renewal application is submitted, which is typically every 3 years, and includes questions regarding the individual’s records on bankruptcy, non-compliance and conviction regarding AML/CTF regulations. Certified public accountants, practicing lawyers and notary publics are often exempt from the fit and proper test, but eligibility as the director or UBO of a TCSP licensed firm would still be subject to the TCSP Registry’s review and approval. Furthermore, regardless of whether an individual is exempt from the fit and proper test, a potential Companies Registry interview with the prospective director or UBO may be conducted after the licence application to assess the individual’s capabilities of managing a TCSP licensed firm.
Supplementary Information Requests for TCSP Licensees
TCSP licensed firms will receive the occasional supplementary information request. A SIS2 form is normally sent by email and the Companies Registry focuses on data from TCSP regulated engagements carried out by the firm within a specified calendar year. Regulated engagements include but are not limited to company secretarial, directorship, nominee shareholder, provision of office and correspondence address and trust services. In addition to quantitative data, it includes questions on CDD procedures conducted, source(s) of new clients, place of residence or incorporation of customers, staff training, the firm’s suspicious transactions report filing history and AML/CTF systems. TCSP licensees need to ensure that they provide accurate information for the given calendar year and the timely submission of the SIS2 form as one of their licence obligations.
Annual training
Another important obligation for TCSP licensed firms is the requirement for all staff to undergo periodic AML/CTF training. These training courses can be done via in-person attendance to training sessions or webinars, or via online training platforms, with appropriate testing methods and benchmarks to determine the effectiveness of the training provided. All staff are required, as a minimum, to be appropriately trained on AML/CTF and anti-bribery and corruption (“ABC”) topics, especially on how to spot common money laundering, terrorist financing, bribery and corruption tactics. Compliance department staff, directors and the UBOs of a TCSP licensed firm require more specialised training, given the responsibilities they are obligated to follow, particularly if they are active in multiple jurisdictions outside of Hong Kong. Depending on the overall AML/CTF risk profile and business activities of the firm, other specialised training topics may include, among others, transaction monitoring, data privacy, information and cyber security, and sanctions. The type of training allocated to each department or staff category should be tailored to fit with the requirements of their assigned duties and responsibilities.
Notes for Prospective and Current TCSP Licensees
By considering the above key requirements, TCSP firms in Hong Kong can explore different solutions regarding the technical aspects of their regulatory compliance systems and how this can be integrated into their long-term risk management and business development plans. A comprehensive internal compliance structure and strategy will include policies and procedures that protect the firm against potential issues and is crucial for mitigating risks. The regulatory framework should be viewed as a guide on how a business can adjust and refine their approach to the market.
Perun Consultants is happy to provide more information and personalised assistance related to TCSP compliance in Hong Kong. Please contact us to speak to a member of our team.