Message to members: Exposure Draft of the Code of Ethics
New video introduction to the Exposure Draft of the Code of Ethics for Professional Accountants on AML/CTF compliance
The amended Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) became effective on 1 March 2018, extending the regulation of anti-money laundering and counter-terrorist financing (AML/CTF) from financial institutions to also cover designated non-financial businesses and professions (DNFBPs), including professional accountants. As the statutory regulator of the accountancy profession in Hong Kong the Institute was given a specific responsibility for AML/CTF regulation of the accountancy profession.
The AMLO brings into Hong Kong legislation the recommendations of the Financial Action Task Force (FATF), an inter-governmental body that is recognised as the international standard setter for AML/CTF regulation across the world. FATF currently comprises 37 member jurisdictions, including most major financial centres, and more than 200 countries have committed to implementing FATF recommendations. Hong Kong is a member of FATF and a founding member of the Asia/Pacific Group on Money-Laundering. The Hong Kong Government has given a public commitment to endorse, support and implement FATF recommendations.
Background
In September 2019 FATF issued a report on Hong Kong’s AML/CTF regulatory system, based on the evaluation carried out in late 2018. Although the overall conclusion was favourable, the report recommended that the regulatory bodies responsible for various DNFBP sectors, including the Institute, should strengthen their risk understanding and supervisory systems.
In response to the FATF recommendation, the Institute is working within its current regulatory authorities set out in the Professional Accountants Ordinance (PAO) to develop the processes that can enable improvements to be implemented. From October 2018 the Institute’s practice review programme has been amended to include an AML/CTF compliance element. However, this covers only practice units, as defined in the PAO, and is not enough to meet the full scope of accounting professionals providing professional services by way of business to clients as required under AMLO and the FATF recommendations.
To enable a more comprehensive and effective risk assessment to be carried out the Institute needs to understand more about the professional services being provided by its members other than through practice units. The key to this will be a questionnaire that will be sent to members and practice units in November in addition to the 2021 annual membership renewal notice. To maximize the effectiveness of the questionnaire as an information gathering exercise for meaningful assessment of ML/TF risks at the institutional level it is proposed to introduce a new chapter to the Code of Ethics for Professional Accountants (Code).
Proposed obligations and their scope
The key items in the proposed new chapter are to establish two obligations – (1) on CPAs and practice units to provide information to the Institute that has been requested for AML/CTF regulatory purposes, and (2) on CPAs who are charged with governance of network firms (as defined in the Code) located in Hong Kong, and other professional service entities that are wholly owned by CPAs and practice units, to ensure that those entities comply with applicable AML requirements as if they were practice units. If the entities are directly regulated by another AML/CTF regulator e.g. the Registrar of Companies, the second obligation will not apply.
The proposals do not extend the Institute’s role to direct regulation of network firms located in Hong Kong and other professional service entities that are wholly owned by CPAs and practice units.
Members who do not provide professional services to clients by way of business, directly or through a practice unit or other entity as explained above, will not fall within the scope of the Institute’s AML/CTF supervisory system. The first few questions of the questionnaire are designed to establish whether a member falls within scope. If they do not then they will not need to complete the rest of the questionnaire.
Video introduction to the proposal
The proposed addition to the Code was issued as an Exposure Draft on 20 July 2020 and is open for comments until 20 October 2020. As this is an important issue for the Institute and Hong Kong members are encouraged to make their views known. To facilitate members’ understanding, a video to explain the exposure draft has been produced and uploaded to this website. Please click here for details.
