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Significant Controllers and Licensing Regimes

  • Hong Kong
  • Corporate

08-02-2018

On 1 March 2018, two pieces of legislation which are aimed at enhancing the transparency of beneficial ownership of Hong Kong companies and the regulation of designated non-financial businesses and professions in respect of customer due diligence and record-keeping will come into operation: (1) the Companies (Amendment) Ordinance 2018 (“CAO”); and (2) the Anti-Money Laundering and Counter-Terrorist Financing Ordinance 2018 (“AMLO”). [1]

Significant controllers regime

The CAO will introduce a significant controllers regime requiring all companies incorporated in Hong Kong (except for listed companies) to obtain and maintain up-to-date beneficial ownership information by way of keeping a significant controllers register (“SCR”). Under the CAO, a person has significant control over a company if that person meets any of the following:

  1. the person holds, directly or indirectly, more than 25% of the issued shares in the company or, if the company does not have a share capital, the person holds, directly or indirectly, a right to share in more than 25% of the capital or profits of the company;
  2. the person holds, directly or indirectly, more than 25% of the voting rights of the company;
  3. the person holds, directly or indirectly, the right to appoint or remove a majority of the board of directors of the company;
  4. the person has the right to exercise, or actually exercises, significant influence or control over the company; or
  5. the person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or a firm that is not a legal person, but whose trustees or members satisfy any of the first four conditions in relation to the company.

The obligation rests upon the company to take reasonable steps to identify and ascertain their significant controllers, issue notices to such persons and those who may know the identity of the significant controllers, and thereafter maintain a SCR containing specified personal information (if a natural person) or basic corporate information (if a legal entity) of such identified significant controllers. The company must enter the particulars of the person or legal entity within 7 days after such particulars have been confirmed by the person, or in the case of a legal entity, within 7 days after such particulars have come to the notice of the company. The SCR must be kept up-to-date and be available for inspection by law enforcement officers upon demand.

Non-compliance of any of the above is a criminal offence and the company and every responsible person of the Company are liable to a level 4 fine i.e. HK$25,000 and a daily fine of HK$700 for each continuing day of breach.

Licensing regime and customer due diligence

Under the new AMLO, trust and company service providers (“TCSPs”) will need to apply for a licence from the Companies Registry and satisfy a “fit and proper” test before they can provide trust or company services as a business in Hong Kong from 1 March. A licence will be valid for 3 years and must be renewed upon its expiry. Any TCSP carrying on a trust or company service business without a licence commits an offence under the AMLO and is liable on conviction to fine of HK$100,000 and imprisonment for 6 months. Certain persons are exempted from the licensing regime, including (but not limited to) the government, banks, licenced corporations under the SFO operating a trust or company service business which is ancillary to the corporation’s principal business, accounting professionals and legal professionals.

All TCSP licensees are required to, inter alia, comply with the statutory customer due diligence and record-keeping requirements as set out in Schedule 2 of the AMLO.[2] Due diligence measures include identifying and verifying the identity of customers, verifying the beneficial owners, and obtaining information on the purpose and intended nature of the business relationship before establishing business relationships, carrying out occasional transactions above HK$120,000, when there are suspicions of money laundering or terrorist financing or doubts on the veracity or adequacy of any information previously obtained. Depending on the circumstances, simplified or enhanced due diligence may be conducted. Further, licensees must retain all relevant records of customers and transactions pursuant to the AMLO.

The Companies Registry may take disciplinary actions against TCSP licensees if any of the applicable due diligence or record-keeping requirements or other licencing obligations is contravened.

Note:

[1] The Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance 2018 will amend the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615) which will also be retitled “Anti-Money Laundering and Counter-Terrorist Financing Ordinance” on 1 March.

[2] Schedule 2 of the AMLO will also extend to apply to solicitors, accountants and real estate agents when engaged in specified transactions which include real estate transactions, management of client money, securities or other assets, management of bank, sayings or securities accounts, company formation and management, and buying and selling of business entities.

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