2 May 2018
New Developments to Safeguard the Integrity of Hong Kong as an International Financial Centre
The Financial Action Task Force (FATF) is promoting a regulatory regime in anti-money laundering and counter-terrorist financing (AML/CTF). To strengthen the regime, Hong Kong has recently amended the Companies Ordinance (Cap. 622) and the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (Cap. 615).
New requirements on keeping a Significant Controllers Register for companies incorporated in Hong Kong
The Companies (Amendment) Ordinance 2018 (the Amendment Ordinance) came into effect on 1 March 2018. Under the Amendment Ordinance, all companies incorporated in Hong Kong must keep a Significant Controllers Register (SCR).
The Companies Ordinance (Cap. 622) has been amended to enhance the transparency of beneficial ownership for companies incorporated in Hong Kong. Under the Companies Ordinance, companies must make available the SCR for inspection by law enforcement officers upon demand.
The Amendment Ordinance requires a company to keep a SCR, in either English or Chinese, which contains the required particulars of its significant controllers (including the registrable person and/or the registrable legal entity). The SCR should be kept at the company’s registered office or a prescribed place in Hong Kong.
The new requirement to keep a SCR applies to all companies incorporated under the Companies Ordinance in Hong Kong, including companies limited by shares, companies limited by guarantee and unlimited companies. However, the requirement does not apply to companies that have their shares listed on the Hong Kong Stock Exchange.
Companies must take reasonable steps to identify their significant controllers. This includes reviewing the company’s register of members, articles of association, shareholder agreements and other agreements. It also includes issuing notices to any person that the company knows or has reasonable cause to believe (a) to be a significant controller; or (b) know the identity of another person who is a significant controller. The person the notice is addressed to must confirm or provide (as appropriate) the requested particulars of the significant controller.
A person has significant control over a company if they meet one or more of the following five conditions:
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, they have a right to share in more than 25% of the company’s capital or profits
2. The person holds, directly or indirectly, more than 25% of the voting rights in the company
3. The person holds, directly or indirectly, the right to appoint or remove a majority of the company’s board of directors
4. The person has the right to exercise, or actually exercises, significant influence or control over the company
5. The person has the right to exercise, or actually exercises, significant influence or control over the activities of a trust or firm that is not a legal person, but whose trustees or members meet any of the first four conditions (in their capacity as such) in relation to the company.
When the company receives the confirmation of the particulars from the registrable person, those particulars should be entered in the SCR within seven days. Each of the required particulars relating to a registrable legal entity should be entered in the company’s SCR within seven days of the particular coming to the company’s notice.
The SCR must contain the required particulars of the significant controllers and the contact details of the company’s designated representative.
The required particulars are:
- For registrable persons – name, address, HKID/passport number, date of becoming a registrable person, and nature of control over the company.
- For registrable legal entities – name, address, legal form, registration number, place of incorporation, date of becoming a registrable legal entity, and nature of control over the company.
- For designated representatives – name and contact details.
The SCR can never be blank. If a company does not have a registrable person or a registrable legal entity, that fact should be stated in the SCR.
The SCR must be kept up to date. It must note the details and dates of any registrable change that results in a person ceasing to be a significant controller or any of the significant controller’s particulars in the SCR being incorrect or incomplete. These changes must be entered in the SCR within seven days after they have all been confirmed (for a registrable person) or of that change of particular coming to the company’s notice (for a registrable legal entity).
The company has to designate a representative who will serve as a contact point for providing information about the SCR and related assistance to law enforcement officers. The designated representative must be one of the following: (a) a shareholder, a director or an employee of the company who is a natural person resident in Hong Kong; or (b) an accounting professional, a legal professional or a person licensed to carry on a business as a trust or company service provider. The particulars of the designated representative should also be entered in the SCR.
If a company is convicted of failing to comply with the requirement of keeping an SCR, the company, and each of its responsible persons, will be liable to pay a fine of up to HK$25,000 and a daily fine of HK$700.
If a person (or legal entity) fails to respond to a notice sent by a company within one month of the date of the notice, they have committed an offence. If convicted, the person (or legal entity) is liable to pay a fine of HK$25,000.
If a person is accused and convicted of giving false information in response to a notice sent by a company, the person is liable to pay a fine of HK$300,000 and to imprisonment for two years. Or, if they receive a summary conviction, they are liable to pay a fine of HK$100,000 and to imprisonment for six months.
New licensing regime for trust or company service providers in Hong Kong
The new Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) came into force on 1 March 2018. Under the AMLO, all trust and company service providers (TCSPs) must apply for licences from the Registrar of Companies and satisfy a ‘fit and proper’ test before they can provide trust or company services as a business in Hong Kong.
All TCSP licensees must comply with the statutory customer due diligence and record-keeping requirements set out in Schedule 2 of the AMLO. To ensure that licensees are complying fully with the statutory requirements, officers of Companies Registry will conduct on-site inspections, investigate any incidents of non-compliance and initiate disciplinary action where appropriate.
A TCSP licence is usually valid for three years. TCSP licensees must obtain approval from the Registrar before any person becomes the licensee’s ultimate owner or a partner or a director. In addition, if there are any changes to any of the particulars previously provided in connection with an application for a licence or a renewal of a licence, TCSP licensees should notify the Registrar within one month of the date the change took place.
There is a transitional arrangement through which a person is deemed to have been granted a licence if immediately before 1 March 2018 the person was carrying on a trust or company service business in Hong Kong and held a valid business registration certificate for that purpose. This is known as a ‘deemed licence’.
The deemed licensee must apply for a licence during the transitional period of 120 days from 1 March 2018. When the transitional period ends, the deemed licence will cease to have effect. If the deemed licensee applies for a licence to carry on a trust or company service business during the transitional period, the deemed licence will cease to have effect when the application is granted, rejected or withdrawn.
Any person who carries on a trust or company service business in Hong Kong without a licence will be committing an offence. If convicted, they will be liable to pay a fine of HK$100,000 and to imprisonment for six months.
To facilitate the implementation of the new licensing regime, the Companies Registry has set up a new office in Kowloon Bay: the Registry for Trust and Company Service Providers. This office is responsible for the administration of the licensing regime and the regulation of TCSPs.