It is now almost three years since Hong Kong SAR implemented new regulations for Trust or Company Service Providers (TCSPs). The rules included a TCSP definition and the requirement to obtain a licence from the Registrar of Companies. TCSPs must also introduce policies and procedures to ensure they comply with anti-money laundering and counter-terrorist financing requirements.
Defining a TSCP
Under the regulations, a TCSP is an individual (such as a sole proprietorship), a partnership or a corporation that provides one or more of the following services to other persons:
- Form corporations or other legal persons.
- Act, or arrange for another person to act, as a director, named secretary, partner of a corporation or partnership, or similar position in relation to other legal persons.
- Provide a registered office, business address, correspondence or administrative address for a corporation, a partnership, or any other legal person or legal arrangement.
- Act, or arrange for another person to act, as a trustee of an express trust or similar legal arrangement.
- Act, or arrange for another person to act, as a trustee of an express trust or similar legal arrangement, or a nominee shareholder for a person other than a listed entity.
Status enhancing
When they came into force in March 2018, the rules aimed to strengthen Hong Kong's status as a global financial centre. The legislation's importance is reflected in the fact that failure to comply carries a potential fine of up to HK$100,000 and six months' imprisonment.
At a high level, the process involves a test to identify if a TCSP, and every relevant person of the TCSP, is fit and proper to carry on or be associated with a trust or company service business. Before the new regime, trust or company service providers in Hong Kong did not have to adhere to such tests.
TCSPs are also required to apply for a licence, and the Registrar of Companies has the authority to approve or decline any application. It also has the power to suspend or withdraw the right to do business where there is evidence that a party has failed to observe the regulations.
The background to the change was laid out in the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) (Amendment) Ordinance (Cap. 615). The original regulations were introduced to address perceived loopholes in anti-money laundering (AML) and Counter-Terrorist Financing (CTF) rules.
The process and the risk of non-compliance
The regulations are an essential consideration for TCSPs planning to operate in Hong Kong – whether based in the SAR or via a representative office. The March 2018 governance also means that TCSPs must commit more resources to their activities.
TCSPs should view the regulator's move as a positive development for their operations. They add to the robustness of the requirements applicable to TCSPs functioning in Hong Kong and reassure clients dealing with such firms or individuals.
Acquiring a licence is not just a one-off exercise. TCSPs must continue to ensure that there is no lowering of standards that might allow future breaches of the regulations. TCSPs have to appoint a Compliance Officer to establish and maintain the licensee's AML/CTF systems, and a Money Laundering Reporting Officer, whose task includes investigating any suspicious activity.
Although it may seem that the new requirements are onerous, making an application is a relatively straightforward process.
When applying for a TCSP licence, you can:
- Visit the dedicated Companies Registry website where all of the relevant forms are available.
- Review the frequently asked questions (FAQ) section to answer any queries that may arise while making an application.
- The site also explains how to apply using a hard copy form.
It is an offence to conduct regulated business before the licence is granted. It is also not acceptable to use a defence that includes claims of having made an application that has not yet been approved.
The website also includes a register of licence holders. This is open to all businesses, as well as members of the public, and access is free of charge. On payment of a fee, the regulator can supply further documentary evidence that a person is a TCSP licensee.
Successful prosecutions
Information regarding successful prosecutions for failing to comply with the regulations appears on the site. The list of cases emphasises the importance of accuracy in any licence application and shows the heavy penalties for companies found guilty of a breach. This approach confirms the value of the regulations and their impact on the quality of Hong Kong as a business centre.
Documentation from the Companies Registry lists the circumstances in which you can be fined. These include contravening the requirements to maintain adequate records or carry out due diligence, as well as ignoring the rules or failing to advise the regulator of changes to the business, including new personnel responsibilities or the intention to cease activity in Hong Kong.
Hong Kong standards
There are other requirements for a licensee with a presence elsewhere – such as branches or subsidiaries – in addition to its business in Hong Kong. This type of arrangement requires that the TCSP maintains a record showing that it operates as near to Hong Kong standards as local laws and practices allow.
If in doubt, you should seek professional advice before submitting a licence application. Doing so ensures that any areas requiring clarification are dealt with in advance, and your business operates within the regulations.
The value of the new regime
The new licensing arrangements are a stringent method to ensure the appropriate behaviour of all TCSPs that fall within their remit. However, viewed positively, they are an essential extension of Hong Kong's reputation for professionalism and the quality of its business sector.
