Hong Kong regulator informs intermediaries of new approach to remote onboarding of overseas clients
The SFC has issued a circular to intermediaries informing them of a new approach for the online onboarding of overseas individual clients which will be acceptable from July 5, 2019.
The Hong Kong Securities and Futures Commission (SFC) has earlier today issued a circular to intermediaries informing them of a new approach for the online onboarding of overseas individual clients which will be acceptable from July 5, 2019.
The regulator warns that remote client onboarding makes it harder to detect impersonation. When clients are not physically present for identification purposes, intermediaries will generally not be able to determine that identity documents belong to the client they are dealing with. Even current technology cannot fully eliminate impersonation risks. These may be aggravated by the speed of electronic transactions, multiple fictitious accounts and the use of stolen identities.
Furthermore, the procedures used by overseas banks to verify client identities may not satisfy regulatory requirements in Hong Kong. It may also be difficult for regulator to conduct an investigation when verification procedures are performed by overseas banks. The new approach to remote onboarding has taken all of these risk factors into account.
The new approach to verify the identity of an overseas individual client will include a number of steps that have to be completed.
For instance, intermediaries will have to access the embedded data in the client’s official identification document (ID Document) such as a biometric passport or an identity card, or obtain an electronic copy of the relevant sections of the ID Document, including a high-quality photograph of the client. The companies will have to use appropriate and effective processes and technologies to authenticate the client’s ID Document.
Further, intermediaries will have to be able to very the ID. For instance, they may capture the client’s facial image in real time and match it with the photograph stored in the chip of the client’s biometric passport using facial recognition technology.
The intermediaries will also be obliged to obtain a client agreement signed by the client by way of an electronic signature.
There are also requirements regarding the size of the deposits. The intermediaries will have to conduct all deposits and withdrawals for the client’s investment account only through a Designated Overseas Bank Account.
The new requirements also stipulate that intermediaries have to maintain proper records for each client’s account opening process in a manner which is readily accessible for compliance checking and audit purposes.
The senior management of intermediaries, including Managers-In-Charge, will bear the primary responsibility of ensuring that proper processes and technologies are implemented to verify clients’ identities.
In addition to the pre-implementation assessment and annual reviews, intermediaries are expected to regularly evaluate the performance of the adopted technologies to ensure that the true identities of onboarded clients have been properly established.