Debunking the Myth: Is Money Service Operator a High-Risk Business?
Money service operators (MSOs) often face skepticism, with many viewing them as high-risk businesses. This belief is frequently reinforced in anti-money laundering (AML) trainings, where both trainers and banking professionals emphasize the perceived risks associated with MSOs. But is this reputation justified?
Contrary to popular opinion, the AML ordinance in Hong Kong does not classify money service businesses as inherently high-risk. In fact, it directs banks to perform simplified due diligence (SDD) for entities regulated by a government authority. In Hong Kong, money transfer services are regulated by the Hong Kong Customs and Excise Department (C&ED), which imposes stringent regulations in line with global standards. Therefore, according to the guidelines, MSOs should undergo SDD rather than being labeled as high-risk.
A unique aspect of Hong Kong’s regulatory framework is the requirement for senior management of MSOs to demonstrate their knowledge of AML regulations. While banking regulators do not require exams for directors or shareholders, the C&ED mandates that at least one senior management member must pass an assessment to prove a comprehensive understanding of AML rules before a license is granted.
This focus on regulatory compliance highlights Hong Kong’s commitment to effectively combating money laundering and terrorist financing. By ensuring that senior management is well-versed in AML requirements, the regulatory framework guarantees that MSOs operate with integrity and adhere to best practices.
Despite this robust regulatory structure, the misconception that MSOs are high-risk persists. This misunderstanding has serious implications, as banks are often hesitant to onboard MSOs, leading to account closures, demands for excessive documentation, and unjustified delays in the application process. In a survey of 105 banks in Hong Kong, only 8 expressed willingness to accept MSO applications, and none of these banks ultimately followed through, citing vague reasons and rejecting the applications.
In conclusion, while MSOs may be perceived as high-risk businesses, a closer examination reveals a more complex reality. In places like Hong Kong, stringent regulatory oversight and proactive compliance measures highlight a strong commitment to fighting financial crimes. It is crucial to challenge preconceived notions and explore the regulatory environment to truly understand the risk profile of MSOs.
