Comments from February Newsletter

Here is the comments section from our February regulatory newsletter:

In February, AUSTRAC in Australia released new rules for discussion in relation to AML and CTF. The 57 page draft can be found by clicking on this link.

For firms in Australia the rules set out proposed AML and CTF programs including minimum information collection requirements to support KYC, a requirement to conduct prospective employee due diligence, a requirement to provide AML / CTF training and a requirement to have your AML / CTF program reviewed by an independent party.

For firms who conduct business with Australian firms in the financial industry you should expect to have to provide more details about the nature of the foreign company including names of directors and beneficial owners.

As mentioned in a previous comment about the Australian legislation, AUSTRAC has the power to visit a business in Australia and inspect its AML records without a warrant. It may also fine a business that does not comply with the act in addition to other general prosecutorial powers. These new rules set out the type of AML / CTF program that AUSTRAC wants to see and hence the type of program that must be in place to avoid either a fine or a name and shame action.

The proposed rules and the legislation are likely to be an added compliance burden on both Australian firms and firms wanting to transact business in Australia.

In practical terms the act and its rules are more likely to be quite effective tax collection and anti avoidance measures rather than simply anti money laundering provisions.

At the time of going to print with this newsletter, the Hong Kong SFC has clarified that it does not specify the precise type of premises that a licensed entity can use in Hong Kong. In 2006, the SFC had informed a number of license applicants that it would not accept a serviced office address, this despite the fact that a number of previously licensed firms were operating quite properly from these locations.

Reason has prevailed however, with the SFC clarifying that in fact they are only concerned with the internal control implications of any premises used by a licensed entity, serviced, leased or otherwise. This is a welcome change of policy and means that firms can indeed apply to commence smaller scale operations in Hong Kong provided they have appropriate internal controls in place relating to whatever they choose as premises.

There are other continued indications from the Hong Kong regulator that they are becoming more receptive to new applicants entering the Hong Kong market and we hope this trend continues.

The last month has seen new budgets released by both Singapore and Hong Kong. In broad terms company taxes are coming down and both locations continue to compete to lure regional head offices. Investment management and advisory companies will find that the budgets, and associated tax policy, continue to encourage the location of these firms in Hong Kong or Singapore.

The Nikko Cordial drama continued to unfold in Japan with Citigroup making a tender offer for all of the company’s shares at the time of going to print. The bid is interesting as it appears to us to be indicative of the opening up of the Japanese financial sector to much greater foreign involvement.

Firms with investment advisory operations in Japan should note the upcoming implementation of parts of the new Financial Instruments and Exchange Law that may affect their business. We understand from Japanese counsel that provisions relating to the registration of a number of firms previously unregistered will come into force in the second half of 2007.

Unlike Hong Kong and Singapore, Japanese tax authorities appear to be strengthening a number of provisions that may have the effect of taxing financial businesses previously exempt or largely exempt from Japanese taxes. Firms with operations in Japan may wish to get advice on this topic if they have already done so.