Brokerages in Hong Kong still aren't making the grade in terms of ensuring that illicit funds don't flow through their hands, the jurisdiction's regulator has warned.

Brokerages are falling short in their controls against dirty money, a Hong Kong regulator has warned, highlighting how anti-money laundering remains a hot compliance topic in Asia as recently demonstrated by the drama around Malaysian state-run fund 1MDB.

Hong Kong’s Securities and Futures Commission is probing several cases of SFC licensed brokerages with suspected inadequate anti-money laundering internal controls and it expects to bring a number of enforcement proceedings as a result, it said in a statement this week. The watchdog did not identify any brokerages by name or say which ones might be at fault.

The licensees are expected to build on internal controls “immediately” because they have had “ample time” to do so since the Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) and the SFC Guideline on Anti-Money Laundering and Counter-Terrorist Financing (Guideline) came into force in 2012.

While there is much commentary and regulatory noise about the need to stamp out illicit money, the fact that the SFC felt it necessary to issue such a blunt statement suggests much work needs to be done to succeed. Earlier in the summer this year, in rival wealth hub Singapore, the Monetary Authority of Singapore moved to revoke the private banking licence of a local business of BSI, citing gross misconduct and other failings related to how transactions were handled. A number of other banks have been warned they face punishment about such transactions, linked to transfers involving 1MDB. (See more details here.)

On-site inspections of licensees, and AML investigations, have revealed a raft of abuses, the SFC said. Examples include failing to scrutinise cash and third party deposits into customer accounts; ineffective monitoring of transactions in customer accounts; failure to take adequate measures to continuously monitor business relationships with customers which present a higher risk of money laundering; inadequate enquiries made to assess potentially suspicious transactions to determine whether or not it is necessary to make a report to the Joint Financial Intelligence Unit, and lack of documentation of the assessment results, and failure to monitor and supervise the ongoing implementation of anti-money laundering and counter-terrorist financing policies and procedures.