Understanding Hong Kong's New Precious Metals Regulatory Regime
To comply with its obligations under the Financial Action Task Force (“FATF“) and further strengthen its anti-money laundering and counter-terrorist financing (“AML/CTF“) efforts, in June 2022, Hong Kong introduced a new registration regime for dealers in precious metals and stones (“DPMS“).
The Customs and Excise Department is responsible for enforcing the registration requirements and also supervising the AML/CTF compliance of registrants under the new regime.
This new regime applies to various types of companies ranging from retailers, wholesalers, refiners, through to manufacturers.
PDF version: Understanding Hong Kong’s New Precious Metals Regulatory Regime
Who does the Registration Regime Apply to?
Any individual who conducts any of the following activities for commercial purposes will be subject to the registration regime:
- Trading (which includes buying and selling), exporting or importing precious metals, precious stones or precious products;
- Manufacturing, refining or performing any value-adding work on precious metals, precious stones or precious products;
- Issuing, redeeming or trading precious-asset-backed instruments; or
- Acting as an intermediary in any of the aforementioned activities.
Examples of the types of companies that will require to be registered include the following:
- Retailers: who buy and sell precious metals or stones
- Wholesalers: who trade precious metals or stones
- Pawnbrokers: who accept precious metals or stones as collateral
- Refiners: who process precious metals
- Manufacturers: who use precious metals or stones in their production processes
Customized jewellery makers: who create bespoke jewellery with precious metals or stones
An individual will not fall into the category of a DPMS if they are only importing or exporting precious metals, precious stones or precious products as part of their logistics service business.
However, if the individual is either buying, selling, manufacturing, refining, issuing, redeeming, or trading these materials as a regular part of their business, the individual shall fall within scope and will therefore also be subject to the registration regime.
What Types of Materials are Covered Under this Regime?
Under the regulatory regime, there are four types of articles that are subject to regulation:
- Precious Metals (e.g. gold, silver, platinum, iridium, osmium, palladium, rhodium or ruthenium, whether in a manufactured or unmanufactured state)
- Precious Stones (e.g.diamonds, sapphires, rubies, emeralds, jade or pearls, whether natural or man-made)
- Precious Products (e.g.jewellery and watches that contain or are made up of precious metals or precious stones, or both
Precious-asset-backed Instrument (any certificate or instrument backed by one or more precious metals, precious stones or precious products that entitles the holder to such assets (in entirety or in part))
Categories of the Registration
Regardless of the currency used for the transaction, where the value of the transaction is equal to or exceeds HKD 120,000, individuals who intend to engage in the business of dealing in precious metals and stones in Hong Kong are required to register with the Commissioner of Customs and Excise (“CC&E”).
The two categories open for registration are:
- Category A: Any dealer who plans to engage in non-cash transactions with a total value of HKD 120,000 or more as part of their business activities.
Category B: Dealers who intend to engage in both cash and non-cash transactions with a total value of HKD 120,000 or more as part of their business activities.
It should be noted that Category B registrants are subject to AML/CFT obligations as stipulated in the AMLO.
Transitional Period
Penalties for Non-Compliance
An individual who is not a registrant under any of the categories may face a maximum fine of HK$100,000 and imprisonment for 6 months upon conviction if they do either of the following:
- Engage in a specified transaction or specified cash transaction relating to precious metals and stones
- Falsely claim to be authorized to conduct such transaction
- Falsely claim to be a registrant
Non-Hong Kong Dealers in Precious Metals and Stones
A non-Hong Kong dealer in precious metals and stones refers to an individual or legal entity that deals in these commodities in Hong Kong but:
- Does not ordinarily reside in Hong Kong or is not a registered non-Hong Kong company and does not have a place of business in Hong Kong.
- Carries out their business within Hong Kong for no more than 60 days in a calendar year.
Obligations of Non-Hong Kong Dealers in Precious Metals and Stones
If a non-Hong Kong dealer of precious metals and stones carries out any specified cash transactions, they are required to file a cash transaction report to the C&ED within 1 day after the transaction, or before the dealer or their representative leaves Hong Kong, whichever comes first.
The report must contain the following information:
- Travel information and particulars of the dealer or dealer’s representative
- Particulars of the customer
- Transaction details
Penalties for Non-Compliance for Non-Hong Kong DPMS
Non-Hong Kong individuals or entities engaged in the business of dealing with precious metals and stones are required to report any specified cash transactions. Failure to do so may result in a maximum fine of HK$50,000 and a prison sentence of 3 months upon conviction.
Minimum Requirements to Obtain Registration
Across the registration categories under the CC&E, an applicant would mainly need to submit a populated form and include relevant attachments.
These consist mainly of the following documents:
- Business registration, incorporation certificate and other associated documents
- Particulars of directors
- Principal place of business and details of other business premises
- Fitness and properness declaration.
