How to Obtain an MSO License in Hong Kong: A Step-by-Step Guide for Businesses

Since 1 April 2012, the regulation of Money Service Operators (MSOs) in Hong Kong has been carried out by the Customs and Excise Department (C&ED). The regulator’s authority is established under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, AMLO).

An MSO licence is mandatory for any person—whether an individual or a legal entity—who carries on or intends to carry on a money service business in Hong Kong as a commercial activity.

Money service activities are defined as two types of business:

1. Money changing service

This refers to the commercial activity of exchanging currencies carried out within Hong Kong.

The following are not subject to regulation:

• Currency exchange incidental to a primary business activity (e.g., a retail store accepting payment in foreign currency);
• Currency exchange conducted by a hotel manager, provided both of the following conditions are met:
  • the service is offered exclusively to hotel guests and only within the hotel premises;
  • transactions are limited to purchasing foreign currency from guests in exchange for Hong Kong dollars.

2. Remittance service

This refers to a commercial activity that includes one or more of the following actions:

• Sending money outside Hong Kong or arranging for such a transfer;

Receiving money from abroad or arranging for such receipt or for the receipt of funds in a third country.

If your business activity is subject to MSO licensing, you must submit a licence application before commencing such operations. Conducting money service activities without a licence constitutes a breach of the AMLO and may result in serious legal consequences.

The licence is issued in a form approved by the Customs and Excise Department (C&ED) and must include:

• The address(es) of the premises where the licensed activity may be carried out (for physical operators) or a correspondence address (for online operators);
• Licensing conditions imposed under Sections 30–32 of the AMLO;
• The licence validity period (typically 2 years).

MSO Licensing Considerations Based on Business Scale

Although all remittance service providers and money changers are subject to regulation under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO, Cap. 615), and the law formally sets out uniform licensing conditions—with the exception of premises-related requirements—in practice, the Customs and Excise Department (C&ED) adjusts the depth and scope of its review, as well as its final licensing decision, based on the type and scale of the applicant’s operations.

1. Licensing for Small and Medium-Sized MSOs

This category applies to businesses offering a limited range of services—for example, local-only remittance services or money changing activities confined to Hong Kong (such as standalone exchange counters).

Although such operators may be subject to less stringent financial resource requirements, they are fully required to comply with all AML/CFT standards, including:

• Implementing internal customer due diligence (KYC) procedures;
• Appointing a designated compliance officer responsible for AML matters;
• Maintaining suitable and secure premises;
• And other requirements.

2. Licensing for Larger MSOs with International Operations

For companies engaged in international remittance services—particularly those involving transfers to or from high-risk jurisdictions, licensing requirements are significantly stricter.

Such applicants must demonstrate:

• Sufficient capital and liquidity to support ongoing operations;
• A robust compliance system, including sanctions screening and geographic risk management;
• Relevant experience of the management team in handling cross-border payments;
• Established banking relationships with local or international banks.

The regulator (Customs and Excise Department) pays particular attention to the operator’s ability to manage the heightened risks associated with international operations.

Requirements for Obtaining an MSO License in Hong Kong

Who Can Apply for an MSO Licence?

To obtain a Money Service Operator (MSO) licence in Hong Kong, a company must meet a set of specific eligibility criteria.

Key Eligibility Criteria for an MSO Licence in Hong Kong

To apply for an MSO licence, a company must satisfy the following key requirements:

1. Legal Status

The applicant must be a legally registered entity in Hong Kong. This includes:

• A local company incorporated under the Companies Ordinance (Cap. 622), or
• A foreign company with a duly registered branch or place of business in Hong Kong.

Foreign companies without a formal legal presence in Hong Kong are not eligible to apply for an MSO licence.

2. Business Registration

The company must complete business registration with the Inland Revenue Department (IRD) and obtain a Business Registration Certificate (BRC).

Important: The BRC must explicitly list a business nature that corresponds to MSO activities (e.g., “money changing” or “money remittance”). This is specified when submitting Form IRBR200.

3. Financial Soundness

Applicants must demonstrate sufficient capital to support the declared scope of business. While the law does not prescribe a fixed minimum share capital, the Customs and Excise Department (C&ED) assesses the following factors:

• The company’s liquidity;
• Sources of funding;
• the ability to cover operational and risk-related costs in accordance with the scale of the planned operations.

4. Organisational Structure and Personnel

The company must have a clear management and operational structure, including:

• A designated Compliance Officer;
• An AML Officer responsible for fulfilling anti-money laundering obligations;
• Qualified operational staff;
• An internal control and reporting system.

The number and qualifications of personnel must be commensurate with the declared scale and geographic scope of the activities.

Management and Key Personnel Requirements for an MSO License in Hong Kong

In addition to the company itself, the regulator pays close attention to the personal and professional integrity of its directors and key personnel. Under MSO licensing practice, all individuals who exercise significant influence over the operator’s activities—including directors, beneficial owners, and the Compliance and AML Officers—must meet the “fit and proper person” criterion. This means they must be trustworthy, competent, and of good ethical standing.

1. Impeccable Business and Legal Reputation

Applicants must not have:

• Criminal convictions, particularly for financial crimes such as money laundering, fraud, or tax evasion;
• Outstanding charges or ongoing investigations by law enforcement authorities;
• A history of disqualification as a company director in any jurisdiction;
• Verified involvement in suspicious or illicit financial schemes.

The Customs and Excise Department conducts thorough screening using international databases, including World-Check and its own internal sources.

2. Professional Competence and Relevant Experience

This is particularly important for individuals responsible for operations and compliance:

• Possession of practical experience in remittance services, money changing, or related financial sectors;
• Understanding of AML/CFT principles, including KYC procedures, transaction screening, and reporting of suspicious activity;
• Knowledge of the requirements under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615).
• Formal education (e.g., in finance, law, or compliance) is welcomed but does not replace relevant practical experience.

3. Absence of Conflicts of Interest

Directors and key personnel must:

• Not hold undisclosed financial interests in competitor companies or counterparties;
• Not occupy positions that could interfere with the objective performance of their duties within the MSO;
• Disclose any potential conflicts of interest when submitting the licence application.

4. Reliability and Personal Integrity

These qualities are assessed based on:

• References from previous employers or business partners;
• Completeness and accuracy of information provided in application forms and supporting documents;
• Conduct during any interview with a representative of the regulator.

Any attempt to conceal information or submit false or misleading statements may result in licence refusal.

Important: The regulator reviews not only current but also former directors and beneficial owners from the past 3–5 years. Even if an individual has resigned from management prior to the application, their background may still influence the licensing decision.

The “fit and proper” assessment is not a mere formality—it is a critical component of the licensing process. The presence of even a single adverse factor listed above may serve as grounds for refusing to grant a licence or for revoking an already issued one.

Under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, AMLO), the Hong Kong Customs and Excise Department (C&ED) may grant or renew a Money Service Operator (MSO) licence only if all key individuals associated with the applicant meet the “fit and proper person” criterion—meaning they are reliable, competent, and of good ethical standing.

Who is subject to this assessment?

The scope of individuals reviewed depends on the applicant’s legal structure:

• If the applicant is an individual: the applicant themselves and all ultimate beneficial owners are assessed.
• If the applicant is a partnership: all partners and ultimate beneficial owners are assessed.
• If the applicant is a corporation: all directors and ultimate beneficial owners are assessed.

Who is considered an ultimate beneficial owner (UBO)?

An ultimate beneficial owner is a natural person who ultimately owns or controls the business, even if not formally named in official documents.

For an individual applicant:

• The natural person who ultimately owns or controls the individual’s MSO business; or
• The person on whose behalf the individual is acting (e.g., in cases of nominee or trust arrangements).

For a partnership:

A person is considered a UBO if they:

• Own or control more than 25% of the capital or profit share;
• Hold more than 25% of voting rights in decision-making;
• Exercise ultimate control over the management or operations of the partnership.

For a corporate applicant:

An ultimate beneficial owner (UBO) is a natural person who:

• Holds more than 25% of the company’s shares, whether directly, through trusts, or other intermediate structures;
• Controls more than 25% of the voting rights at general meetings;
• Exercises de facto control over the company’s management or operations.

Even if ownership is structured through intermediate companies, trusts, or nominee shareholders, the Customs and Excise Department (C&ED) requires full disclosure of the true beneficial owner(s). Such complex ownership arrangements typically complicate and prolong the licence application review process.

Premises Registration Requirements for MSO Licensing in Hong Kong

According to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, AMLO), Money Service Operators (MSOs) must specify “particular premises” in their licence application if such premises are used to carry on their business. But what exactly qualifies as “particular premises,” and when is their registration mandatory?

“Particular premises” are physical locations in Hong Kong where you actually conduct money changing and/or remittance services as a commercial activity.

Such premises include:

• Spaces specifically occupied by you for conducting MSO activities;
• Addresses publicly advertised as customer service points (e.g., with signage);
• Premises under your continuous control—as a tenant or owner.

Locations are not considered “particular premises” if you only visit them temporarily (e.g., a restaurant, bank, or the office of an accountant or lawyer) solely to complete paperwork, without providing financial services to clients on-site.

If you operate without a fixed office—for example, remotely via mobile devices or through on-site client visits—you must still provide the following three mandatory details in your application:

• A Local Management Office (LMO);
• A correspondence address;
• A Local Place for Storage (LPS) for accounting and operational records.
• Requirements for “particular premises”

In addition to formal registration, the Customs and Excise Department (C&ED) assesses the suitability of the premises from the standpoint of legality, transparency, and consumer protection.

Acceptable premises:

• Must be readily accessible to C&ED inspectors without obstruction;
• May be located in mixed-use (commercial/residential) buildings, provided written consent from all residents is obtained for inspections.

Unacceptable premises:

• Premises located in purely residential buildings;
• Addresses already used by another MSO or listed in another licence application;
• Spaces accessible only through the office of a third-party company;
• Premises with signage displaying a business name that does not match the name on the Business Registration Certificate (BRC).

What is a Local Management Office (LMO)?

The LMO is a physical office in Hong Kong that serves as:

• The primary point of contact for the Customs and Excise Department (C&ED) (in person and by phone),
• The official address for receiving regulatory notices and correspondence,
• The workplace for key personnel, such as the director, owner, or Compliance Officer.

Important:

• A residential address cannot be used as an LMO.
• The address of an accounting, legal, or secretarial firm is not acceptable.
• The property owner must provide written consent for the premises to be used for MSO activities (included in the lease agreement or a separate letter).

Failure to include a valid LMO in the application renders it invalid. Non-compliance after licence issuance may result in suspension or revocation of the licence.

Local Place for Storage (LPS)

All operational and financial records must be kept at a dedicated physical location in Hong Kong that is accessible to C&ED inspections.

LPS requirements are similar to those for the LMO:

• Must not be a residential address or the address of a third-party service provider;
• Must be under the direct control of the licensee;
• Requires written permission from the landlord.

Failure to provide valid LPS details will lead to refusal of the licence application or, if discovered post-issuance, to cancellation of the licence.

Additional Requirements

• If multiple business activities are conducted in the same premises, MSO operations must be clearly segregated from other businesses.
• Shared use of premises with another MSO is prohibited.
• When operating from a mixed-use (commercial/residential) building, written consent from all residents is required to allow C&ED inspectors entry.

Liability for Incomplete or False Information

Under Section 52(2) of the AMLO, knowingly or negligently omitting material information—including details about premises—in a licence application constitutes a criminal offence.

Penalty: a fine of up to HK$50,000 and imprisonment for up to 6 months.

Registration of “particular premises” is not a mere formality—it is a key element in establishing regulatory trust. Even with a remote business model, you must maintain a physical connection to Hong Kong through a Local Management Office (LMO) and a Local Place for Storage (LPS). Only by fulfilling these requirements can you successfully obtain an MSO licence and mitigate future compliance risks.

When applying for a licence to operate from a specific premises, you must attach at least two photographs (102 mm × 152 mm, 4R size) to the application form.

Photo requirements:

• One photo must show the interior of the premises (e.g., the service counter or customer-facing area).
• The other photo must show the exterior of the premises (e.g., the company signage or storefront).

If the applicant also uses separate premises designated as the LPS and/or LMO, a separate set of two photographs must be submitted for each such location. The photo requirements for LPS and LMO premises are identical to those for the main operational premises.

MSO Business Plan

The regulator assesses every aspect of your business through the lens of anti-money laundering and counter-terrorist financing (AML/CFT). Therefore, your business plan must be more than just a description of your business idea or financial projections—it must also demonstrate your operational and compliance readiness.

The likelihood of a positive review depends directly on how complete your submission is and your ability to prove that your company is prepared and capable of meeting all legal and regulatory requirements.

Your business plan must cover the following:

Company identification

State the legal and trading name, website address, and any registered trademark or logo that will be used to promote the business.

Corporate history and source of capital

Describe the background of the applicant company and the sources of its initial and operational capital. Clearly disclose whether the company is linked to other legal entities or holding structures, and if so, explain the nature of that control or affiliation.

Key management personnel

Provide detailed profiles of senior executives, including citizenship, professional experience, education, and relevant qualifications. This is critical for assessing their integrity and competence.

Management structure

Clearly indicate the legal and actual address where key business decisions are made. If the company has back-office functions (in Hong Kong or abroad), describe their roles and locations in detail.

Target customer base

Give a detailed description of your intended clients: their expected geographic location, nationality, and how you will attract and interact with them.

Nature of operations in Hong Kong

Clearly explain which specific activities will be carried out in Hong Kong and justify the need for a local licence. The description must cover the entire transaction cycle—from receiving a customer’s instruction to processing the transfer, movement of funds, compliance functions, accounting, and record storage.

Service Delivery Channels

List all planned services (money changing, remittance) and their intended launch schedule. Provide a detailed operational model for each service, including all delivery channels, order processing procedures, and the flow of funds through foreign agents or partners. If third-party providers are involved, submit their details and copies of relevant agreements. Pay special attention to measures protecting client funds against counterparty default risks.

Bank Accounts

Provide full details of all bank accounts to be used for the business (account numbers and account holders). The use of third-party accounts is strictly prohibited. If your business model does not involve opening a bank account, provide a comprehensive explanation of how services will be delivered without one.

Financial Projections

Submit justified forecasts of expected profitability and transaction volumes for each service over the next two years, along with an estimate of working capital required for day-to-day operations.

Organisational Structure

• Local: Describe the group of companies in Hong Kong (parent company, branches, subsidiaries), their jurisdictions, and functions. Attach an organisational chart with a brief description of each entity’s role.
• International: Similarly disclose the structure of the international group to which the applicant belongs, including an organisational chart and descriptions.

Business Premises

If office space is shared with other businesses (including those not owned by the applicant), disclose their nature. Clarify whether these third-party businesses are owned or managed by the applicant’s directors or employees, and whether any business relationships exist with them.

Local Human Resources

Detail the structure of both management and operational staff: total headcount, positions, areas of responsibility (including compliance and suspicious transaction reporting duties), employment status (full-time/part-time), and reporting lines.

Outsourcing

Specify the names and scope of any outsourced services related to AML/CFT (e.g., external audit, engagement of specialised intermediaries).

IT Systems

Describe the computer systems in use, including commercial software and databases employed for automated AML/CFT monitoring and sanctions screening.

Agency and Principal Relationships

If the applicant acts as an agent or principal for other local MSOs or foreign companies, provide their names and a detailed description of the functions performed in that capacity.

Other Business Relationships

If the business relies on third-party payment platforms (e.g., digital wallets), explain their role in the operational model. If cash transportation (within Hong Kong or across borders) is involved, specify the companies or individuals responsible for it.

Other Regulatory Oversight

Indicate whether the applicant or its international group is subject to supervision by other regulators (e.g., holds financial licences in other jurisdictions). If so, name the relevant regulatory authorities.

Important Legal Obligation

As part of the business plan, the applicant must provide a written declaration confirming that they understand and undertake to comply with the legal requirement under the AMLO: any changes to the information submitted to the Commissioner of Customs and Excise for the purpose of obtaining or renewing an MSO licence must be reported in writing within one month of the change. Failure to comply or providing incomplete information may result in delays or rejection of the application.

Thus, a thoroughly prepared business plan is not a mere formality—it is a strategic document that builds regulatory trust and lays a solid foundation for the legal and sustainable operation of your financial business in Hong Kong.

Regulatory and Operational Requirements for an MSO License in Hong Kong

To obtain and maintain a Money Service Operator (MSO) licence, a company must implement a robust compliance system that meets the requirements of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and the guidelines issued by the Customs and Excise Department (C&ED)—the MSO regulator in Hong Kong.

1. Implementation of an AML/CFT System

The company must develop and maintain an internal anti-money laundering and counter-terrorist financing policy, including:

• Customer identification procedures (KYC);
• Ongoing transaction monitoring;
• A mechanism for detecting and promptly reporting suspicious transactions to the Joint Financial Intelligence Unit (JFIU);
• Regular staff training.

2. Strict KYC Policy

Before commencing a business relationship, the operator must:

• Verify the client’s identity (for individuals — passport or identity card; for legal entities — certificate of incorporation, register extract, and beneficial ownership details);
• Establish the source of funds and the purpose of the transaction;
• Retain all KYC documents for at least 6 years after the termination of the business relationship.

3. Personal Data Protection

Processing of client information must comply with the Personal Data (Privacy) Ordinance (PDPO, Cap. 486). This includes:

• Restricting access to personal data;
• Encrypting data during storage and transmission;
• Notifying affected individuals and authorities in the event of a data breach.

4. Reporting and Inspections

After licence issuance, the company is required to:

• Submit an annual licence confirmation to the C&ED;
• Provide any requested information promptly upon demand;
• Undergo scheduled and unscheduled inspections.
• Failure to comply may result in a fine of up to HKD 100,000, imprisonment for up to 2 years, or licence revocation.

5. Financial Transparency

MSOs must undergo mandatory auditing, like any other company. In addition to the standard financial audit, a separate AML audit is also required.

Important: Merely having a formal policy in place is not enough—the regulator assesses whether procedures are actually implemented and followed in practice.

MSO License Application Process in Hong Kong

Key Steps to Apply for an MSO Licence

The process of obtaining a Money Service Operator (MSO) licence in Hong Kong consists of several stages, each requiring thorough preparation and accuracy. Applications are submitted to the Hong Kong Customs and Excise Department (C&ED), which is the regulatory authority for this sector.

Steps to Apply for an MSO Licence

1. Preliminary Preparation

Before submitting an application, ensure the company meets all legal requirements, including:

• Business registration in Hong Kong;
• Preparation of financial documents demonstrating solvency;
• Establishment of an appropriate organisational structure with qualified personnel;
• Development and implementation of KYC (Know Your Customer) policies and AML/CFT procedures.

Submitting the Application to the Hong Kong Customs and Excise Department

The licence application must be submitted either through the official e-application portal or in hard copy. The submission process may vary depending on the chosen format. The applicant must provide all required documents and demonstrate its eligibility.

Documents Required for an MSO Licence Application in Hong Kong

1. Corporate Documents

• Articles of Association
• Form NNC1 (Incorporation Form) or NAR1 (Annual Return)
• Certificate of Incorporation
• Business Registration Certificate (BRC) clearly indicating the business nature as “money changing” and/or “money remittance”
• Documents appointing directors and company secretary
• Lease agreement for a commercial office in Hong Kong (residential addresses are not accepted)

2.  Information on Management and Key Personnel

• CV and brief biography of each director, beneficial owner, and key staff member (including the Compliance Officer and AML Officer)
• Evidence of professional experience in finance, AML/CFT, or related fields
• Documents confirming the absence of criminal convictions and director disqualifications

3. Financial Documents

• Audited financial statements (balance sheet, profit and loss account) for the most recent completed financial year
• Proof of source of capital and liquidity (bank statements, investment agreements, etc.)
• 12-month cash flow forecast

4. Compliance Policies and Procedures

AML/CFT policy, including:

• KYC and Customer Due Diligence (CDD) procedures
• Screening of customers and transactions against sanctions lists
• Monitoring of suspicious activity
• Internal reporting procedures and notifications to the JFIU
• Personal data protection policy in compliance with the PDPO (Cap. 486)

5. Operational Documents

• Description of business processes: how remittance and/or money changing services will be conducted
• Diagram or description of banking relationships and fund flows
• Technical cybersecurity and data protection measures

6. Business Plan

• Description of target customers, geographic scope of operations, and expected transaction volumes
• Justification for choosing Hong Kong as the licensing jurisdiction
• Marketing and partnership strategy

7. Bank Confirmation

A letter from a bank confirming its willingness to open a corporate account for MSO activities.

• Preferred: issued by a licensed Hong Kong bank

If the bank is outside Hong Kong: a clear justification must be provided explaining why transactions will be processed through a foreign bank despite holding a Hong Kong MSO licence

Important: All documents must be submitted in English or Chinese. Non-residents must provide notarised translations of any documents originally in another language.

Application Submission via the Official Portal

The application for a Money Service Operator (MSO) licence must be submitted exclusively online through the e-Services Portal of the Hong Kong Customs and Excise Department (C&ED).

After successful submission, the system automatically:

• Generates an application reference number;
• Sends a confirmation of receipt to the provided email address;
• Displays estimated processing timelines (typically 30–60 working days, though this may be extended if additional information is requested).

Important: Applications can only be submitted once the full set of required documents is ready. Incomplete or partially filled applications will not be accepted for review.

Submission of Additional Materials

During the review process, the C&ED may request:

• Clarifications regarding the business model or operational procedures;
• Additional evidence of financial soundness;
• Proof of qualifications of key personnel;
• Other supporting documents

It is recommended to designate a responsible contact person to communicate promptly with the regulator and monitor the application status via the e-Services Portal.

Steps to Apply for an MSO Licence

MSO Licensing Fees in Hong Kong: Current Rates for 2025–2026

When applying for the issuance, renewal, or amendment of a Money Service Operator (MSO) licence in Hong Kong, applicants must pay fixed government fees set by the Customs and Excise Department (C&ED). All fees are denominated in Hong Kong dollars (HKD) and are non-refundable, even if the licence application is rejected.

Below is the official fee schedule effective for 2025–2026:

1. Initial Licence Application
   • Base licence fee: HKD 3,310
   • For each additional business premises: HKD 2,220
   • For each individual undergoing the “fit and proper” check (directors, partners, ultimate beneficial owners): HKD 860

Example: For a corporation with 2 directors, 1 beneficial owner, and 1 office, the total amount will be:

3 310 + (3 × 860) = HKD 5 890

2. Licence renewal
   • Base renewal fee: HKD 790
   • For each additional premises: HKD 355
   • For each individual undergoing a renewed “fit and proper” check: HKD 860

Note: Even if there are no changes in management, C&ED may require reconfirmation of the “fit and proper” status for all key individuals.

3. Changes to composition or structure
   • Appointment of a new director, partner, or ultimate beneficial owner: HKD 860 per individual
   • Addition of a new business premises: HKD 2,220 per premises
   • Registration of “particular premises” for MSO activities: HKD 2,220 per premises

Important to note

• All payments must be made before submitting the application via the official C&ED payment gateway.
• Fees do not include costs for legal advisory services, notarisation, or document preparation.
• Applications will not be processed in case of incomplete payment or incorrect payment details.

Rights and Obligations of a Licensed MSO in Hong Kong

Obtaining a Money Service Operator (MSO) licence is not the end of the process, but the beginning of ongoing compliance with strict regulatory requirements. The licence is issued for 2 years and requires annual confirmation. Failure to meet obligations may result in fines, suspension, or full revocation of the licence.

1. Ongoing Legal Obligations

Continuous AML/CFT Compliance

The company must maintain a fully operational and up-to-date anti-money laundering and counter-terrorist financing system in accordance with the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) and the guidelines issued by the Customs and Excise Department (C&ED).

Timely Notification of Changes

Any changes to:

• The composition of directors or beneficial owners,
• Office address,
• Business model or geographic scope of operations,
• Appointment of the Compliance Officer

must be reported to C&ED within 14 days via the e-Services Portal.

Inspections

C&ED has the authority to conduct scheduled and unscheduled inspections, including on-site office visits, requests for records, and interviews with staff.

2. AML/CFT Requirements: What Must Be Implemented in Practice

KYC and CDD (Customer Due Diligence)

• Verify identity before the first transaction (passport for individuals; register extract + UBO details for legal entities)
• Establish the purpose and source of funds
• Apply Enhanced Due Diligence (EDD) for customers from high-risk jurisdictions or Politically Exposed Persons (PEPs)

Monitoring and Reporting

• Conduct ongoing screening of transactions for suspicious activity.
• Immediately report suspicious transactions to the Joint Financial Intelligence Unit (JFIU) — within 24 hours of detection.
• Maintain a log of all checks and decisions.
• Keep customer files up to date at all times.

Staff Training

• Mandatory AML/CFT training for all staff — at least once per year.
• Document training sessions and conduct knowledge assessments.

Technical Measures

• Use appropriate software for KYC, transaction monitoring, and data storage.
• Ensure cybersecurity and protection against unauthorised access.

Record Keeping

• Retain all KYC data, transaction records, and internal reports for at least 6 years, as required under Cap. 615.

3. Risk Management (Risk-Based Approach)

• The company must implement a formal risk assessment system, including:
• Customer risk classification (low / medium / high);
• Assessment of operational jurisdictions (taking into account FATF “grey” and “black” lists);
• Monitoring of large and unusual transactions (e.g., transactions exceeding HKD 8,000 without a clear purpose).

4. Reporting and Audit

• Annual licence confirmation — submitted via the e-Services Portal;
• Suspicious Activity Reports (SARs) — filed with the JFIU without delay;
• Mandatory annual audit and Profits Tax Return;
• AML/CFT audit (upon regulator’s request) — conducted by an independent consultant with experience in financial compliance.

5. Licensee Rights

• Conduct remittance and/or money changing activities within Hong Kong;
• Use the status of a licensed MSO to build trust with banks and partners;
• Seek clarifications from C&ED on the application of regulatory requirements.

Risks Associated with MSO Activities in Hong Kong and Mitigation Strategies

Money Service Operators (MSOs) operate in one of the most heavily regulated and high-risk segments of the financial sector. Even with a valid licence, a company remains exposed to operational, legal, financial, and reputational threats. Successful business operations require not only compliance with formal requirements but also proactive risk management.

Key Risks for MSOs

1. Money Laundering and Terrorist Financing Risks (AML/CFT)

This is the primary and systemic risk for any MSO. As a FATF-member jurisdiction, Hong Kong maintains a zero-tolerance approach toward inadequate compliance.

Even a single undeclared suspicious transaction may result in licence revocation.

2. International Operations Risks

When serving clients from different countries, the following risks arise:

• Jurisdictional conflicts (e.g., EU/U.S. sanctions targeting third countries);
• Foreign exchange risks (sharp currency fluctuations during large transfers);
• Reputational risks from dealing with clients based in FATF “grey-listed” jurisdictions.

3. Fraud and Insider Threats

External fraud: forged documents, “drop accounts,” social engineering;

Internal misconduct: unauthorised transfers, manipulation of KYC data, collusion with clients.

4. Technology and Cyber Risks

Data breaches, hacking of payment systems, or failure of AML monitoring software can all lead to non-compliance with the PDPO (Cap. 486) and AML requirements.

5. Consequences of Non-Compliance: Actual Penalties

Risk Mitigation StrategiesProactive AML/CFT Controls

1. Proactive AML/CFT Controls
   • Implement a dynamic KYC system with automatic client data updates
   • Use AI-powered screening against sanctions lists (OFAC, UN, EU, HKMA)
   • Configure transaction monitoring rules to flag anomalous activity (e.g., frequent transfers just below reporting thresholds)

2. Geographic Risk Management
   • Maintain an internal “blacklist” of high-risk countries (even beyond FATF lists)
   • Apply Enhanced Due Diligence (EDD) for clients from such jurisdictions
   • Impose transaction volume limits for dealings with Politically Exposed Persons (PEPs)
3. Fraud Prevention Measures
   • Enforce two-factor authentication for all transactions
   • Segregate duties: one staff member verifies the client, another authorises the transfer
   • Conduct regular internal audits and “penetration tests” (e.g., simulated fraud attempts)
4. Technological Resilience
   • Store data in encrypted cloud systems with regular backups
   • Conduct quarterly penetration tests and keep software up to date
   • Comply with ISO/IEC 27001 standards where feasible
5. Obligations for Data and Licence Updates
   • Annual licence confirmation: MSO licences are valid for 2 years but require annual renewal
   • Submit updated information via the C&ED e-Services Portal at least 30 days before expiry
   • Mandatory notifications of changes within 14 calendar days of occurrence:
   • Changes in directors, beneficial owners, or Compliance Officer
   • Office address change
   • Business model changes (e.g., adding money changing services)
   • Change of servicing bank
6. Financial Information Updates
   • Update cash flow forecasts in case of significant increase or decrease in transaction volumes
   • Submit new supporting documents if the source of capital changes
7. Monitoring Regulatory Changes
   Hong Kong regularly updates its regulatory framework in line with FATF recommendations. Companies are required to:
   • Appoint a responsible person for tracking regulatory updates (typically the Compliance Officer);
   • Subscribe to official alerts from C&ED, HKMA, and JFIU;
   • Conduct quarterly reviews of internal policies to ensure alignment with new requirements;
   • Implement necessary changes within 30 days of the effective date of any amendments.

Successful MSO operations in Hong Kong are not just about holding a licence—they require a state of constant readiness for inspection. The regulator assesses not only documentation but also the company’s actual compliance culture. Those who invest in transparency, technology, and staff training gain more than just protection from penalties—they earn the trust of banks, partners, and clients.

Trading Agent or Money Service Operator?

Hong Kong law—specifically the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, AMLO)—does not establish a formal legal distinction between intermediary (agency) activities and money remittance services. Yet it is precisely this grey area that poses significant risks for businesses, as the correct classification of an activity directly determines whether an MSO licence is required.

The following represents our own analysis of the relevant legal provisions. It does not claim to be definitive, nor does it substitute for the official interpretation by competent authorities. This is our personal opinion based on a review of the law.

What is agency in the classical sense?

A genuine trading agent never takes ownership or possession of the client’s funds. Their role is limited to:

• Facilitating the conclusion of a contract between buyer and seller;
• Representing the interests of one party under an agency agreement;
• Receiving a fixed fee or commission for the service rendered.

In a classical agency arrangement, the payment (i.e., the contract amount) flows directly from the client to the supplier. The agent acts solely as a coordinator and does not handle the principal transaction amount—neither in full nor in part.

When Does a Pumpkin Turn into a Carriage?

Or: When Does a Trading Agent Become a Money Service Operator?

If your business model involves the following:

• Receiving the full payment amount from an overseas client into your corporate bank account,
• Converting the currency (e.g., USD → CNY or HKD),
• Transferring the funds to the ultimate beneficiary while retaining your commission,

—and you do this systematically and for commercial purposes (on behalf of multiple companies or individuals)—then you are, in fact, providing a remittance service as defined under Section 2 of the AMLO: “Remittance service means a business of sending, receiving, or arranging for the sending or receipt of money into or from outside Hong Kong.” In this context, the type of contract (agency, service, partnership, etc.) has no legal bearing on the classification of the activity.

A trading agent may remain a trading agent—and simultaneously engage in two distinct types of activity:

1. Agency services – arranging deals and representing clients’ interests;
2. Payment services – receiving, converting, and redirecting funds.

In such a case, the agency function is governed by general civil and contractual law, while the payment function falls under the scope of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615, AMLO) and requires an MSO licence—but only for the remittance component of the business.

Thus, the company does not “cease to be an agent” but rather expands the scope of its activities, part of which becomes subject to specific licensing requirements. The key is to clearly separate these functions—operationally, contractually, and in accounting practices—to avoid commingling and ensure full compliance with regulatory requirements.

What are the consequences of operating without an MSO licence?

It is impossible to precisely predict how likely it is that your activity will be reclassified as a remittance service—this depends on numerous factors, including the number of complaints from affected parties, the scale and volume of unlicensed operations, and the regulator’s current enforcement priorities. Moreover, only the competent authorities—primarily the Hong Kong Customs and Excise Department (C&ED)—have the authority to assess this risk, typically during inspections or when investigating complaints.

However, the legal consequences of operating without an MSO licence are clearly defined by law. Under Section 5(1) of the AMLO (Cap. 615), carrying out a remittance service without a valid MSO licence constitutes a criminal offence, punishable by:

• Imprisonment for up to 2 years,
• A fine of up to HK$1,000,000.

Operational sanctions may also include:

• Freezing or closure of corporate bank accounts,
• Suspension or cancellation of business registration,
• Prohibition from conducting commercial activities in Hong Kong.

Moreover, if serious violations of anti-money laundering and counter-terrorist financing (AML/CFT) legislation occurred during operations—for example, intentional concealment of the source of funds, disregard of suspicious transactions, or absence of KYC procedures—the penalties may be significantly aggravated.

In such cases, the regulator is entitled to:

• Initiate criminal proceedings under Sections 5(5)–5(8) of the AMLO;
• Impose additional fines for each breach of AML obligations;
• Refer the case to the Joint Financial Intelligence Unit (JFIU) and the police for investigation into potential money laundering offences, potentially invoking the Organised and Serious Crimes Ordinance (Cap. 455).

Even if the unlicensed activity was conducted “in good faith” or on a “temporary” basis, the mere presence of characteristics of a remittance service—without a valid MSO licence—renders the company vulnerable to complete operational shutdown and criminal prosecution.

This approach eliminates speculation about likelihoods and instead focuses on clear legal consequences, enabling businesses to make decisions based on the mitigation of real, not hypothetical, risks.

What to do if your business model is close to an MSO?

Conduct an independent legal review of your operational structure.

If the activities show signs of remittance services, the licensing process should be initiated before operations commence.

In contracts and internal documentation, clearly separate:

• Agency functions (deal facilitation),
• Payment functions (movement of funds).

The key principle of the C&ED: If you temporarily hold third-party funds for the purpose of onward transfer, you are a money service operator—regardless of your company’s name or how your contracts are worded.