PEP & EDD failures costs HK$23m fine to the AIA International

Hong Kong finds itself once again under the red radar of regulatory bodies for significant lapses in AML measures across the financial sector.

The Insurance Authority of Hong Kong has imposed a historic fine of  HK$23 million ($2.9 million) on AIA Group Ltd. for deficiencies in anti-money laundering (AML) oversight, yet again highlighting the need for strict and controlled AML measures.

Prominent Findings

Due to extensive scrutiny and onsite inspection by the regulator from March 2016 to October 2022, “Technical issues” have been found in the anti-money laundering (AML) system and its algorithm in AIA.

Major shortcomings have been raised in finding out that the majority of the client base remained failed to be identified as PEPs (Politically Exposed Persons).

Report further declared that it has caused delays in finding their sources of wealth and funds and getting approval from senior management.

Here’s what they could’ve done to avoid this from happening.

Since the watchdog began regulating the insurance organizations, this fine was imposed in 2017.

It was further alleged that the broker had been offering guidance and selling policies to mainland customers employing unauthorized referrers.

The AIA stock price dropped by 2.5% and its shares have decreased 24% during this year. The Hong Seng index saw only a 1% drop, indicating that AIA performed worse than the overall market.

More About Lapses in PEP Screening

As reported, the Hong Kong branch of AIA also failed to notify the clients marked by the system as “high risk” to “enhanced due diligence in a timely manner.” Monitoring of suspicious transactions was also lacking as:

“It was identified that improvements were needed in the monitoring processes for suspicious transactions in the company’s Hong Kong branch,” the Insurance Authority stated.

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AIA Response and Action

AIA has acknowledged the deficiencies and committed to enhancing its compliance framework. The company stated it is taking immediate steps to strengthen its AML controls, including comprehensive reviews and upgrades of its existing systems.

Authorities have mandated that the business provide a report detailing the “ongoing effectiveness” written by unbiased advisors, as well as remedial actions as per the report.

What Could’ve Done to Avoid This?

This incident highlights the critical need for effective Politically Exposed Person (PEP) screening.

A PEP screening software that supports integration through REST API, with extended coverage of local and international PEPs might have helped better in this scenario.

Contact AML Watcher for a state-of-the-art PEP screening solution, designed to meet comprehensive coverage and consistent screening needs.