SFC circular highlights urgent need for vigilance against layering risks

The Securities and Futures Commission (SFC) has reinforced its commitment to combating financial crime, issuing a circular that underscores the growing threat of layering activities in money laundering and the critical role of Licensed Corporations (LCs) in safeguarding market integrity.

Emerging trend: exploitation of licensed firms for layering

On 17 November 2025, the SFC warned of an alarming rise in the use of illicit actors and virtual asset trading platforms exploiting LCs by obscuring the origins of crime proceeds through layering. These schemes often involve:

• frequent, structured deposits into client accounts followed by swift withdrawals.

• transactions that serve no genuine trading purpose but act as conduits for illicit fund flows.

The regulator’s supervisory work revealed that such patterns are increasingly linked to proceeds from deception and scam cases. Failure to detect and prevent these activities exposes firms to severe money laundering and terrorist financing risks, undermining both operational integrity and Hong Kong’s financial reputation.

Key regulatory expectations

The circular reiterates the SFC’s expectation for LCs to implement robust anti-money laundering and counter-financing of terrorism (AML/CFT) frameworks. Senior management, including Responsible Officers, Managers-in-Charge, Compliance Officers, and MLROs, must ensure:

• Enhanced transaction monitoring: Systems capable of identifying red flags such as rapid deposits and withdrawals, structured fund flows, third-party transactions and accounts used as pass-through channels. Use advanced systems to detect unusual patterns.
• Escalation and reporting protocols: Immediate action when suspicious patterns emerge, including timely reporting to the Joint Financial Intelligence Unit (JFIU) and use of real-time mechanisms to freeze high-risk payments.
• Governance and accountability: Regular reviews of AML/CFT controls and senior management oversight to maintain resilience against evolving threats.

Collaborative enforcement and industry response

The SFC has intensified cooperation with the Hong Kong Police Force and industry stakeholders, leveraging mechanisms such as the Anti-Deception Coordination Centre’s 24/7 stop-payment system. These efforts have already led to successful interception of crime proceeds, demonstrating the effectiveness of public-private collaboration in combating financial crime.

Key themes for compliance leaders

This regulatory development highlights several critical priorities for firms:

• Proactive detection of layering: Transaction monitoring tools must go beyond basic thresholds to identify complex patterns indicative of money laundering.
• Virtual asset risk management: With virtual assets increasingly targeted for illicit flows, firms must integrate VA-specific controls into their AML/CFT frameworks.
• Senior management accountability: Governance structures must ensure clear responsibility for AML/CFT oversight and timely escalation of risks.

How Ocorian Can Help

In an environment of heightened regulatory scrutiny, firms cannot afford complacency. At Ocorian, we partner with clients to strengthen their defences against financial crime:

• AML/CFT framework design: Comprehensive policies and procedures tailored to SFC expectations and global best practices.
• Transaction monitoring reviews: Independent assessments to identify gaps and enhance detection capabilities.
• Regulatory health checks: Mock inspections and thematic reviews focused on high-risk areas such as layering and virtual asset transactions.

If you’re looking for AML/CFT framework design, transaction monitoring review, regulatory health checks, and more, we can help.