KYC-004 — Retail onboarding: Hold for unhosted wallet + PEP family member

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Fictional case for portfolio training only. No real person, company, or jurisdiction. Not a real STR. Not legal advice. Not investment advice.

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Snapshot

Field	Value
Case ID	KYC-004
Type	KYC / CDD (EDD in progress)
Risk rating	High (provisional)
Conclusion	Hold (conditional path)
Controls	Onboarding; Screening; CDD; EDD; Unhosted wallet; Escalation; Ongoing monitoring; SOF/SOW
Project	Simulated VATP KYC/AML Onboarding Pack

Facts (fictional)

Applicant: "C" (fictional), Hong Kong resident, applying as a retail client for a simulated SFC-licensed VATP account.
Proposed funding: Inbound deposit of about HKD 1.2 million equivalent in USDT from a self-hosted (unhosted) wallet.
Claimed SOF/SOW: Personal crypto trading / DeFi gains. Evidence at intake: a wallet screenshot and a self-prepared Excel summary only — no full exchange statements, fiat on-ramp bank records, or complete on-chain trail yet.
PEP status (scenario design): Father-in-law is a former senior government official outside Hong Kong. C is the spouse of the PEP's child → treated as a non-Hong Kong PEP family member under AMLO Sch. 2 / Guideline ¶ 4.11 (paraphrase). No real country or real official is named.
Channel: Remote non-face-to-face onboarding; identity and address docs already collected in the scenario.
Screening (fictional): PEP-family link identified; no sanctions hit on C. Limited adverse media on the father-in-law (procurement controversy; no conviction) pending analyst review.
Knowledge assessment: Failed first attempt; passed second (noticeably shorter time) — integrity review flagged.
Cooperation: C has not refused document requests; case is at intake Hold.

Regulatory requirement (primary)

Where the FI knows that a customer is a non-Hong Kong PEP (including a qualifying family member), before establishing the relationship it should (Guideline ¶ 4.11.12 / AMLO Sch. 2 as restated in the Guideline):

(a) obtain senior management approval; (b) take reasonable measures to establish source of wealth (SOW) and source of funds (SOF); and (c) conduct enhanced ongoing monitoring (Chapter 5).

¶¶ 4.11.13–14: SOW = how overall wealth was generated; SOF = the activity that produces the funds for this relationship — information should be substantive.

¶¶ 4.11.15–17 / 2023 former-PEP flexibility: depth is risk-based; leaving office does not auto-drop PEP treatment without a documented assessment (influence, seniority, time since leaving, links to former role).

¶ 4.9 / high-risk situations: senior-management approval + SOW/SOF or other mitigating measures.

¶¶ 5.1–5.3: ongoing monitoring; high-risk customers at least annual CDD review (or more frequent).

Chapter 12 (VA / unhosted wallets): for transfers involving unhosted wallets, assess ML/TF risk, obtain relevant information, take risk-based steps to assess whether the customer owns/controls the wallet (e.g. message signing / micro-transfer), and use blockchain analytics as appropriate.