Despite ongoing media and industry groups’ pressure, even mitigation by the Hong Kong Monetary Authority, opening a bank account in Hong Kong can still be a challenge particularly for entrepreneurs and start-ups. However, the situations has slightly calmed down compared to a few years back and the chaos that seemed to be the fallout of HSBC’s fine in the US over Mexican money laundering. This however is not the only factor that started what can be described as a frantic de-risking by banks in Hong Kong.
Why are banks closing or refusing to open bank accounts in Hong Kong?
- Regulatory changes: The past years have been marked by one regulatory change after the other in the financial services sector. From conduct regulations, to disclosure requirements and regulatory reporting, all this after a financial crisis the shook the global banking sector. Before banks could even complete the implementation of FATCA, they had to plan already for CRS which had to be implemented in the shortest possible time frame. In addition, the global fight by regulators against the financing of terrorism and money laundering reached new enforcement heights and left financial institutions facing record fines.
- Compliance and risk: Given the speed of the regulatory changes the systems and policies cannot keep pace. The lag of implementation compounds the compliance pressure. Actions of the past, possibly considered acceptable at the time, today are a non-compliance issue and cause a compliance failure. The fear of getting it wrong (again), prompts an overly cautious approach. Updates to IT systems, or possibly the implementation of a complete new system, cannot be accomplished overnight and often comes with its own errors, bugs and other problems.
- Policies, training and dissemination of information: Disseminating the correct information timely through multinational corporations is a difficult task, let alone making sure that the information is received the same way it is intended to be without diverging interpretations. For bank account openings, this has to come from the top to the very bottom, ie each relationship manager. Their capacity to accept and understand such information varies. Thus, the often varying experience with bank account openings. A good example here is the HKMA circular from October 2017 advising banks of the removal of the address verification requirements. Yet, this requirement is still to be found on most of the banks’ checklists today.
How to prepare for a bank account opening in Hong Kong?
The regulatory requirement of understanding a client’s business can have a significant impact. Depending on how experienced a bank staff is or how complex your business is, the supporting documents to a bank account application should be well prepared, but adjusted to the situation. After all, this is not a pitch to investors, this is about the ins and outs of a company’s daily financial dealings. One advice here is to not overstate your anticipated revenue to impress the bank. Be as accurate as possible instead. These questions are being asked for ongoing monitoring and if the actual transactions deviate significantly from the information given, this may raise a red flag and the bank may close the account.
The best way to prepare is to contact us.