Account problems cloud Hong Kong hub hopes
Companies and trusts are finding it hard to set up banking services in the city, threatening its hopes of becoming service centre of Far East
An inability to open bank accounts is the latest threat to Hong Kong's business-friendly reputation.
"It is getting extremely difficult to open bank accounts for any sort of trust or company structure. Banks have gone from a position where unless there is good reason to refuse the account, we will accept it, to unless there is a good reason to accept it, we will refuse it. It is entirely incompatible with Hong Kong's stated aim to be the service centre for the Far East," said Howard Bilton, the chairman of global corporate services firm Sovereign Group.
Over the past decade, successive initiatives to combat money laundering have forced banks into the front line in the fight against illicit money flows. This has led to more stringent account opening procedures as banks vet potential customers. There are concerns such procedures have gone too far and are now undermining the city's competitiveness.
If banks won't use offshore companies to set up bank accounts, it would be catastrophic
"The banks are inconsistent in their approach. Trusts they don't understand, and for offshore companies, I suspect there is a bit of a knee-jerk reaction to concerns banks have been fined over money-laundering incidents," said Carolyn Butler, the chief executive of Hong Kong Trust. "The first thing the client is starting to ask now is can we get a bank account open, and we have to say there is no guarantee."
Since last year, banks have required addition documentation when opening accounts in a process called "know your client". For corporate accounts, this includes business plans, transaction records and details of ultimate beneficiaries. Banks also want named account holders to appear in person.
Controversially, banks including HSBC and Standard Chartered are rejecting companies and trusts registered in the British Virgin Islands and Cayman Islands, say senior executives at Hong Kong corporate services companies.
Such firms offer incorporation and company administration services in Hong Kong and overseas. By example, Bilton's firm helps 500 to 600 clients annually set up businesses in Hong Kong.