Hong Kong’s banking system has left the ordinary folks behind
Let me share a little local difficulty.
Four years ago, I was advised to uplift my pension from the UK and put it into a special trust in Hong Kong in a thing called a QROPS – a Qualified Recognised Overseas Pension Scheme.
I did that. The trust was created. And my pension now sits quietly untouched waiting for the day when I begin drawing it down.
All well and good – until November 9. On that day, I received a letter from Standard Chartered Bank – which holds the trust account – that even now I can’t believe: “Dear Client” it said: ““IMPORTANT NOTICE” Thank you for banking with Standard Chartered Bank. As we continue to review our accounts and our operations, we regret to advise you that we will no longer be able to provide banking services to you.”
Pardon? No reason given. Just “This is a difficult decision, and we apologise for the inconvenience it may bring.” They then give me 45 days “to make necessary arrangements”.
Since I have not committed any criminal offence, nor – to my best knowledge - have any blemished credit history, I am scrambling to work out why I have suddenly been cast off.
Two possible reasons strike me – though you banking experts out there might think of others: either my Pension Trust is too dull and non-income-earning (the cash simply sits there doing nothing, generating fees for no-one) to be attractive; or my anonymity behind a Trust arrangement makes Standard Chartered Bank worry about compliance with the new, strict “Know Your Customer” (KYC) rules. In short, maybe I am an undetected criminal laundering illegal funds.
Suddenly questions cascade from all directions: I presume I am not the only cast-off – so how many others have received this letter, and are facing a similar dilemma? What does this say about the dire condition of Standard Chartered Bank?
If Standard Chartered can’t provide a home for my uninteresting pension pool, who else will? Why should HSBC or Hang Seng, or Bank of China be any more interested – or any less concerned about new KYC rules?
Since under strict QROPS rules I’m not allowed to grab the cash and put it under the bed, or splash it in a Macau casino, what on earth do I do if no bank volunteers its services? Equally troubling, what does this mean for Hong Kong as a global financial services hub, home to thousands financial services providers to the wealthy and not-so-wealthy living in Hong Kong?
But most of all, this letter alerts me to a single bitter reality: a banking system that once upon a time existed to take our savings, keep them safe, and aggregate the funds to lend to enterprises that needed the cash to grow their businesses has in the past three decades been transformed.
The banking business today – and in particular through the boom years that preceded the 2008 crash – has increasingly withdrawn from the real world, and has generated its growth and its most lucrative business by creating products that are traded with other financial institutions – collateralized instruments built on mortgages, arbitrage between currencies, hedging instruments, and so on.
In 1976, when I joined the Financial Times as a young journalist near Fleet Street, I was able to walk into a local bank, sit down with the bank manager, tell him to expect my monthly salary cheque, and talk about a mortgage on the apartment I wanted to buy, or a car loan.
Today, that manager has gone. He disappeared around 1984, was replaced by a call-centre voice, and it has been downhill for the past 30 years.
As the Financial Times’ John Kay noted last week on a Bank of England meeting on “Liquidity”: “While the ease of exchanging one asset for another matters to traders, that is not the measure of liquidity that matters to savers. For them, security of their cash is crucial. They want to be able to take their money out of banks when they need it, and they need to be sure that ATMs will continue to function.”
Over the past three decades, bankers and the banking system have grown rich not by relying on the dull and relatively simple requirements of savers and small businesses. They have bloated their business by imaginatively creating large numbers and varieties of financial instruments that create finance jobs, earn handsome fees, and serve no other worldly function.
And the extent to which this has created wealth for those inside the banking sector can only be imagined. This thought occurred to me last week as I read that Barclays Bank faces new fines of around US$100 million for electronic trading abuses – which follows a $485 million fine paid in May to New York’s banking regulators for manipulation of forex spot trading.
Moody’s says that bank litigation costs since the 2008 crash have reached almost US$219 billion – led by Bank of America which has paid out US$70 billion. As I read these numbers wide-eyed, I ask a single simple question: What on earth were the profits these institutions were sharing amongst themselves before 2008 if they are able now to afford to pay fines of US$219 billion, and still be in business? Financial rape and pillage comes to mind.
Which brings me back to my poor unloved QROPS. Looking after it for me until I have to start drawing down my pension may be dull and unprofitable business – it certainly would not allow our banks to afford to pay billions of dollars of fines – but surely a banking system built to serve the needs of people and businesses in our community must provide me with safe haven somewhere.
Surely our bankers have to descend back down to earth some time – even if it does mean the super-salaries they came to see as the just rewards for their cleverness do shrink a little.
Surely Hong Kong’s reputation as a leading financial services centre is ill deserved if it cannot serve the needs of the real economy, and the people working in it.
David Dodwell is executive director of the Hong Kong-Apec Trade Policy Group