Hong Kong banks warned over harsh vetting for foreign investors

Hong Kong Monetary Authority plans spot checks on banks that fail to comply with guidelines if they refuse accounts

PUBLISHED : Thursday, 08 September, 2016, 10:56pm
UPDATED : Friday, 09 September, 2016, 10:15am

Hong Kong’s de facto central bank yesterday warned local lenders not to overdo it when vetting ­investors’ applications in the name of reducing risk, as spot checks would be conducted to ­ensure they followed official banking guidelines.

To make it easier for foreign ­investors to open accounts in the city, the Hong Kong Monetary Authority also put up a list of banks willing to offer services to foreign small and medium-sized enterprises (SMEs) and start-ups.

The list of more than 20 banks – minus HSBC and Standard Chartered Bank – will be provided to investors through the government’s business promotion arm, InvestHK.

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The warning came as the HKMA issued a circular yesterday to all financial institutions reminding them to strike a balance between exercising anti-money laundering and counter-terrorism financing controls and providing business-friendly banking services to foreign investors.

The Post previously reported concerns raised by the city’s 29 chambers of commerce over ­foreign investors encountering trouble when opening as well as retaining company bank accounts in Hong Kong.

Banks say they are enforcing stricter international anti-fraud regulations to protect the city’s status as a global business centre.

HKMA deputy chief executive Arthur Yuen said the circular should serve as a reminder for banks to follow guidelines on proper procedures.

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He insisted that according to their investigation, only two global banks – understood to be HSBC and Standard Chartered – showed a rejection rate much higher than other banks in Hong Kong of applications for company accounts for foreign investors.

“We issued this circular to help the banking industry have a good grasp of our regulatory requirements and also clarify which ­practises are unfair to customers,” he said.

The main problems flagged in the vetting process included harsher requirements for foreign companies, especially start-ups and offshore firms, and unreasonable requirements such as very high turnover thresholds and requiring beneficial owners and directors to appear together for interviews in Hong Kong.

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“It is inappropriate for authorised institutions to adopt a one-size-fits-all approach,” the HKMA’s circular said. The regulator will give banks a grace period to enhance training and adjust their vetting process.

After that, HKMA staff will pose as customers to conduct checks to see if local banks have adhered to its guidelines.

“If we discover that they are unfair to customers and in breach of the basic requirements for providing banking services, we will exercise our statutory powers to demand them to rectify their practices,” Yuen said.

A spokesman for HSBC said: “We welcome the announcement of HKMA’s guidelines on account opening for businesses in Hong Kong and will study these further. We share the Authority’s commitment to ensuring that SMEs in Hong Kong have ready access to banking services.”