Hong Kong is considered as one of the most attractive bases for companies that wish to conduct business in mainland China and across the region. However, although it is relatively fast and low cost to set up a company in Hong Kong, the tightening of international standards in combating money laundering and terrorist financing over the past few years has made it extremely difficult for small and medium-size enterprises (‘’SMEs’’) and start-ups to have access to corporate bank accounts in the city.
Financial institutions are required to comply with ever more stringent compliance procedures and conduct anti-money laundering (‘’AML’’) and counter-terrorist financing (‘’CTF’’) controls, including due diligence and know-your-customer procedures, for all new and existing clients. In order for Hong Kong to retain its rank as a top financial center, the increase of compliance requirements in accordance with international standards, is seen as a necessary step forward before the on-site audit of Hong Kong by the Financial Action Task Force next year (2017, 4th Quarter). This undoubtedly represents a significant burden on the banking industry as a whole. As a result of having to comply with all the regulatory requirements it can take between 2 and 6 months to open a bank account.
However, notwithstanding the above, on 8 September 2016, the Hong Kong Monetary Authority (‘’HKMA’’) published a circular to all financial institutions encouraging them to strike a balance between complying with (i) AML/CTF requirements and (ii) providing foreign investors with a more business friendly environment. The circular also serves as a timely reminder against applying compliance requirements that are disproportionate with the likely risk level.
According to the Circular, disproportionate measures include the following:
- requiring all directors and beneficial owners of an overseas corporate to be present at the meeting set-up for account opening;
- mandating that all documents of an overseas corporate are certified by a certifier in Hong Kong;
- requesting a start-up to provide the same degree of detail on its track record, business plan and revenue projections as a long-established company;
- requesting a Hong Kong business registration certificate for all applicants or evidence of a Hong Kong office for all overseas corporates, irrespective of business model or mode of operation;
- requiring voluminous or very detailed information on source of wealth which is difficult or impossible for the customer to provide sometimes requesting information going back decades, irrespective of the risks presented by the relationship or type of service offered (e.g. MPF account, basic banking services with small balances); and
- rejecting account opening based on unreasonably high benchmarks, such as expected or actual sales turnover.
Moreover, a list of more than 20 banks (excluding HSBC and Standard Chartered Bank, both banks share about 70% of the corporate banking market) that adopt less restrictive practices and are more business friendly is expected to be publicly released by InvestHK, the government’s business promotion arm. As a practical measure, the banks will be given a grace period to adjust their vetting process. HKMA’s staff will then conduct regular customer checks to see whether local banks have complied with its guidelines.
The publication of the Circular by HKMA follows recurrent concerns and complaints raised by the private sector, including the Chambers of Commerce in Hong Kong (such as the French Chamber and the Canadian Chamber) as well as various associations (such as Hong Kong Trustee Association, STEP and BVI House Asia) over onerous compliance obligation imposed on foreign investors when opening bank accounts.
Moreover, according to the ‘’Bank Account Opening Survey’’ carried out by the Hong Kong Institute of Chartered Secretaries from 28 July to 19 August 2016, 98 per cent of top company secretaries who responded to the questionnaire points out recurrent difficulties to open bank accounts for their Hong Kong based companies. Service providers also have to deal with harsher requirements imposed by banks on foreign investors, among which the requirement of a very high turnover threshold is almost impossible to meet, especially for SMEs or start-ups. However, a number of lenders such as HSBC have denied in their press campaigns there is a requirement of a minimum turnover of the parent company (amounting to 10 million US dollars) to access basic banking services in Hong Kong. Similarly, although it is impossible to open bank accounts in Hong Kong for BVI incorporated companies, BVI House Asia recently received confirmation from HBSC that no ban is applied to BVI incorporated companies wishing to open bank accounts in Hong Kong.
Against this background, the Circular can be seen as a new shift by Hong Kong’s de facto central bank to meet AML/CTF international standards by adopting a risk-based approach (based on risk differentiation, proportionality and a ‘’not a Zero Failure regime”), while making it easier for foreign investors to open a corporate bank account and to have access to banking services.
It should be noted that this phenomenon is global, affecting not only Hong Kong but also other worldwide jurisdictions, which adopt a similar approach to comply with stringent international standards. As a consequence, Rosemont advises foreign investors to carefully choose the relevant jurisdiction and banks before opening bank accounts and starting their businesses. As an example, we note that 17 per cent of companies rebuffed in Hong Kong during vetting process could open an account at the same bank in another jurisdiction.
Rosemont (Hong Kong) Ltd can assist you in personal and corporate bank account opening in Hong Kong as well as other jurisdictions for onshore, mid-shore and offshore companies.
If you would like to discuss more about Hong Kong please call Raphael Beaudrey (English or French speaking) on +852 3755 4500 or email us at email@example.com to arrange a meeting.