Hong Kong cautions banks on heavy-handed customer due diligence

Hong Kong's central bank has warned banks in the territory that disproportionately stringent checks to the opening of new accounts may scare away legitimate businesses.
Hong Kong's central bank has warned banks in the territory that disproportionately stringent checks to the opening of new accounts may scare away legitimate businesses. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - The Hong Kong Monetary Authority has warned banks that applying disproportionately stringent due diligence on new account openings risks excluding legitimate businesses from basic financial services.

The city's de facto central bank urged lenders to adopt an approach that differentiates the risk of individual customers through factors such as country, business or product risk, rather than take a "one-size-fits-all" approach, it said in a statement on Thursday.

The HKMA said it will work with banks to implement consistent anti-money laundering and counter-terrorist financing requirements to ensure legitimate businesses aren't excluded.

The HKMA's comments come amid increasing debate over difficulties individual and corporate customers are facing opening and retaining accounts, at a time when banks are stepping up compliance efforts to meet regulatory requirements. Billions of dollars of fines handed down by regulators around the world have put lenders under pressure to monitor customer accounts more closely for possible financial crimes such as money laundering and terrorist financing.

The American Chamber of Commerce called on Hong Kong authorities to come up with long-term solutions to allow easier access to services offered by lenders, the South China Morning Post reported this week, adding that the city's 29 international chambers of commerce raised the issue with the city's government in June.

No Explanation In one example of a recent account closure, a global trust company that had been a long-time client of HSBC Holdings Plc was suddenly notified by the bank last year that all its main operational accounts held with the lender had been shut, the SCMP reported, without naming the firm.

No explanation was given, the newspaper said. The SCMP cited the trust company's head, which it also didn't name, as saying that the closure may have been related to HSBC's desire to break from any offshore businesses to avoid being accused of assisting tax evasion.

Gareth Hewett, a Hong Kong-based spokesman for HSBC, said in an e-mail before the HKMA statement was released that the bank was unable to comment on individual cases, citing customer confidentiality.

"We take each case seriously and we rigorously review complaints," Hewett said. "For all account opening applications, it is important for us to understand the business's purpose in establishing an account in Hong Kong." HSBC, which gets most of its profit in Asia, said in its interim report total expenditure on regulatory programs and compliance in the first half increased 14 percent to $1.5 billion from a year earlier. The lender has been striving to bring misconduct costs and litigation to an end by boosting its compliance work after it agreed to pay $1.9 billion to U.S. authorities as part of a deferred prosecution agreement over money laundering allegations in 2012.