Published in Hong Kong News on 06.08.2019
Hong Kong News: Is there finally an end to the problems and difficulties regarding bank account openings in Hong Kong?
Leading banks in Hong Kong allegedly reduce account opening requirements for start-ups and SMEs.
Hong Kong has a well-deserved reputation as an easy place to do business. New arrivals are always impressed by how quickly they can register a business and settle in the city. However, this initial enthusiasm is very often dampened when it comes to opening a bank account in Hong Kong.
Occasionally, it can even happen that the application for opening an account for a start-up company is rejected due to the fact, that the company is "too young". This, however, seems rather odd as it is an inherent feature of start-ups. There are also testimonies that, one month after submitting their detailed account opening documents, applicants are asked to declare points such as their date of birth, even though the potential customer has signed and handed in a copy of their ID card in front of HSBC employees.
In the face of increasingly stringent international regulations and KYC (know-your-client) requirements, banks have also introduced several new steps in the account opening process.
International efforts to combat money laundering and terrorist financing have gradually been stepped up. Global sanctions systems and other regulatory requirements have increased the complexity of the landscape. Financial institutions around the world, including banks in Hong Kong, are now subject to much stricter international standards and have therefore generally strengthened the related controls, including a more comprehensive and thorough review of existing and, above all, new clients.
Through the Hong Kong Monetary Authority's (HKMA) close dialogue with business and feedback from the corporate sector, the HKMA has become aware of the fact that some companies do not require the full range of banking services. These include small and medium-sized enterprises (SME's), start-ups and companies from outside Hong Kong seeking a presence in city. In particular, the full range of services generally offered by traditional bank accounts is not necessary immediately after establishing and in the early stages of banking relationships. The HKMA has therefore been working with banks to evaluate the introduction of a new service option to meet the needs of corporate clients in their early stages, especially when potential clients are not easily able to provide certain Customer Due Diligence (CDD) documents required for traditional accounts. For this reason, HKMA has encouraged banks in Hong Kong to introduce a SBA concept.
How shall the Simple Bank Accounts (SBA) concept differ from ordinary bank accounts?
"Simple Bank Account" services were introduced by some banks to eligible corporate customers based on their actual business requirements ). An SBA is essentially a traditional bank account but concentrates solely on providing basic banking services such as deposits and withdrawals, local and cross-border transfers, and all that with the important difference that the requirements and documentation needed to open it are reduced to an adequate level. SBAs offer a narrower scope of services and a lower transaction volume than traditional accounts, so that the associated risks for the banks are relatively low and therefore less extensive Customer Due Diligence (CDD) measures need to be carried out when opening accounts. Expanding and growing companies, which of course often require more comprehensive banking services to meet their business needs, can upgrade their SBAs by running the necessary CDD processes according to the banks' requirements.
When processing requests for corporate accounts, banks generally request the following information or the corresponding original documents:
- corporate identification documents (e.g. certificate of incorporation), and information of the address of the registered office and principal place of business
- information on the beneficial owner(s)
- the purpose and intended nature of the account, and
- information of the person acting on behalf of the company.
Depending on the case and circumstances (such as the background of the applicants, the banking services requested, etc.) and the banks' risk assessments, banks may also require applicants to provide further documentation.
For SBAs, banks still need to obtain the above four categories of information, but may carry out less extensive CDD measures, for example by requiring less detailed information and evidence from applicants. Individual banks design their own SBAs based on their business strategies and risk assessments, so the scope of services offered and CDD measures implemented may vary. As SBAs involve streamlined CDD measures, it is anticipated that the account opening process for start-ups and SMEs will improve. The actual time required will of course depend on the individual case and the availability of the information required from the applicants.
Three central banks in Hong Kong (HSBC, Standard Chartered and Bank of China) pledged to introduce such SBA services. There are already several accounts that have been successfully opened under the SBA requirements, and more and more requests and new applications are being processed by the banks. It remains to be seen, however, whether the Hong Kong banks have initiated a real improvement in account opening, or whether these are just positive isolated cases. So far, Hong Kong banks have failed to improve their services.