One month after Washington issued sanctions against 11 officials in over Beijing’s national security law, what are banks in Hong Kong doing? finews.asia's chief editor, Richard Otsuki, shares a glimpse with Money FM 89.3.
Since Washington issued the sanctions against officials in Hong Kong and mainland China, banks have been rushing to assess existing compliance risk and prepare for the future. From basic screening of client accounts to more advanced preparation for quick and easy unwinding, banks are extensively reviewing their operations to plug holes and create contingencies wherever necessary.
«Banks have been aggressively making a lot of moves to figure out how to comply with [the U.S. sanctions,» said Richard Otsuki, chief editor of finews.asia in an interview with Money FM 89.3 senior producer and presenter, Rachel Kelly. «[And] they’ve been working closely with external experts as well as hiring internally for compliance staff.»
No One-Size-Fits-All Approach
Depending on their business profile and needs, different financial institutions are taking different approaches to compliance in the increasingly convoluted legal environment in Hong Kong.
«If your U.S. dollar business or if your businesses linked to these sanction individuals only represent a slither of your overall business, it’s probably not worth the risk,» Otsuki said.
«But if your exposure is rather high, the decision not as easy to just quickly wind down some of these accounts and assets.»
Literally Can’t Be Too Safe
But even for those with limited to no exposure to U.S. sanction risk, compliance is not a straightforward task. Banks with lacking databases attempting to screen clients run the risk of finding false negatives and wrongly rejecting perfectly legal business. This risk is all the higher in Asia where there is especially lower diversity amongst first and last names.
«You could have a Joe Wong in Singapore, and a Joe Wong in Hong Kong, and a Joe Wong in Tehran,» Otsuki explained, referring to sanctions against Iran.
«You could accidentally turn away business if you get the wrong Joe Wong and once you get too many Joe Wong’s, it could be quite costly for business.»
Living in Contradictions
«At the same time, banks have to worry about the national security law as enacted by Beijing in Hong Kong,» Otsuki noted. «The interesting thing is, of course, that simultaneous compliance with both is actually impossible. This is because the latter prohibits entities from [applying the sanctions].»
And potential contradictions between two regimes is no new matter to an industry that has been tested through times of peace war with famed incidents where some even survived financing opposing sides.
«As we’ve seen throughout the years, global banks operate in a world filled with contradictions,» Otsuki added. «There’s 200-odd U.N.-recognized countries in the world and they all have very different jurisdictions that do not necessarily agree with one another all the time.»
More in-depth related details about banking compliance and operations will be published in a finews.asia article later this week. And you can listen to the full interview with Richard Otsuki on Money FM 89.3:
