Page 1 of 3

Despite assurances by Hong Kong authorities, financial institutions are not taking their chances against Washington's sanctions. Experts share with finews.asia the industry’s top concerns as well as some commonly applied practices and solutions.

According to the Hong Kong Monetary Authority, the U.S. sanctions issued last month against 11 officials had no legal effect in the city. The statements are made concurrently with the fact that under the newly enacted national security law, compliance with any sanctions issued by foreign countries would itself be a crime.

Still, many in the financial sector, including Chinese firms, have opted against ignoring Washington. Though some academic pundits foresee saw a world where compliance of only one of the two regimes can occur, reality thus far has differed. In addition to hiring external experts, some have even added compliance staff to grapple in increasingly complex and sometimes contradictory operating environment – further evidence of the urgency felt in the industry given the ongoing need to tighten costs.

«Global banks have always lived in contradictions,» said Saurabh Nagar, a director at Accuity’s APAC business solutions group which provides financial crime data and software solutions. «As a global bank, you have to comply with so many regulations from different jurisdictions and they don’t always agree with each other.»

Effective Screeners

In addition to reported moves to simply close accounts linked to the sanctioned individuals, banks, for now, are primarily focused on developing practical systems and policies to address more complex risks such as creating an effective screening system.

According to Nagar, smaller businesses may opt to do so in-house but as they run books with more clients and assets, complexity and expenses increase. And the cost of not relying on global expertise with existing track records and a deep pool of data can be high. This is not only due to potentially unintended violations but also the prospect of missed opportunities.

«Names are not unique. Your Joe Wong in Singapore might not be the same as the other Joe Wong being sanctioned in Iran, but without a powerful solution, you may end up unnecessarily turning away business,» he explained. «The more false positives you get, the more costs and operational efficiencies you accumulate.»

Target Tech

Some banks are preparing for more than just automated screening or case-by-case decision-making by top executives. In some cases, banks are seeking to upskill staff in the relevant processes and areas.

«[We are] conducting function-specific sanctions training, particularly with individuals at the company most closely involved in onboarding functions and those dealing with specific industries which have been targeted such as the tech sector,» said Mini vandePol, the APAC head of Baker McKenzie’s compliance and investigation group.

Quick Exit

Financial institutions are also restructuring client investments for the option of a quick exit to shed exposure to existing or prospective sanction risk.