Private regulatory guidance ostensibly being given by the securities regulator to Hong Kong-based international banks over U.S. sanctions will create the illusion of normalcy in the short-term – until an institution breaks the national security law.

Hong Kong’s Security and Futures Commission (SFC) is telling international banks, apparently in private, that they can implement the U.S. sanctions that have been levied against local government officials without «automatically» breaking the national security law imposed in July, according to the «Financial Times» (behind paywall).

If this is accurate, the important word to note here would be automatic or as later indicated in the same comment – «unlikely». While it may seem aimed at providing some comfort, it can also be interpreted in any number of ways. Does anyone reserve the right to decide when and how it is not automatic or likely? The truth is that no one will know until an institution is accused of breaching the national security law.

Existentialist Qualms

We would remind readers at this juncture that the only official statement made by the SFC was in August a day after the first U.S. sanctions were announced, asking intermediaries to «carefully assess» the legal, business and commercial risks to which they may be exposed. «We would expect any response to the sanctions to be necessary, fair, and have regard to the best interests of their clients and the integrity of the market,» it stated.

As indicated by us then, in the context of the situation, the generic, deadpan statement leaves the impression of a supervisory body in the throes of existentialist qualms.

Proactively Passive

The «FT» comment then indicated that the law was more aimed at those who «proactively colluded» with foreign powers to sanction Hong Kong. We would note here that the specific section on collusion (Chapter III, Part 4, Article 29) looks to be much wider in scope than that, and suggests that a person receiving funding or support from a foreign country or institution outside of China is potentially guilty of committing an offense, particularly if that country had imposed sanctions against Hong Kong or China.

After that, in any case, the SFC backtracks, reminding the FT that the law itself was not under the agency’s jurisdiction.

Entirely Different Meaning for Chinese Banks

Although international banks appear to have come to terms with the new law and believe that they can navigate it without detailed guidance – the more important point is how any of the four major Chinese banks, which are also the four largest banks in the world, will cope with it.

It should be borne in mind here that they are all sovereign-owned – ultimately by the Chinese government. But, still, if they settle dollars anywhere in the world, they will also not be able to easily bank the sanctioned government officials. In their case, «likely» and «automatic» and «proactively colluded» almost certainly have an entirely different meaning than they do with the international banks.

Turn on the Vacuum

Together with low COVID-19 infection rates and a successfully quelled pro-democratic protest movement, an unsettled and uneasy silence has indeed settled over the city. But silence does not by any means signify stability. As an example, just this Thursday (11 November) the government in Beijing removed four opposition legislators while the U.S. imposed additional sanctions.

It just goes to show that no matter how much you try to sweep everything under the rug, pesky geopolitics still seem to get in the way.