HSBC tightens requirements for new bank accounts.

Hong Kong is the best place in Asia to do business so the government would have us believe. This may still be true but you have to wonder for how much longer. Businesses need banks, but Hong Kong over the past few years has become one of the hardest places in the world to open a bank account and it’s about to get worse.

Companies involved in the provision of corporate services such as setting up companies have been pulling their hair out at the time it takes to open an account. It is taking the banks anywhere between one to two months to open an account, sometimes four months, and sometimes the banks refuse altogether to open an account. On top of that the banks are closing down accounts. Sometimes payments are frozen.

HowardWinnReports.com hears from a reliable source inside HSBC that the bank is quietly introducing new tighter requirements for opening new accounts. In future new accounts in Hong Kong can only be opened for Hong Kong ID card holders, or in cases where there is no HKID, companies will have to show a minimum annual turnover of HK$15 million. In addition, any aspiring Hong Kong company will need to have been incorporated and active for over a year. This begs the question of how a company is supposed to operate for a year without a bank account. In addition, companies registered in jurisdictions HSBC believes are dubious will face difficulties. This includes the likes of the British Virgin Islands a British Protectorate, that has changed its entire company laws in the last year and have signed up to the OECD’s Common Reporting Standard.

HSBC declined to comment specifically on these measures for HowardWinnReports, but said, “We continue to welcome new clients to HSBC. We have always required new account applicants to meet certain criteria when opening accounts and we look at each application on its individual merits. Like any responsible bank, we need to understand who our clients are and the nature of their business.”

According to companies that provide corporate and professional services it is much easier to set up a business and open a bank account in Singapore and other jurisdictions in the region. These companies say that HSBC in particular has become way too risk averse. “Their appetite for risk of any kind seems no higher than a child’s savings account,” one CEO observed. He said it was not helpful for Hong Kong’s position as a key regional trading hub.

While people are sympathetic to the need for enhanced due diligence on the part of HSBC and other banks, they have been infuriated by the inept way in which it is being conducted. Typically, those attempting to open accounts are asked for a lot of information, and later, sometimes months afterwards, they are asked for the same information again. In recent years the banks have spent millions of shareholders’ money on compliance teams and processes.

“It hasn’t helped them have a better handle on their customers’ affairs – its actually had the opposite impact in that they seem to be so nervous about opening an account based upon whatever new information they now have,” said the CEO of a corporate services company.

HSBC like other banks has come under intense pressure from regulators to improve their understanding of their clients’ business particularly from the perspective of anti-money laundering and terrorist financing.  HSBC and Standard Chartered have both fallen foul of the US regulator.

As part of its 2012 Deferred Prosecution Agreement, HSBC had to employ a monitor and an army of lawyers who crawl all over the bank to ensure it has what it considers an appropriate level of compliance. A bad report from the monitor could result in prosecution and the loss of its US banking licence.

While all banks have had to review their compliance procedures, the Singapore banks operating in Hong Kong, according to industry insiders, appear to have reacted more quickly than the likes of HSBC and Standard Chartered in reverting to traditional banking values of customer engagement. Although they follow ‘know your customer’ requirements as one practitioner says, “they don’t put clients on trial and act as judge and jury without very very strong reasons to do so.”

Corporate services companies are very concerned at the ongoing difficulty in trying to persuade banks such as HSBC to adopt a more reasonable approach to the issue.

The Banking Ordinance has clear expectations of the banks to provide a banking service, and not to open an account also requires equally strong reasons. Corporate services practitioners believe that in many of the cases they have encountered, HSBC does not have strong reasons for declining to open accounts.

There is a view within the industry that the way  HSBC is behaving may be in breach of its banking licence.  The Banking Ordinance requires banks to have a very good reason for not opening an account. These days  the situation has changed so much that people say that the bank’s default position is no unless they can be persuaded otherwise to open an account.

So concerned is the corporate and commercial services industry about the situations that there have been mutterings about mounting a legal challenge.

 

 

 

 

 

 

3 thoughts on “HSBC tightens requirements for new bank accounts.

  1. Mark Ranson

    DBS is, I believe, a Singaporean Bank. When enquired as to whether it would be possible to open a company account with them, they too appeared to have a number of fairly draconian requirements for a company to meet. One of which was the requirement for a company to be able to show a tenancy agreement for a rented office. A registered office address would not suffice. Even HSBC did not require this. Naturally, this is a non-starter for a small business where the director(s) work from home and where business turnover cannot justify expenditure on office rent.

  2. Mark Dormer

    One thing which is quite common in banks these days, especially as many different companies require different services, is business units that provide for the separate requirements of their customers.
    Not trying to ‘stand-up’ for DBS, (but I am) but I do know of MANY SME start-ups who have opened accounts with their secretary’s address as their operational office.

    The path to successfully opening a business account seems to be contacting the bank first and finding out who to speak to.
    (one would never go to an Audi showroom to order a VW, but calling the Audi/VW head office might result in someone directing the customer to the correct business unit)

    In banks, many branches only operate accounts for companies that require and utilize trade finance, but this is usually not provided unless the company has an established trading history in and through HK, of possibly 2-3 years, and would therefore probably justify a fixed and permanent address with additional employees.
    Should the company not require finance, but a pure cash management account for expenses and receivables, then an altogether alternative kind of relationship must be established, and possibly not branch based.
    I know there are teams in DBS who specifically deal with this type of need.

    Much as I can not guarantee the successful account opening, as that’s not my area (yes I work in DBS, but in Private Bank) I can certainly introduce anyone with a business requirement to the relevant team.
    (If interested)

  3. Piers Bennett

    I have just been through this farcical process with trying to open a business account with HSBC and would like to share my experience.

    Having registered a new company last year to start trading, I and a fellow Director from overseas dropped into HSBC business centre in CWB to open the account. everything was accepted and fine but we lacked a proof of identity for our third director who lived overseas (and due to his travelling took some time to receive).

    What was not made clear was that we needed to provide this information within a month. This was never explained at the time and neither as the month end approached did anyone inform us that the application would be deleted.

    Winding forwards a few months (delaying the opening in our minds to save bank charges) with the first cheque in hand we went to re-start the process only to learn that the original application had been cancelled. The staff would not accept their part in the misunderstanding and refused to help any further to the point of not even helping to make a new appointment even though I was stood in their office!

    Instead I was told to phone the business banking phone line to make an appointment which I duly did and they called me back asked some information and then called back later to say we had been refused a bank account (even though we were good to go a few months previous). Upon asking why I was told it was because I was not a HK Resident (I am) and so either they took my information down incorrectly or were lying. They then said they would review again and call back later.

    The call later went the same way – in refusing us an account opening. Upon asking the reasons why they refused to give any specifics stating it we didn’t meet their criteria – but refusing to state what the criteria was. I found it impossible to get through to them that if the criteria is that a newly registered company, with a HK PR as Director, cannot open a new account then every other new firm would fail also. I honestly think it was over their heads.

    I asked to complain but after one pathetic call they said there was nothing further they could do and effectively told me to F*** off (politely).

    As an old git I have never undergone such awful treatment – even to the point of not pursuing my complaints or offering to remedy errors of their own making.

    There is something shady going here that seriously needs investigating.

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