On 27 April 2023, the Hong Kong Monetary Authority (“HKMA”), the banking regulator of Hong Kong (“HK”), released a circular entitled “Access to Banking Services for Corporate Customers” (“Circular”).
The Circular was published to advance HKMA’s efforts of ensuring, on the one hand, that there is financial inclusion and customers are treated fairly and, on the other hand, that authorized institutions (“AIs”) continue to adopt a proportionate and effective risk-based approach (“RBA”) in their anti-money laundering and counter-financing of terrorism efforts.
The Circular is encouraging because it advises AIs to adopt a proportionate risk-based approach in considering account opening applications for new businesses. AIs are asked to support virtual asset services providers (“VASPs”) regulated by the Securities and Futures Commission (“SFC”) with their “legitimate need for bank accounts” in HK. Although financial institutions are business entities and should be entitled to make their own commercial decisions, it is of paramount importance that technology companies entering HK are given proper bank access to conduct their businesses. This is especially so given that HK has been actively developing its digital economy, as exemplified by the HK government’s recent allocation of HK$50 million to boost the development of HK’s digital economy and Web 3.0. The Circular is interpreted by the Fintech community as guidance by the HKMA to AIs to be supportive of Fintech and other businesses, helping to overcome one of the most basic challenges they face in HK – opening bank accounts.
Specifically, in the Circular, the HKMA drew AIs’ attention to three areas:-
- (1) Initial customer contact – Sometimes, the handling of account opening applications may not fully represent the intended outcomes of the AIs’ policies and procedures. HKMA has therefore recommended that AIs provide staff members with relevant training and up-to-date information, while considering customers’ feedback and complaint. Such training may include setting up dedicated teams that have specific knowledge on specialized industries.
- (2) Understanding of market developments – In order to deal with the ever-changing technology landscape, AIs should adopt a forward-looking and proactive approach of understanding the different sectors and related market developments. Such understanding will allow banks to differentiate individual customers with different risk characteristics.
- (3) Risk management vs wholesale de-risking – AIs should not adopt a wholesale de-risking approach, which involves precluding customers with common backgrounds (e.g. new industries) from target customer segments. Instead, AIs should understand the risks of each potential customer and business and adapt proportional operational responses, so that they are entitled to have fair access to basic banking services.
The HKMA also reminded AIs that they should review their account opening procedures and customer due diligence measures and provide adequate staff training. The HKMA identified the following key observations and good practices in the on-boarding of corporate customers:-
- (1) Expectations for opening account – AIs should have proper guideline and control measures to ensure customers’ applications are processed in a timely manner, so as to ensure such applications would not be left unattended for different reasons (e.g. handling staff on leave for a long period of time or had left the bank). AIs should also notify customers the expected timeframe for processing their applications, and if the expected timeframe cannot be met, applicants should be provided with updates.
- (2) Obtaining information from customers – AIs should be reasonable in the account opening process and be pragmatic and flexible when requesting applicants provide information and documents, having regard to the applicants’ background.
- (3) Outright rejection of applications – AIs should not outright reject an account opening application simply because of the industry that the applicant is operating in. Instead, AIs should adopt a RBA to differentiate and understand the risks of each customer and adopt appropriate measures proportionate to the identified risks. AIs should ensure that practical guidance and adequate training is provided to their frontline staff.
- (4) Additional customer due diligence (“CDD”) measures for VASPs – Additional CDD measures for VASPs set out in the 2022 circular titled “Regulatory Approaches to Authorized Institutions’ Interface with Virtual Assets and Virtual Asset Service Providers” dated 28 January 2022 only apply when AIs offer correspondent services (e.g. an account to settle clients’ transactions) to overseas VASPs. In other words, AIs are not required to conduct additional CDD measures for SFC-licensed VASPs. AIs ought to provide practical guidance and training to frontline staff to ensure they clearly understand the relevant requirements.
- (5) Narrower set of banking services offered and less extensive CDD measures at account opening stage – AIs should offer services proportionate to the risk level of customers. For example, if a technology firm only opens an account for its own corporate use (e.g. payroll and rental), with the purpose of setting up an office in HK or applying for a license under the new HK regulatory regime for VASPs but has not yet commenced any regulated activities, AIs may consider only allowing the Simple Bank Account arrangement and consider the “approval-in-principle” issued by the relevant authority to VASP license applicants, as opposed to not taking any actions until the VASP license is granted.
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