Declined for HSBC? Why Hong Kong Banks are Getting Stricter

Having trouble getting a bank account in Hong Kong for your new company? This has been a common trend and it is one of the hottest questions you are asking these days. So let’s dig into a few reasons why.

Of course, I have to disclose these are hypothesis. This is from my experience while I have been at various Hong Kong banks quite a few times for clients and myself.

My friends and I remember the “good old days”. When we could walk into any bank in Hong Kong in shorts, t-shirt, and flip flops and our new “green box” Hong Kong company containing the paperwork. Take a seat at the SME (Small and Medium Sized Enterprise) department. Get served coffee or tea and wait for at most 10 minutes to go into your new account application process.

Fill out a few forms, explain to them a few of your business processes. Fit your company scope from a list of choices, and walk off.

I think it was about one year ago when things started getting harder – mid 2014. Let’s go through a few points on that process.

But man, do I miss the good old days! HSBC account reps tell me to appreciate that I have my account still and to keep it open and in good standing!

We’ve had Andrew Leyden come on the podcast to give us some insights on the US regulations on disclosing overseas bank accounts. At that time it wasn’t as strict – yes, still required – but it wasn’t on an online database.

Last year the US IRS (Internal Revenue Service) rolled out online filing of FATCA and other regulations that US citizens need to fill out.

But that is only half of the story.

What then happened was the US required all banks, anywhere in the world, to also declare US citizens who held bank accounts to the IRS.

This has been happening with US based banks forever.

Why?

Because you as a US citizen need to declare the bank accounts and balances. But to make sure you’re not forgetting a bank account (or two), the US has a checks and balances system that has the US banks sending your account information in as well. To keep things in check.

So now this is happening around the globe.

Imagine the new processes all these banks need to do. The forms and the paperwork.

It’s not just for US citizens. I have seen people from around the world going into a Hong Kong bank to open an account. They need to complete a form for the US government. This asks questions such as who you are, where you’re based, and other personal information.

I have worked with clients who are furious at the bankers when they get this thick stack of papers (from my memory it was about 12 pages). The banker just tells them this is a new rule. The banker must collect this for all new clients to stay in good standing with the US regulators.

So you may be wondering, why do these global banks care? They’re not based in USA.

Well, the financial system still revolves around the US. Bank wires often route through US banks to get from one country to another. If the bank doesn’t comply, they jeopardize being able to have banking relationships in America.

If they blocked from USA banking, then they are jeopardizing fulfilling their basic business operation requirements as a bank.

So they must comply.

Imagine all this new paperwork? Is it being “snail mailed” back to USA? Scanned and emailed? An online database that the Hong Kong bank needs to employ someone to do?

Sounds like a lot more red tape – and costs – for the banks….

I’m also sure there are massive fines to US imposes to banks who don’t comply…or comply enough….

HSBC has been fined a ton by the US government for allowing clients to launder money through their accounts. The US government states it is the responsibility of the banks to know their clients. They need to know what their business practices are.

HSBC received a fine of 1.9 Billion US dollars according to the article above! That is a lot of money.

So imagine you’re a top executive at this bank. And you have to report to shareholders and to the board of directors. What are you going to do?

You’re going to have to make sure that there isn’t any more risk of getting fined again.

And this is what they did, from what I understand. A bank teller told me that they closed hundreds of thousands of HSBC accounts for various reasons. Sending out a ton of letters alerting the account holder they have a certain limited amount of time to close their accounts and move their funds elsewhere.

Ouch.

(So glad I didn’t get that letter – sorry if you were one of them)

So going forward, you can imagine they aren’t going to be so easy to allow people to open accounts.

And it’s true. Now they ask a lot of questions about your business.

* Where the transactions are taking place.
* Who are the typical customers
* Invoices
* Contracts
* Letters of Intent.

I wonder how they can still make sure that someone can’t “slip through the cracks” and … do money laundering? I guess they are just being as strict as they can. Then if the US government sues them again, they can try to build the case that they have been much more strict in the application process.

Or maybe they are also monitoring the bank transfer more now too?

Here is another common question bankers ask new applicants. Is your business relevant to Hong Kong? Or it’s a bit more of an aggressive question:

> Why do you choose to open your account in Hong Kong?

I have seen the banker check over the invoices and business plan. They seem unconvinced they need to have a Hong Kong based business bank account.

When I’m in there with them, I will explain that they are doing business between China and the world. That Hong Kong is a great place to bridge the 2 regions.

But many times they are not so easy to believe it. You need to prove it.

If you can’t tell already, all this paperwork and extra time of the bankers sitting with new clients is adding a higher cost. This is going down on the bank’s P&L (profit and loss) statements.

Investors and shareholders don’t like that.

So, I have been noticing a few things

1. Application Fees – Years ago I never heard of a Hong Kong bank charging an application fee. Now I am seeing it more and more.
2. Higher minimums – I have noticed HSBC creeping up their minimum capital requirement to avoid the monthly fee. Now it is 50,000 HKD a month average balance ($6,500 US dollars approximately), else a 50 HKD/mo fee ($6.50 US dollar).
3. Harder To Get Approved – More rejection letters sent out. If the client is a small startup and entrepreneur, the bank’s risk department calculates that it isn’t worth it.

So many banks are targeting high net worth clients or medium to large sized companies.

Of course I don’t like this news. But I can’t blame them based on the circumstances.

Maybe these governments are right – why do you need a bank account outside of your home country?

Should Americans just operate with a US bank account and US company from anywhere in the world?

Maybe put this in perspective as you are scrambling to open your company. Sometimes having perspective on the situation as a bank or a government might help you make a stronger case.

Are you are living overseas, in Asia, doing business? Is it revolving around China and Southeast Asia, I feel that is a pretty strong case.

That is one of the main benefits of Hong Kong at its core – a bridge between China and Asia to the West. Show your business is relevant to this bridge. Show that you have cross border requirements. You have needs for fast transactions and multiple currencies.

Many readers contact me and ask if maybe it will get easier again? They are thinking maybe this is just a temporary crack down and things will go back to the way they were.

And boy, I do agree I miss the old days.

But just like the stock market, you don’t look at the price of a stock and think it will come back down to that price so you should wait it out.

Live in the now.

The banks will want to make sure they aren’t going to be at risk of fines from the US government. The need to confirm that they are doing it in the correct manner. But this will be a slow, back and forth process over many years.

Can you imagine all this new paperwork sent to the IRS in America right now? As a business owner, I can only imagine on how they have to standardize the process and scale up operations. How many new people need to work to do this?

So I wouldn’t tell someone to wait it out – life is short! If you have a real need for a Hong Kong company and bank account, apply! Continue to grow and build your business and build up your case for the banking application.

I’d love to hear about your feedback and experiences below.