[SCMP Column] Closed for Business

May 30, 2016

On Wednesday this week, the Hong Kong University of Science and Technology will hold its sixth annual One Million Dollar Entrepreneurship Competition – a platform for young aspiring entrepreneurs linked to the university to create and evaluate new business and to prepare to start an entrepreneural future.

The contest is one of many being spawned in Hong Kong at present, to stimulate enterprise, and encourage start-ups. First prize will be $300,000, with numerous other awards to be collected.

The competition underscores massive efforts on the part of the Hong Kong Government, and organizations like InvestHK to encourage new businesses, to demonstrate Hong Kong’s value as a “Global Superconnector”, and to underscore Hong Kong’s claim to be the number one business city in Asia.

But behind these laudable efforts, a peculiarly silent secret awaits the aspiring start-up, or the winner of the UST’s competition: even if you succeed in setting up your company, or celebrate the receipt of the HK$300,000 winner’s cheque, the current likelihood is that you will be unable to deposit the cash in a bank account, because you can’t open one. The silent, smothered reality is that as far as start-ups are concerned, most of Hong Kong’s leading banks are closed for business. Opening a new bank account may not quite be impossible, but the information requirements now being demanded of companies or individuals wanting to open new business accounts in Hong Kong are so complex and onerous that in reality their doors are locked and barred.

On InvestHK’s user-friendly website, the “Why Hong Kong?” section succinctly lists the various forms of government support for new companies, the value of Hong Kong’s strategic business location, our low and simple tax regime, our international transparency and efficiency, and our world class business infrastructure. It then points you in the “Setting up your company” section to how to incorporate, and how to register your business, and then bumps into the matter of setting up company bank accounts. Then the rub: “Hong Kong’s anti-money laundering guidelines, Know Your Customer, mean that banks may request identity and residence information for all beneficial owners of the company before they will open an account.” And that is not the half of it.

The reality seems to be that the recent global regulatory overkill defined by Dodd-Frank and other legislation in the US and elsewhere is forcing banks sheepishly to refuse accounts to even long-standing and trusted clients. Shellshocked by the US$200 billion in fines imposed on financial institutions since 2008, and the ongoing fear of regulatory witch hunts that might arise if you fail to “know your customer”, banks are finding the cost of achieving regulatory “comfort” too burdensome and onerous to achieve for all but the most globally established enterprises.

One good friend, Chairman of a leading Hong Kong property company, complained that he recently sought to open a personal bank account with Hang Seng Bank. As a Hong Kong Jockey Club member, he has carried a Hang Seng card for decades, but he fell at the first fence. To get a personal card, among many other documents proving his existence, he had to produce numerous utilities statements, but unfortunately these were in his wife’s name. The only way to resolve this was to bring a letter from his wife acknowledging him as her husband, and an original marriage certificate. At this point he turned and left.

Another colleague at the Hong Kong General Chamber, a leading local forensic accountant, sought to open a new small company account with Standard Chartered Bank. Even with all standard information – proof of address, tax returns, utilities statements and other letters of recommendation – his application was rejected.

How did this forensic fellow solve the problem? On advice from similarly frustrated friends, he walked into the Bank of China. It seems our Mainland banks do not share the same reverential fear of Dodd-Frank and US regulatory over-reach. He opened an account within the day. So it seems Hong Kong’s entrepreneurs are not wholly shut out from the banking system, but only if they are willing to bank with Mainland Chinese banks.

Fearing that my concerns were “small sample generalizations” – anecdotal insights not reflecting the wider reality, I pressed senior colleagues last week from our two leading banks on what was going on. The sheepish response from both was revealing: Hong Kong may be in overdrive in attracting start-ups to establish in Hong Kong, and encouraging micro enterprise entrepreneurs to establish here in Asia’s “Global superconductor”, but opening a bank account was an altogether different and more challenging matter. There followed long and convoluted requests for sympathy over the formidable regulatory complexities they now face when approached to open new bank accounts.

My response at the time was simple: for me, this creates a massive crisis for an economy like Hong Kong that wants to act as connector between businesses in the west, and those in Asia. What use selling ourselves as “global superconductor” if we then deny an aspiring new market entrant a bank account? I did not want to hear from these banking colleagues a long list of reasons why the post-2008 regulatory environment has become so difficult. I wanted an acknowledgement that there was a major problem here, and some sign that they were seeking ways to sort it out.

Instead, we seem to be muffled under an embarrassed conspiracy of silence to admit that Hong Kong is ill-placed to deliver on its “Global superconductor” promises.

It seems many business chambers in Hong Kong – including the French, Spanish and British but perhaps more – have begun to raise alarums with Government. But from my perhaps ignorant vantage point, this is a problem of crisis proportions that needs loud, public attention. I want our bankers not to offer sheepish apologies. I want suggestions for resolving a challenge that if unattended could profoundly hurt our economy. I want leadership on this from the Government, and in particular from our own regulators. And soon. After all, I might just want to open a new bank account myself soon, and I don’t necessarily want it to be a Mainland one.
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