Grounded Ingenuity | Refined Results

May 14, 2019
By Timothy Loh with Cheryl Ho

For many new businesses, opening a bank account is a mission critical task. Unfortunately, as a result of significant growth in laws intended to combat money laundering and tax evasion and to enforce international sanctions, the process of doing so in Hong Kong has become a real challenge which not infrequently results in a disappointing dismissal by the bank of the account opening application. In a recent circular to banks, the banking regulator attempts to address these difficulties.

On April 12, 2019, the Hong Kong Monetary Authority (“HKMA”) issued a circular (“Tiered Account Circular”) to all banks to draw attention to the introduction of tiered account services as a means of facilitating access to banking facilities for start-ups and other small and medium sized enterprises (“SMEs”) as well as companies from outside of Hong Kong seeking to establish a presence in Hong Kong. The circular comes amid a climate in which the business community has complained loudly that Hong Kong has become a city hostile to business as opening a bank account has become too difficult.

As proposed, a bank which offers tiered account services will offer a new tier of bank accounts, known as “simple bank accounts”. Simple bank accounts offer a subset of banking services, making available only those services which are regarded as lower risk from an anti-money laundering control perspective. As such, simple bank accounts may be opened with less extensive customer due diligence measures.

Commercial Backdrop

With the global tightening of anti-money laundering laws and severe U.S. government action against financial institutions for transgression of anti-money laundering laws, over the past few years, Hong Kong banks have lived in a state of heightened sensitivity. Earlier this year, for example, Standard Chartered was fined US$1.1 billion as a result of allegations by U.S. and UK authorities of violations of anti-money laundering laws and economic sanctions. In 2014, BNP Paribus paid a record sum of almost US$9 billion for violations of American sanctions against Sudan and other countries.

Not surprisingly, banks have responded through aggressive de-risking, considering carefully the need to manage down the risks of money-laundering. Though HKMA data for 2018 suggests that the retail banking sector opens on average 10,000 new business accounts per month of which some 60% to 70% are for SMEs and start-ups, anecdotally, de-risking has resulted in a dramatic rise in the difficulty for certain segments of the business community, most notably SMEs and starts-ups and foreign companies, to access banking facilities in Hong Kong.

In September, 2016, the Hong Kong Institute of Chartered Secretaries (“HKICS”) published its Bank Account Opening Survey which indicated that 98% of survey respondents stated that companies were having difficulties opening bank accounts in Hong Kong. Almost 2 years later, in July, 2018, the HKICS published a further survey indicating that 84% of survey respondents observed that opening a bank account remained difficult.

The latter survey identified the top difficulties in opening a bank account as follows:

  • difficulty satisfying bank documentary requirements (59%)

  • difficulty opening accounts for foreign nationals (57%)

  • difficulty in opening accounts for smaller revenue generating customers (41%)

Almost half of the survey respondents felt that bank account opening processes lacked transparency and where the account opening application was rejected, did not understand why. The survey highlighted that start-ups and SMEs had particular difficulties opening accounts with newly incorporated companies being required to provide documentation which was difficult to obtain without an existing account or without actual office premises.

Regulatory Context

Bank account opening procedures are governed by a complex maze of regulations. At the most basic level, at the account opening stage, banks must screen for compliance with applicable sanctions and tax laws, determine whether there may be suspicions which may give rise to reporting or asset freezing obligations and comply with the customer due diligence requirements. The latter are set out in the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (“AMLO”), for which the HKMA has issued compliance guidance through its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (“AML Guideline”).

Fundamentally, the AML Guideline requires banks to adopt a risk based approach, meaning that banks must take measures commensurate with risks. These risks include risks specific to a customer, to the jurisdictions in which a customer operates, to the jurisdictions in which the bank operates in and to the products, services, transactions and delivery channels of the bank. Thus, for example, in screening a bank account opening application, a bank will need to heighten controls in dealing with a prospective customer whose business is gambling. Equally, for example, a bank will need to heighten controls in dealing with a customer with business dealings in countries which may be subject to sanctions or which may not comply with international money laundering standards.

The effect of the risk based approach is that at the account opening stage, banks must undertake a customer risk assessment to determine the level of due diligence, including the amount and type of information to be obtained and the means by which such information is to be verified. Assuming the bank receives the requested due diligence, the bank will then evaluate the information to determine whether or not to open a bank account.

It will be evident that the customer risk assessment process is a process that may vary not only from bank to bank and from customer to customer but also from one individual bank staff member to another. As a result, the bank account opening process is one which inherently requires a customer to exercise informed judgment to manage the flow of information so as to influence the bank’s risk assessment. Given this fact and the fact that SMEs and start-ups will almost invariably lack specific expertise as to the risks which must be addressed in the wide ranging regulations which govern the bank account opening process, it is not surprising that this group of businesses has experienced difficulty with opening bank accounts and has complained about lack of transparency as to the account opening process.


The Tiered Account Circular builds on the risk based approach by attempting to limit the risks to which a bank is exposed and thus, limiting not only the level of due diligence required but also the threshold by which a bank would determine whether or not to open a bank account for a particular customer. As contemplated, banks can place initial limits on an account commensurate with the level of due diligence available to that point in time and the risks inherent in the activities that can be undertaken within those limits. As the bank gains greater insight into the customer, it can, at its election, choose to relax those limits.

The Tiered Account Circular requires banks to be clear and upfront with customers as to the limited range of services available if limitations are to be imposed in exchange for more rapid turnaround in account opening.

The HKMA encourages all banks to support the simple bank account arrangements proposed in the Tiered Account Circular. As a result, for startups, SMEs and foreign companies seeking to undertake business in Hong Kong, the Tiered Account Circular offers a possible graduated path forward to opening a bank account in Hong Kong and being able to access some core banking services more quickly than would be possible in the current climate where banks require full due diligence before any bank services can be offered.


TIMOTHY LOH LLP regularly advises regulated financial institutions on compliance with money laundering and sanctions regulations. The firm is widely recognized for its broad and deep experience in the regulation of financial services. As such, the firm is ideally positioned to advise customers on how to best present themselves in the mission critical task of opening a bank account in Hong Kong.

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