Hong Kong Banks To Adopt Risk-Based Approach For Account Openings
As the pandemic comes to an end, the Hong Kong economy is showing signs of recovery, and many newly established or overseas-based companies are eager to explore business opportunities. With the increasing demand for bank account opening, banks are speeding up the process to accommodate clients. However, there have been concerns about the difficulty of opening an account due to banks rejecting applications for anti-money laundering (AML) reasons and perceived high risks.
The Hong Kong Monetary Authority will issue a circular to banks today to clarify the industry's doubts about cryptocurrency customer due diligence, share cases and good practices for the reference; tomorrow will hold a meeting with banks and crypto institutions on the "difficulty…
— Wu Blockchain (@WuBlockchain) April 27, 2023
Banking Services for Virtual Asset Entities
To address these concerns, the Hong Kong Monetary Authority (HKMA) has been actively discussing with banks and reminding them that there is no legal or regulatory requirement that prohibits banks from providing banking services to virtual asset (VA) related entities. The HKMA has also emphasized the need for a “risk-based approach” when conducting customer due diligence (CDD) to avoid adopting a “one-size-fits-all” approach to reject account opening applications.
The Risk-Based Approach
The “risk-based approach” means that banks should differentiate the risk levels of customers and apply proportionate CDD measures without de-risking or adopting a “one-size-fits-all” approach. In implementing effective AML measures, banks should also treat customers fairly and enhance access to basic banking services by businesses through transparent, reasonable, and efficient procedures.
A good example of the risk-based approach is the Simple Bank Account (SBA) arrangement launched a few years ago at the encouragement of the HKMA. SBAs are a tier of accounts derived from traditional deposit accounts that provide basic banking services such as deposits, withdrawals, local and cross-boundary remittances to eligible corporates based on their actual operational needs. Due to the lower risks associated with lower transaction volume and narrower service scope, banks can apply less extensive CDD measures.
The SBA Arrangement
Since the launch of the SBA arrangement in 2019, about 13,000 such accounts have been opened by banks, with an average of about 3,000 accounts opened each year. This arrangement has allowed for fair and transparent access to basic banking services and helped businesses expand their operations in Hong Kong.
HKMA’s efforts to promote a risk-based approach and encourage the use of SBAs have helped businesses to overcome difficulties in opening bank accounts. With the economy recovering, it is crucial that banks continue to adhere to fair and transparent banking practices to support businesses in Hong Kong.
