HONG KONG • Global wealth managers are examining whether their clients in Hong Kong have ties to the city’s pro-democracy movement, in an attempt to avoid getting caught in the crosshairs of China’s new national security law, according to six people with knowledge of the matter.
Bankers at Credit Suisse, HSBC, Julius Baer and UBS, among others, are broadening scrutiny under their programmes that screen clients for political and government ties and subjecting them to additional diligence requirements, these people said.
The designation, called politically exposed persons, can make it more difficult or altogether prevent people from accessing banking services, depending on what the bank finds out about the person’s source of wealth or financial transactions.
The checks at some wealth managers have involved combing through comments made by clients and their associates in public and in media, and social media posts in the recent past, these people said. The new law prohibits what Beijing describes broadly as secession, subversion, terrorism and collusion with foreign forces, with up to life in prison for offenders.
The sources, who requested anonymity, said the broadened scrutiny of clients also applied to Hong Kong and Chinese officials who had implemented the law, in anticipation of any sanctions by the United States against them.
A banker at a global wealth manager that holds more than US$200 billion (S$278 billion) in assets said the audit of its clients could go back as far as 2014 to gauge a client’s political stance since Hong Kong’s pro-democracy Umbrella Movement that year. Protesters at the time used umbrellas to shield themselves from tear gas and pepper spray deployed by police.
Reuters could not learn the identities of any people who had faced enhanced scrutiny or whether the banks had decided to take any action against people identified as politically exposed.
Mr Albert Ho, a veteran Hong Kong democrat who runs a law firm and helps organise an annual candlelight vigil to commemorate the June 4, 1989 Tiananmen Square crackdown, said he feared that people like him may face “difficulties in the times to come”.
“There’s not much you can do, actually, unless you cease all your financial and banking activities in Hong Kong,” Mr Ho said yesterday, adding that he had not faced additional scrutiny from his bank as of last week. He declined to disclose the name of his bank.
HSBC declined to comment specifically on the security law or any US move to sanction local officials. In an e-mailed statement, it said: “We already have a stringent set of policies and rigorous processes in place which we apply globally.”
Credit Suisse, Julius Baer and UBS declined to comment.
When asked about the scrutiny after it announced its half-year results yesterday, Julius Baer CEO Philipp Rickenbacher also declined to comment, adding that the bank would continue to develop its business in Hong Kong.
In an e-mailed statement, the Hong Kong Monetary Authority said the financial hub implements anti-money laundering requirements “based on international standards, including with regard to politically exposed persons”.
The city’s defacto central bank added: “The relevant international standards and our guidance to the banking industry have not changed.”
China’s Foreign Ministry, the Liaison Office in Hong Kong and the State Council’s Hong Kong and Macau Affairs Office did not respond to requests for comment.
Global banks have long examined the backgrounds of their clients, including screening them for political ties, to satisfy regulatory requirements. Politicians, government officials and senior executives at state-owned enterprises, as well as their family members, are typically considered to be politically exposed persons.
The rules are meant to enforce laws such as international sanctions and to prevent people from using the banking system to launder ill-gotten wealth.
The banks’ move to subject supporters of Hong Kong’s democracy movement to a similar review comes at a time when the stance of some firms on the Chinese law has drawn scrutiny from Western lawmakers and activists.
HSBC and Standard Chartered, which have expressed support for the national security law, for example, have faced criticism from British officials that their actions enabled Beijing to undermine the rule of law in the former British colony.
The two London-headquartered banks have said they believed the law would restore stability in Hong Kong.
Both Hong Kong and Chinese officials have said the law was vital to plug holes in national security defences, rejecting criticism from governments, including the US and the United Kingdom, that China was violating its promise to safeguard Hong Kong’s freedom for 50 years after the 1997 handover.
Some wealth managers in Hong Kong have said they are worried about the regulatory and reputation risks to their banks if charges under the sweeping security law are brought against some of their politically linked clients, three of the sources said.
A top executive at a regional wealth manager said that his firm’s risk and compliance team prepared a list of top 10 Hong Kong individuals identified in local media as pro-democracy sympathisers within a couple of days of the enactment of the law on July 1, the anniversary of the handover.
The executive said his firm checked its internal database to see if there was any existing relationship with any of them and was “quite relieved” to find nothing.
Several elements of the law deal with the seizure of assets, including provisions to give a new police unit greater powers to freeze and confiscate funds and property as well as greater powers to obtain information. Companies can also face penalties, ranging from fines and suspension to the loss of business licences.
One investment manager at a Hong Kong-based hedge fund said he expected more people to come under scrutiny from their bankers.
“I think that if even a moderate democrat came through the door wanting to invest, you’d be thinking long and hard after this law,” the fund manager said.