Key Information

inSight
Speeches
Speeches by Speaker
Norman T.L. Chan
Peter Pang
Eddie Yue
Arthur Yuen
Raymond Li
Edmond Lau
Esmond Lee
Meena Datwani
Vincent W.S. Lee
James Lau
Joseph Yam
Y K Choi
William Ryback
David Carse
Tony Latter
Andrew Sheng
Hans Genberg
Simon Topping
Michael Taylor
The Honourable Donald Tsang
Chen Yuan
Dai Xianglong
Don Brash
Jaime Caruana
Andrew Crockett
Mario Draghi
David Eldon
Stanley Fischer
Timothy F. Geithner
Stephen Grenville
Kenneth G. Lay
William McDonough
Ernest Patrikis
Glenn Stevens
Jean-Claude Trichet
Tarisa Watanagase
Zeti Akhtar Aziz
Press Releases
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
Press Releases by Category
Bogus Voice Message Phone Calls
Banking in Hong Kong
Fraudulent Websites, E-mails and Telephone System, and other fraud cases
Granting of Banking Licences
Exchange Fund
Table of Multiples of Notes and Payments for Allotted Amount under non-competitive tender
Table of Multiples of Notes and Payments of Application Amount under non-competitive tender
Tender of Exchange Fund Bills and Notes
Tender Results of Exchange Fund Bills and Notes
Tentative Issuance Schedule for Exchange Fund Bills and Notes
Appointments and Departures
HKMA Pay Review
HKMA Publications
Speeches
The Hong Kong Mortgage Corporation
Hong Kong Note Printing Limited
Hong Kong Institute for Monetary Research
Exchange Fund Investment Limited
Others
Hong Kong Financial Infrastructure
International Relations
Investment Products Related to Lehman Brothers
Monetary Policy
Notes and Coins
Renminbi business
Credit Card Lending Survey
Monetary Statistics
Residential Mortgage Survey
Year 2000
Others
Guidelines and Circulars
Guidelines
Circulars
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
359.3404

insight

It’s hard to open a bank account, but is it also hard to maintain it?

(Translation)

In the last three articles in the “Financial Inclusion” series, I mentioned the concern about difficulties faced by some enterprises when opening bank accounts in Hong Kong.  In early September, a circular entitled “De-risking and Financial Inclusion” was issued to all banks in Hong Kong reiterating the principles of the risk-based approach.  Many may think that the risk-based approach only applies to account opening, but in fact it is also applicable to the ongoing customer due diligence (CDD) process for existing customers.

Some members of the public may have received letters from banks requiring them to fill in questionnaires and provide detailed personal information.  The questionnaires can be as long as some 10 pages and contain a long list of questions seeking information on various aspects ranging from the proof of current residential address to information on income since the first job a few decades ago and all sale and purchase transactions of assets.  The wording used in some of the letters is not too friendly.  Customers are required to reply within a short period of time and it is stated in the letters that if customers fail to do so, their accounts may be frozen or closed.  For those long-term customers, this is quite a nuisance and they just cannot understand why they have to undergo such stringent scrutiny all of a sudden after maintaining their accounts for years and some of the accounts even do not have a large balance. 

According to international standards in anti-money laundering and counter-terrorist financing (hereafter referred to as “AML” ), in addition to undertaking CDD process when handling account opening applications, banks are required to review and update information on existing customers on a regular basis.  The frequency and extent of the reviews will depend on the risk profile of the customers concerned.  More frequent reviews should be conducted in respect of high risk customers, including those customers whose job nature entails a higher risk of money laundering, such as senior government officials, senior politicians and senior executives of international organisations.  Some banks in Hong Kong may also undertake more stringent CDD process according to the requirements of their head offices or relevant overseas supervisory authorities.  For example, banks will require customers who may have association with the US to fill in certain forms and provide certain information according to the requirements of the US Foreign Account Tax Compliance Act. 

It will be impossible for fishermen to catch fish without fishing nets.  Similarly, in order to identify suspicious accounts, it is understandable that banks will need to require additional information from certain classes of customers.  However, we expect banks to design their “nets” in a more targeted manner with “mesh” size determined according to the size of the “fish” they want to catch, instead of just using trawls sweeping up fish of all sizes non-selectively.  We note that when conducting CDD, some banks have used “nets” with too small the mesh size so that fish of all sizes got caught up in their “nets”.  Let’s take a look at some of the complaints we have received.  During a regular review as part of the bank’s CDD process, a Hong Kong company engaging in trading business on the Mainland for over 30 years was asked to explain the source of its start-up capital, despite the fact that the bank account had been in operation for more than two decades.  In another example, a retired public officer, who had been classified as a high risk customer, applied for a supplementary credit card for his elderly family member, and the bank required that family member to fill in a 10-page CDD form and even provide a copy of the spouse’s will as a proof of the source of wealth.  In another case, a political figure was asked to provide a huge amount of age-old information and documents, again as proofs of his source of wealth, even though he only maintained an account for his mandatory provident fund contributions, at just some $1,000 each month.

These may be just individual cases, but they do show that some banks have rigidly applied a single yardstick and approach for all customers in conducting ongoing CDD, without differentiating the risk levels of their customers and implementing proportionate measures.  Sending out the same set of questionnaires indiscriminately to all customers who fall within certain segments or groupings is obviously not consistent with the risk-based approach required by the HKMA.  Nor is it in line with the spirit of financial inclusion.  In the circular issued in September, I have requested banks to review their existing processes and practices to ensure they are consistent with the principles of risk-based approach.  They are required to strike a balance between “de-risking” and financial inclusion, and refrain from adopting extreme practices that would result in financial exclusion.  The HKMA will follow up on this issue closely and expect the local banking industry to fully implement the principles of risk-based approach in handling account opening applications of new customers and CDD on existing customers.

We appreciate the need of some banks in Hong Kong to comply with the requirements and standards mandated by their head offices and relevant overseas supervisory authorities.  The HKMA stands ready to work with, and indeed has embarked on discussions with, those head offices and overseas authorities to review any inconsistencies between their requirements and the practices of the local banks with a view to identifying any “over-screening” and achieving an appropriate balance between AML and financial inclusion.

In fact, the review of account opening practices and ongoing CDD processes should not be solely taken care by the senior management of banks.  The board of directors of banks should also take a proactive role in ensuring the implementation of the principles of risk-based approach by the senior management upon receiving the said circular on “De-risking and Financial Inclusion”.  Banks should also provide adequate training to frontline staff on how to implement the principles in actual practices.  It is important to ensure that the CDD process for existing customers is effective while being reasonable so that the public can continue to benefit from financial inclusion.  This is also in line with Hong Kong’s status as an international financial centre.

 

Norman Chan
Chief Executive
Hong Kong Monetary Authority

31 October 2016


Financial inclusion series – sixth article

To review other articles in the series:

[1] Mobile Banking, Customer-Centrism, Financial Inclusion
[2] Video Teller Machines – Fostering “Financial Inclusion” with Technology
[3] From piggy bank to financial inclusion
[4] Follow-up work on issues concerning difficulties in opening bank accounts and obtaining bank loans by small and medium-sized enterprises
[5] Pursuing financial inclusion despite challenges

 

Last revision date: 2 November 2016
ABOUT THE HKMA
The HKMA
Tender Invitations
Careers@HKMA
Legislative Council Issues
Links
The HKMA Information Centre
KEY FUNCTIONS
Monetary Stability
Banking Stability
International Financial Centre
Exchange Fund
PUBLICATIONS & RESEARCH
Annual Report
Half-Yearly Monetary & Financial Stability Report
Quarterly Bulletin
HKMA Background Briefs
Reference Materials
Research
MARKET DATA & STATISTICS
CMU Bond Price Bulletin
Economic & Financial Data for Hong Kong
Monthly Statistical Bulletin
Monetary Statistics
KEY INFORMATION
Press Releases
Speeches
Guidelines & Circulars
Forthcoming Events
inSight
OTHER INFORMATION
Account Opening
Consumer Corner
Consumer Education Programme
Complaints about Banks
Complaints about SVF Licensees
Internet Banking
Fraudulent Bank Websites, Phishing E-mails and Similar Scams
Be Careful of Bogus Phone Calls and SMS Messages
Authenticate the Callers and Bank Hotline Numbers
Register of AIs & LROs
Register of Securities Staff of AIs
Register of SVF Licensees
Investment Products Related to Lehman Brothers
Photo Gallery