Global wealth managers are examining whether their clients in Hong Kong have ties to the territory’s pro-democracy movement in an attempt to avoid getting caught in the crosshairs of China’s new national security legislation, according to six people with knowledge of the matter.
Bankers at Credit Suisse Group AG, HSBC Holdings PLC, Julius Baer Gruppe AG and UBS Group AG, among others, are broadening scrutiny under their programs that screen clients for political and government ties, and subjecting them to additional diligence requirements, the sources said.
The designation, called “politically exposed persons,” can make it more difficult or prevent people from accessing banking services, depending on what the bank finds about the person’s source of wealth or financial transactions.
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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, the people said.
The new laws prohibit 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 because of the sensitivity of the situation, said that the broadened scrutiny of clients also applied to Hong Kong and Chinese officials who had implemented the law in anticipation of any US sanctions against them.
One banker at a global wealth manager that holds more than US$200 billion in assets said that the audit of its clients could go back as far as 2014 in some cases to gauge a client’s political stance since Hong Kong’s 2014 pro-democracy “Umbrella movement.” 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 taken any action against people identified as politically exposed.
Albert Ho (何俊仁), a veteran Hong Kong democrat who runs a law firm and helps organize an annual candlelight vigil to commemorate victims of the June 4, 1989, Tiananmen Square crackdown, said he fears 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,” Ho said, 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 laws or any US move to sanction local officials.
In an e-mailed statement, HSBC 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.
In an e-mailed statement, the Hong Kong Monetary Authority said that the financial hub implements anti-money laundering requirements “based on international standards including with regard to politically exposed persons.”
“The relevant international standards and our guidance to the banking industry have not changed,” the city’s de facto central bank said.
The Chinese Ministry of Foreign Affairs, the Liaison Office in Hong Kong and the Chinese State Council’s Hong Kong and Macau Affairs Office did not respond to requests for comment.
Some wealth managers in Hong Kong say they are worried about the regulatory and reputation risks to their banks if charges under the sweeping security laws 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 sympathizers within a couple of days of the enactment of the law on July 1, the anniversary of the handover.
The executive said that their firm checked its internal database to see if they had existing relationship with any of them and were “quite relieved” to see that they did not.
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 licenses.
One investment manager at a Hong Kong-based hedge fund said that he expected more people to come under scrutiny from their bankers now.
“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.
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