Why Opening a Bank Account in Hong Kong is so Difficult for Small Businesses?

Bertrand Théaud
Published: 15 Apr 2020

Have you tried opening a bank account in Hong Kong and been rejected without any explanation from the bank? Then you know just how difficult and challenging it is to complete this process.

More often than not, bank account rejections affect start-ups and SMEs. However, the truth is that the banking system’s increasingly strict risk management policies are also making it much more difficult for large corporations to open bank accounts.

Whilst some businesses are fortunate enough to get their bank account up and running within a few weeks, most end up waiting months. Not to forget those who have had several account opening denials.

Below we go through the most common reasons why your bank account opening application is not meeting the bank’s requirements and what you can do to resolve it.

1. Compliance Reasons

1.1. What is compliance?

In response to significant money laundering cases and undercover financing linked to terrorist organisations in the last few years, the global banking system has been forced to restructure many of its operations and procedures. This includes all Hong Kong banks.

You may be wondering what keeps everything in order now compared to before? In short, compliance measures.

Generally speaking, compliance is defined as the ability to act according to a set of rules. In a banking context, this means that banks are run according to a list of principles, rules, and guidelines, referred to as compliance policies that are developed and managed by compliance departments. Banks are expected to follow these policies to make sure that no illegal activity gets by them. Failing to do so results in substantial fines.

As a result, many processes have become a lot stricter in order to prevent high-risk clients and high-risk transactions from going ahead. It has led to banks becoming overly sensitive and defensive about their banking services, which includes opening a bank account

As banks face big penalties if they are found not to be compliant, they treat every case as a potential threat until proven otherwise. They work so anxiously that a minor slip-up or misunderstanding can potentially cause an account closure, a cancelled transaction or refusal to open a bank account without any explanation.

Whilst these are deemed effective towards fighting illicit crime or corruption, they have been criticised for showing very little understanding towards customers. More often than not, the sudden decision by a bank to terminate banking services becomes a source of business disruption and significant loss for companies.

The most effective way to get your account opened is, therefore, to understand what information the bank will want to check, which will consist at the minimum in the following:

  • The valid registration of your company
  • The identity of all directors, shareholders and ultimate beneficial owners, and sometimes their residence address
  • The nature of your company business, including from where and where to it intends to receive and make payments
The following links will direct you to the list of documentation that some of Hong Kong’s most popular banks require you to meet:

1.2. How does compliance impact your account opening application?

You may not know it, but your company’s profile may raise some suspicion from a bank’s compliance standpoint. In that case, your bank account opening will be everything but easy. Keep an eye on these problematic areas to ensure that your application goes smoothly.

Your shareholders and directors
Unarguably, Hong Kong is a melting pot that welcomes and hosts many different cultures and nationalities.

However, it is widely known that when it comes to opening a bank account some nationalities are more restricted than others. Although unfair, it is simply an obstacle that you may have to face and adapt to when submitting your business bank account application.

Having said that, being a permanent resident is definitely an advantage when it comes to opening a bank account. If one or several of your shareholders and directors have nationalities that usually have trouble opening a bank account but are permanent residents in Hong Kong, then the bank may be less inclined to turn the application away.

Check the Hong Kong government website for more information on the nationalities and countries that are currently subject to financial sanctions.

Your industry
The industry that your company is listed in can impact the outcome of your business bank account application.

Some industries are well known to be traditionally regarded as highly risky by banks, making it almost impossible for a company engaged therein to open a bank account: virtual currencies, gambling, weapons/firearms, tobacco products, sexually-oriented or pornographic businesses, diamond & gems.

In addition, many other industries are often blacklisted as they have a bad track record with banks for being associated to multiple scams: telemarketing, multi-level marketing distribution, time-sharing and many more.

Finally, and more surprisingly, it is also very difficult for companies engaged in regulated business to open a bank account. Banks are keen to think that a regulated business is a potential source of trouble in case it would continue its activity using the same bank account, after losing its license.

Your company’s ownership structure
During the bank account application process, the bank needs to confirm your company’s ownership structure to attest to who the shareholders and directors are. They go through a series of checks to locate each individual who has direct or indirect interest in the company.

If your company structure is simple, because all shareholders in the company are individuals then the process is relatively easy.

But if the ownership structure of your company is arranged though multiple layers of entities, expect more delays whilst the necessary checks are conducted. The bank will need to verify each intermediary company and their owners until they identify the individual(s) who indirectly own your company. In the world of compliance, these indirect individual shareholders are called ultimate beneficial owners.

2. Business Reasons

2.1. The quest for profitability

Banks are commercial companies driven by profit. Therefore, as the owner of a start-up or SME, your profile will be much less appealing to banks. Consequently, applying for a business bank account will be more difficult than if your company was a large corporation.

Banks know that start-ups and SMEs are much less likely to be able to afford the profitable services that banks essentially operate on. These include anything from investments to insurance schemes and loans.

In an attempt to reduce operating costs, banks are even found to be reducing the number of business accounts that generate low profits. Their decision to approve your business account application, therefore, does not only revolve around risk policies but is also very much a commercial assessment based on what profit they can turn from your company.

2.2. How does profitability impact your account opening application?

The cases in which companies are affected by a bank’s profitability policy:

Start-ups and new companies applying for a business bank account:  Banks are very unlikely to go through their costly processes for a business that is just starting out. They want to be sure that a business is viable and profitable before investing their time and activity into it. They do not see potential as a measure, and instead focus on numbers to assess whether a company will be able to afford their expenses at the end of every month.

The bank does not understand your business model:  even if your company has its financial history on record, a bank will want to understand the kind of business you are running. Unfortunately, some banks have not yet come around to business models of the digital economy. Because of their risk-averse mindset, they stick to what they know and if the business model does not appeal to the bank, it will increase the level of difficulty in opening a business bank account. Unfortunately, they would rather scrap your application rather than put time into understanding your business.

3. Practical Difficulties

The banking system's anti-risk compliance and profitability recourses can pose some serious obstacles when you want to open a business bank account in Hong Kong, including the following:

  • You have to come to Hong Kong in person when applying for your bank account. More precisely, banks request that every director in the company be in Hong Kong for the account opening interview process. Because of that, your company secretary or lawyer may very likely advise that you set up the company with one director only.
  • As banks will want to build a rapport with you to really understand your business, they will request documents such as contracts, invoices and a simplified business plan. If you're starting your business, this may lead to a chicken and eggs situation (catch 22). Not all business generate revenue immediately and so you will not necessarily have invoices coming for payment, but still the bank will request invoices to open the bank account.
  • The process can take anywhere from a few weeks to several months. Banks are regulated to work with compliance departments that can take weeks or months to analyse the supporting information and documents provided in the bank account application. This falls under their obligation of due diligence.
  • This due diligence is not always evident, which makes it very difficult for you to understand your chances of being able to open a business bank account. It is stated as part of a bank’s internal procedures because even the bankers on the forefront of advising you on your bank account application do not know the bank’s assessment scheme.
  • Compliance measures are subject to changes without prior warning. This depends on each individual bank. They can be made stricter and effectively make it even more challenging for you to open a business bank account with your chosen bank.
  • Banks in Hong Kong can suddenly ask for additional paperwork and proof from you during the application reviewing period. This can leave you in a bit of a bind for time to find these supplementary credentials and will slow down the process. These requests vary from one bank to another.
  • You may be rejected more than once when opening a bank account in Hong Kong. The issue with this is that banks hold on to this information which makes it troublesome to apply again in the same bank in the future.

4. What to Do

Unfortunately, when it comes to having your application rejected there is no recourse. The decision taken by the bank is purely commercial and is final.

You may want to signal this rejection to the Hong Kong Monetary Authority (HKMA) by sending an email at the following address: accountopening@hkma.gov.hk.

Still, be aware that this complaint may help the banking system to evolve favourably under the supervision of the HKMA but it will not in any case bring the bank to change their decision regarding your bank account application.

At Statrys, we are able to offer an alternative banking solution. Our payment and foreign exchange platform give you the same operational resources as traditional business banking to grow and manage your company. Everything is done online and is easy to use. Not to mention that our account approval process is smooth and effective, you can have your business account accepted within only a couple of days!

Sign up to Statrys and get your business account today!

Bertrand Théaud

Bertrand Théaud is the Founder of Statrys. His entrepreneurial journey has inevitably exposed him to the difficulty in dealing with banks, especially in Hong Kong. When he realised the number of SMEs going through the same challenging experience, he decided to start Statrys: a digital alternative to traditional banks specifically designed to serve the needs of Asian SMEs and start-ups...

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