Switzerland's biggest wealth managers are reportedly upping the checks they conduct on clients in Hong Kong – a potentially worrying side effect of a political sea change in China's treatment of the territory.
Wealth managers in Hong Kong including UBS, Credit Suisse, and Julius Baer are deepening their screening of clients in the territory to find ties to pro-democracy movements, «Reuters» reported on Monday. This follows China enacting a controversial security law in Hong Kong last month, a move that has roiled finance as well.
Hong Kong illustrates how wealth managers can become trapped in political tension in their expansion efforts: The filtering of clients suggests that private banks, which have largely avoided taking any position on the political quagmire, are implicitly appeasing Chinese interests.
Trawling Social Media
Hong Kong offshore center, the world's second-largest after Switzerland, is a $1.9 trillion haven and a traditional hub for wealthy Chinese. The territory enjoyed ample freedom since a British handover more than 20 years ago – and also seen frequent anti-government protests in recent years.
«Reuters,» which cited six sources familiar with the checks, reported that private banks are looking at what their clients are saying in public, including by trawling their social media posts. The banks are applying this scrutiny to Hong Kong and Chinese officials who had implemented the law as well – because they expect U.S. retaliatory measures like sanctions to hit these people.
Expanding Checks
Wealth managers are required to examine their clients for political ties to spot potential graft, for example. Nevertheless, the type of screening private banks are doing on their clients in Hong Kong would be highly unconventional in Europe or the U.S.
UBS, Credit Suisse, and Julius Baer declined to comment on the reporting. HSBC and Standard Chartered are the only banks that have stated a public position on the security law, supporting China on the move.
Asset Grab Powers
The security law is frequently perceived as a sweeping measure to stifle any acts deemed threatening to the state, while backers highlight its potential to provide stability in the city. It includes provisions to give authorities more power to freeze and confiscate money and property and to get at information.
A Hong Kong-based hedge fund executive signalled that the client screens will have immediate business implications: «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,» they told «Reuters».
