Hong Kong: After the Last Credit Card is Gone

Swiss wealth managers and private banks will find life difficult in a Hong Kong riveted by the tense U.S.-China stand-off, a slumping economy, and the new national security law.

By Andrew Isbester, Editor-at-large, finews.asia

Since the 19th century, the presence of foreign banks in the city has waxed and waned. They first appeared with the growth of international trade, only for many to leave as a result of the Great Depression and the Second World War, when the city was occupied by Japan for almost four years.

The major Swiss banks first opened representative offices in the 1960s before establishing full-fledged businesses in ensuing decades. They were followed by an increasing number of individual private banks that continued to happily install themselves here until well into the mid-2010s.

More Wane than Wax

This long-term trend may have reached a tipping point, as not all of the private banks are likely to have the stamina to cope with the current situation, with Covid-19 exacerbating the already sharp economic downturn brought on by last year’s pro-democratic protests.

The first immediate implication for many of them, even if they don’t fully know it yet, will be how to manage the ancillary impact of the U.S. sanctions against the 11 government officials and weigh any potential steps in tandem with the city’s national security law enacted in July.

It's Complicated

Hong Kong’s Securities and Futures Commission, or SFC, seems to understand the complexity of the current situation, releasing a statement in August a day after the U.S. sanctions were imposed. 

«We would expect any response to the sanctions to be necessary, fair, and have regard to the best interests of their clients and the integrity of the market,» it stated. In the context of the situation, this sounds like the SFC is in the throes of quasi-existential angst.

Many of the larger banks in Hong Kong, unaccustomed to a supervisory body expressing itself with such qualms, are likely to simply take it the statement as a cue that they only need to provide the requisite thirty days’ notice for individual accounts – and they are done. As they generally have a propensity to cast their nets very wide when scared into action, they are likely to have already completed the exit of any basic US dollar denominated or currency-linked accounts and credit cards belonging to the specific individuals named on the U.S. Treasury’ list of Specially Designated Nationals, or SDNs.

Committee Frenzy

But being named an SDN has such far-reaching consequences - and this is probably what the SFC was getting at - that bank committees or executive management have likely been hyperventilating since August attempting to identify and then decide whether to exit or retain any legal entities, commercial enterprises, investment vehicles, or foundations that any of the government officials and their direct relatives have a significant ownership stake in, or signatory powers for, including non-executive board positions. And that is where the private banks may enter the picture.

No Appetite