'Big Banks Now Check Democracy-links Of HK Clients'

Global wealth managers are examining whether their clients in Hong Kong have ties to the city's pro-democracy movement, in an attempt to avoid getting caught in the crosshairs of Beijing’s new national security law, according to six people with knowledge of the matter who talked to Reuters.

Bankers at Credit Suisse, HSBC, Julius Baer and UBS, among others, are broadening scrutiny under their programmes that screen clients for political and government ties and subjecting them to additional diligence requirements, these people said.

The designation, called politically exposed persons, can make it more difficult or altogether prevent people from accessing banking services, depending on what the bank finds about the person's source of wealth or financial transactions.

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, these people said.

The new law prohibits 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 the broadened scrutiny of clients also applied to Hong Kong and mainland 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 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.

Reuters could not learn the identities of any people who had faced enhanced scrutiny or whether the banks had decided to take any action against people identified as politically exposed.

Albert Ho, a veteran Hong Kong democrat who runs a law firm and helps organise an annual candlelight vigil to commemorate victims of the June 4, 1989 Tiananmen Square crackdown, said he feared that people like him may face “difficulties in the times to come”.

HSBC declined to comment specifically on the security law or any US move to sanction local officials. In an emailed statement, it 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 emailed statement, the Hong Kong Monetary Authority said the financial hub implements anti-money laundering requirements "based on international standards including with regard to politically exposed persons”.

The Chinese foreign ministry, the liaison office in Hong Kong and the  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 law 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 sympathisers within a couple of days of the enactment of the law on July 1.

The executive said 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 didn't.

One investment manager at a Hong Kong-based hedge fund said 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. (Reuters)