Opening a bank account in HK & when this is difficult

Opening a bank account is usually one of the first items on a new company’s to do list, however, the process of establishing a corporate bank account in Hong Kong can present significant challenges, and is often more complicated than a company incorporation due to strict regulatory requirements and high compliance standards imposed on banks.

We give an overview of the usual requirements and the background as to why they are required, so that you can prepare accordingly before making a bank account application.

Regulatory compliance

Banks in the region are obligated to comply with international anti-money laundering (AML) and counter-terrorism financing (CTF) regulations, as well as abiding by strict Know Your Customer (KYC) procedures. As a result, they require detailed documentation to ensure that all accounts adhere to these standards.

The basic corporate documents required to open a corporate bank account are the Certificate of Incorporation, Business Registration Certificate (BRC), Memorandum and Articles of Association and Company Incorporation Form NNC1 (for Hong Kong companies). A Certificate of Incumbency may also be requested for a non-Hong Kong (offshore) company. Additionally, these documents will need to be certified or notarised for offshore companies. Marbury has a team of lawyers and certified public accountants to assist with all certifications as required.

In addition to the basic documents, more detailed guidelines on opening a corporate bank account are as follows:

1. introduction to the company – the background of the company, including the date of incorporation, the nature of business, the reasons for setting up a business in Hong Kong, and the details of the company’s owners, directors and shareholders must be submitted. Note that a level of substance in Hong Kong will need to be proven. At Marbury, we are well-equipped to answer any questions from banks and understand the level of substance required for successful applications
2. business plan (usually only relevant for newly incorporated operational entities) – the objectives of the company in terms of expected turnover and the strategy to achieve the established target must be stated. The company also has to indicate how the opening of a corporate bank account in Hong Kong is essential for business operations, as well as transaction details, for example the number of internet banking transactions required and the volume of revenue expected. Note that this would not be required for companies with certain business natures, such as holding companies
3. business information declaration (business proof) – several kinds of documents could serve as business proof, such as bank transaction records from related companies, signed contracts or agreements with suppliers and buyers, invoices or bills of lading. The ideal would be three to five of each document, with issue dates within three months of the date of application. If your newly incorporated entity does not have such business proof, the bank will usually look to affiliated group entities or will waive this requirement altogether
4. business address proof – documents that verify the physical location and address of the company’s operations, such as utility bills and rental agreements, or a branch BRC where applicable. Note that the registered office address is generally not accepted as the business address
5. source of funds will be requested in relation to the company itself, i.e. location of clients, as well as the shareholders, beneficial owners and controlling parties
6. organisational chart (applicable to companies with parent companies outside of Hong Kong) – the company must set out the company’s structure, showing all layers, and the relationship between the company in Hong Kong and its parent company overseas (if any), in terms of: funding, the distribution of profit, and cooperation in business operations
7. proof of experience – the company’s directors will likely need to provide the bank with their CV and applicable certificates to prove that they have relevant experience in the industry that enables them to run the business
8. reference letter from bank and bank statements – to prove the directors or the parent company have good bank credit ratings, it is recommended to have a reference letter from a bank related to the personal accounts of the directors or corporate account of the parent company, with a bank statement issued within 3 months of the date of application

This list might seem onerous, but without these, we have found that traditional banks can be hesitant to approve account applications in our current climate.

Substance requirements

A critical aspect considered by banks is the economic substance of the company. Hong Kong banks frequently assess whether companies have a real economic presence in the region, which may include having a physical office, local employees, engagement of local services providers (such as bookkeepers), or substantial business operations. Companies that fail to demonstrate adequate economic substance may find it challenging to open a bank account, as banks and regulatory authorities are wary of shell companies being utilised for illicit purposes.

Reasons why banks are refusing to open bank accounts

• regulatory changes – the past years have been marked by one regulatory change after another in the financial services sector. From conduct regulations to disclosure requirements and regulatory reporting that came in the wake of a financial crisis that shook the global banking sector. Before banks could even complete the implementation of FATCA, they had to plan for CRS, which had to be implemented immediately. Moreover, global efforts by regulators to combat the financing of terrorism and money laundering reached new enforcement heights, leaving financial institutions facing record fines

• compliance and risk – given the speed of the regulatory changes, the systems and policies cannot keep pace. The lag in implementation compounds the compliance pressure. Actions previously considered acceptable are now non-compliance issues, and cause compliance failures. The need to avoid mistakes prompts an overly cautious approach

• policies, training and dissemination of information – disseminating correct information timely through multinational corporations is difficult, and ensuring the information is received uniformly without diverging interpretations is equally challenging. In relation to bank account openings, this understanding must be communicated from top to bottom (from the senior management and compliance teams to each relationship manager). The understanding of such information varies. The result is that there is often varying experience of the relationship manager, which when combined with the overly cautious approach leads to an unfavourable outcome for the prospective client

Potential Solutions

Despite these challenges, there are strategies that companies can employ to facilitate the bank account opening process. Firstly, it is crucial to conduct thorough research and select the right bank that is known for accommodating international clients and having a streamlined approach.

Additionally, companies should meticulously prepare their documentation in advance. Providing complete and accurate information will expedite the application process and build a strong case for your business’s legitimacy and compliance with local regulations. It is advisable not to overstate anticipated revenue to impress the bank. Accuracy is crucial. Significant deviations in actual transactions from the information provided could raise red flags and lead to account closure.

Conclusion

Opening a bank account in Hong Kong requires navigating complex regulations and requirements. Therefore, we urge all companies to consider the potential obstacles and proactively seek the necessary guidance to navigate them efficiently.

Marbury has significant experience at assisting clients open corporate bank accounts, including non-traditional accounts or digital wallets, for their Hong Kong, Singapore or offshore-domiciled entity. Our professionals are adept at guiding you through both traditional banking routes and alternative solutions, which may offer more flexibility. Please contact your usual Marbury relationship manager or info@marburys.com for more information.

How Marbury Can Assist with Your Application:

• Substance requirements – as noted, proving substance for the purposes of setting up a Hong Kong bank account is vital for the success of the application. Marbury is able to advise on the substance requirements based on your individual company background and can offer services to assist with the establishment of substance in Hong Kong
• Certification services – Marbury’s offshore lawyers and CPA qualified individuals are able to assist with the certification of corporate and KYC documents for provision in bank account openings
• Compliance and Risk services – Marbury has a dedicated compliance team, with expertise in CRS and FATCA, who would be able to offer advice and assistance for your regulatory needs