Global financial institutions grapple with intensifying geopolitical pressures, threatening their presence in Hong Kong. Recently, an order denied pension withdrawals to Hong Kongers with British National (Overseas) passports, predominantly issued during the colonial era.
Politicians have also proposed an anti-sanctions bill that prohibits foreign companies and individuals in Hong Kong from complying with sanctions against China, now controlling the former British colony. Experts predict troubles for financial institutions due to the institutions' global scope.
Hong Kong's prestigious financial institutions, like HSBC, AIA, and Manulife, are already battling challenges due to stricter pension access restrictions. In January, the Hong Kong government announced it would no longer regard BNO passports as valid travel documents, resulting in another announcement prohibiting the use of these passports to early-withdraw from Mandatory Provident Fund (MPF) accounts.
These actions effectively prevent BNO passport-holders from withdrawing savings early if they decide to leave Hong Kong.
Financial institutions have had their share of political disputes. HSBC, as a London-based bank, triggered controversy for supporting a controversial national security law imposed on Hong Kong by Beijing last summer. In this year, the bank also came under scrutiny when the Hong Kong police froze the accounts of former pro-democracy lawmaker Ted Hui and his family. The bank claimed to have no alternative but to comply with the order. These events sparked fury among foreign politicians, leading to HSBC's CEO being summoned by the British parliament for questioning.
In these tough times, companies in Hong Kong are working hard to keep balance between escalating tensions between the West and China.
The proposed anti-sanctions bill serves as a potent example of how it would enable China to execute countermeasures against companies supporting sanctions against China. This follows mainland China's enactment of a similar law in retaliation to sanctions imposed by the United States and the European Union.
Strategic changes are crucial for these institutions to adapt to the evolving environment. Paul Schulte, formerly an investment banker in Hong Kong and now leading Schulte Research, mentioned, "There's pushing and pulling. Banks are surely in trouble." He further noted, "They are integrated into the international economy, handling countless transactions between the United States and Hong Kong and the rest of the world. That's where the genuine conflict lies."
Bankers are closely observing the situation and are deeply concerned about its implications on their compliance programs. They are keen to understand how the law will be implemented in Hong Kong before making concrete moves. Their main queries revolve around where their compliance staff will be based, how they will enforce certain business protocols, and whether they need distinct policies for their Hong Kong and China operations compared to their global operations.
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Global banks use several strategies to navigate the heightened geopolitical tensions:
- Regulatory Compliance:
- Banks are closely tracking and adhering to the evolving regulatory landscape, including anti-sanctions bill proposals. For instance, HSBC and Standard Chartered, prominent players in Hong Kong's MPF scheme, are adhering to the stipulations set by Hong Kong's pension regulator and Chinese authorities regarding BNO passports recognition[3].
- Risk Management:
- Banks are enhancing their risk management methodologies to deal with geopolitical uncertainties, including scenario planning for potential shocks in unstable global environments, as highlighted by ECB's supervisory priorities 2025-27[5].
- Operational Adjustments:
- Addressing pension withdrawal limitations, banks like HSBC are withholding pension funds from Hong Kong exiles who have resettled in Britain due to legal constraints and lack of BNO passport recognition[3].
- Collaboration with Regulatory Bodies:
- The HKMA and SFC collaborate closely in enforcing regulatory standards, with the former taking disciplinary action against banks for major regulatory violations, like Hang Seng Bank Limited's case, highlighting the importance of implementing stringent standards in the financial sector[2].
- Enhancing Internal Controls:
- Banks augment internal controls to avoid regulatory failings. Hang Seng Bank Limited has taken remediation steps and improvement measures to rectify and strengthen its internal controls following regulatory failures in connection with the sale of collective investment schemes and derivative products[2].
- Promoting International Yuan Usage:
- China is leveraging Hong Kong as a hub for offshore yuan business by issuing central bank bills, aiming to strengthen Hong Kong's high-credit-rating yuan financial products and improve the yuan yield curve, supporting the international usage of the yuan despite trade tensions[1].
By employing these strategies, global banks are attempting to minimize the impact of heightened geopolitical tensions on their operations in Hong Kong.
