From coupons to banks, Hong Kong will clean up cross-border investment accounts

Author:Lawyer Lau Honglin

 

On the night of May 27th, a fast message from the Associated Press spread in the circle of friends。

In general, the Hong Kong Monetary Authority responded that the regulatory requirements had been circulated to all recognized institutions on 22 May, in response to the need to sign a declaration on the opening of investment accounts by some Hong Kong banks for mainland investors. The Authority requires the Registrar to take three additional measures when opening and managing investment accounts for investors in the interior。

The Redwood lawyer has read it carefully, but he still has to say: It is also a matter of concern for the supervisory authorities to prevent ordinary people from investing in losses。

Recently, the regulatory authorities have been very active in the matter of cross-border finance。Just last Friday, eight departments, including the CSRC, jointly issued the Programme for the Implementation of the Comprehensive Management of Illegal Cross-Border Securities Futures Fund, which explicitly provides for a two-year centralization of illegal cross-border operations of offshore agencies。

On the same day, the HSBC also issued a circular requesting the LLC to strengthen controls in the opening of accounts and customer relationship maintenance, with a focus on suspicious or falsified documents, dormant accounts, investment accounts of inland investors and cross-border service compliance。

This circular of the BOCS is not a general reminder。

It mentioned that the CVM had recently examined the opening of accounts of 12 licensed securities brokerage houses and had found significant deficiencies in the processing of account opening documents, cross-border brokering and continuous monitoring; and that some brokers had accepted suspicious or forged documents submitted by clients during the opening of accounts, and had failed to identify early warning signs of offshore brokering. More crucial is the fact that some of the accounts have subsequently resulted in suspicious transfers of funds without trading activities。

These details illustrate that regulatory concerns are not limited to “incomplete opening information”. If an investment account is only used to release or transfer money, where the funds are left idle for long periods of time, or when customers frequently change bank accounts or even share bank accounts or addresses with unrelated customers, it is no longer just an ordinary opening flaw, but may become an interface between cross-border financial flows and illicit financial activities。

The Hong Kong Monetary Authority ' s request for a banking registry has now received renewed attention from the market. The significance of this is that the regulation does not stop at the level of “illegal cross-border trade of voucher dealers” but goes further to the more specific entry points of bank investment accounts, investment functions in consolidated accounts, statements of sources of funding and clearing accounts in my name。

This means that Hong Kong banks have also been pushed to the forefront of cross-border financial compliance, following Hong Kong issuers。

This is not simply an additional declaration. It really reminds the industry that when Mainland investors are involved in securities, funds, wealth management and even future financial products through Hong Kong, institutions cannot simply look at where the accounts are opened, but also explain how clients come from, whether the documents are true, where the funds come from, and whether the services touch the borders of the Mainland for illegal cross-border operations。

Cross-border investment tightens again

We will start by putting on one chart the documents and news from recent regulators。

A series of recent regulatory actions have been understood by many friends to mean that “outside investors will not be able to open accounts in Hong Kong”, but this is not the case。

According to the Hong Kong Monetary Authority document, the new measures are aimed at investment accounts of investors from the Mainland, including investment functions in consolidated bank accounts; non-investment functions such as general savings, current accounts, time deposits, payments, loans, credit cards, etc., are not covered by the additional measures. The measures are directed at individual clients and do not apply to corporate and institutional clients. The Hong Kong Monetary Authority also mentioned, in a common question, that banks can still deal with a request from Mainland investors to open an investment account or service in Hong Kong, subject to the completion of new declarations, the designation of eligible bank accounts in their own name and the fulfilment of their obligationsKYCThis is the procedure by which financial institutions identify customers, the purpose of transactions and the risk situation。

So, it's not all inland customers out of the door. The ones that are really stuck are those who don't know how the customers come, how the documents are genuine, where the money comes from, whether the trading services touch the interior to oversee the red line。

In the past few years, many people have had a vague understanding of cross-border investment accounts: accounts are opened in Hong Kong, institutions are licensed in Hong Kong, and customers operate online, as if they had little to do with Mainland regulation. This understanding is becoming increasingly difficult to maintain. The regulators continue to ask along the service chain whether marketing is directed to the interior, whether the opening and trading instructions are driven by the internal chain, and whether the funds go through the compliance route。

Once these issues are taken together, the so-called middle ground of “people in the interior, accounts in Hong Kong, services online” is less comfortable。

What's the holddown this time

The logic is even clearer when the documents of the CVM and the KD are read together。

The CVM first raised the issue from the issue of whether the opening documents were authentic, whether the accounts were being misused, whether cross-border representation was continuously monitored, and whether the provision of services to investors outside Hong Kong complied with the laws of Hong Kong and the relevant jurisdictions。

The Authority subsequently pushed a similar requirement on the bank register, as the investment function in the bank ' s investment account and the consolidated account could also be part of the chain。

If you fall into a bank investment account, you can break down the following image:

Three of the new measures are particularly noteworthy。

First, it's a back check. The CSRK requires the LLC to carry out an internal verification as soon as possible, in accordance with the criteria set out in the Appendix to the Circular, to ascertain whether suspicious or forged documents have been accepted to open accounts and to close accounts involving such documents. The Hong Kong Monetary Authority, for its part, requires the relevant banks, subject to regulatory requirements, to verify investment accounts opened from January 2023 or within a specified period of time. When problems are identified, it is not only the closure of accounts, but also the identification of persons who have provided suspicious or forged documents and who are responsible for internal controls。

Secondly, it is the clean-up of dormant accounts. The so-called zero-balance investment account refers to the absence of any asset balance as at 22 May 2026 and to the non-active investment account of an off-site investor in the preceding 12 months. Regulatory considerations are realistic: such accounts do not normally appear to be risky, but once they are used as a bridge, account trading, unusual transactions, it is difficult for financial institutions to explain why they keep them there。

Thirdly, there are new household statements. When an investment account is opened by an investor in the interior, it is necessary to confirm in writing that the funds used to support the investment activity and the related settlement come from a legal source outside China; to confirm that it has not been closed or suspended by any voucher or bank because of the use of suspicious or forged documents; to declare a change in information, to notify the institution within seven working days; and to disclose the relevant personal information when requested by the law enforcement or regulatory body in the future. At the same time, future investment accounts must be deposited and withdrawn through the client's own name and by Hong KongBank holderor bank accounts opened by regulated banks in eligible jurisdictions. This requirement appears both in the CVM ' s measures and in the Authority ' s request for a banking registry, and is close to the new bottom line for joint implementation by industry。

These requirements appear to be in the opening process, with the actual management of the entire business chain behind the accounts. In the past, some operations had simply taken clients to the platform to open their accounts and then disassembly funds and trading arrangements, and the agency could claim to have provided only one Hong Kong account. The explanation will get weaker. It requires institutions to view the identity of clients, documents, funds, clearing accounts and service locations together。

In other words, if a business is to be done mainly on account opening facilities, long-distance guidance and financial bypassing, it will become more and more difficult to do。

The Bank of Hong Kong went to the front desk

IN THE PAST, WHEN IT COMES TO ILLEGAL CROSS-BORDER SECURITIES OPERATIONS, IT IS EASIER TO THINK ABOUT THE ROLES OF INTERNET ISSUERS, ACCOUNT HOLDERS, FINANCIAL INTERMEDIARIES, KOL (KEY OPINION LEADERS), AND DOMESTIC CUSTOMER MANAGERS. BANKS ARE OFTEN SEEN AS PROVIDERS OF FINANCIAL ACCOUNTS AT THE BACK END。

The action of the Hong Kong Monetary Authority precisely means that banks can no longer stand at the back end alone. The CVM circular first made clear the issue of the securities firm: account documents, overseas intermediaries, customer fund activities, dormant accounts could all be linked to the same risk chain. Although the bank is not a direct broker, as long as it provides investment functions in investment accounts, clearing accounts and consolidated accounts, it is examined in the same chart。

The investment function in the bank ' s investment accounts and in the consolidated accounts could have been linked to customer identity, sources of funds, securities trading, wealth products and cross-border settlements. When Mainland regulation explicitly regulates the operation of illegal cross-border securities, futures and funds, it is difficult for banks to say that they are a passive channel if the investment accounts of Hong Kong banks are used for similar services。

This is also why the Authority specifically refers in its document to the risk-based approach of implementing anti-money-laundering and anti-terrorist financing controls when banks provide non-investment account services to individuals in mainland China, and to the local rules applicable to these customers. HereAMLIt is an anti-money-laundering requirement. The form leaves only a mark and the real answer is who the client is, where the funds come from, what the purpose of the transaction is, and whether the account activity is for the purpose of opening an account。

For Hong Kong banks and issuers, future compliance pressures will increase significantly. The institution re-inspects the opening materials, customer classification, declaration texts, access money accounts, employee acoustics, cross-border partners, external conduits and complaint processing mechanisms. Where business teams used to explain “clients themselves”, “We provide only Hong Kong services”, “Online systems automatically complete”, more specific evidence is needed。

From a commercial point of view, this would make some institutions more cautious. In the short term, it is no surprise that some Mainland ID clients have been suspended from opening investment accounts, requiring additional statements, and from new purchases by unsigned clients. Agencies certainly want to do business, but no one is willing to put themselves at the forefront when the regulatory borders are unclear。

Gray financial intermediation

The impact of this on the industry will be more experienced than the opening of a bank window。

The first to be affected were the grey opening and leading business. In the past, there had been a great deal of talk in the market, with the core being to help investors in the Mainland to more easily open their equity accounts, open their investment accounts in Hong Kong and even package their residential addresses, bank flow, proof of income and sources of funding. Such operations were also previously hidden under the “client voluntary” coat of “information services” “advisory services”. The space for such intermediaries is now strained by the inclusion of suspicious documents, the source of funds, the history of bank accounts in my name, the suspension or closure of accounts。

The second category is affected by cross-border wealth management platforms. Future product design should not be based solely on rates of return, trade facilitation and account opening conversion rates, but should first answer the client ' s source, location of service, marketing boundaries, financial pathways and applicable pathways. For example, whether the customer is in Hong Kong, whether the funds come from a legal source outside China, whether the transaction settlement is made through a bank account in his own name, and whether the agency conducts outreach, opening assistance, transaction orders or funds transfer services in the interior. Any part of the story is unclear, and the next beautiful product experience can be interrupted。

The third category is the increased value of compliance corridors. The Hong Kong Monetary Authority mentioned in the document that banks could direct eligible investors to cross-border investment routes between Mainland and Hong Kong, such as cross-border finance, Hong Kong and Hong KongDeepportI don't know. That is the key. Regulation recognizes that people living in the interior have investment needs outside the country, but it directs them to the path identified by the system. Future cross-border wealth management can be truly significant, not necessarily the smoothest institution to make an account opening link, but more likely the institution to clarify compliance routes, customer appropriateness, financial pathways and product boundaries。

This will also change the way Hong Kong markets compete. A part of the former institution, which used to focus on speed of access and opening facilities, and more importantly translation of customer requirements from the Mainland into compliance paths in the future, may be more valuable than an institution that only sells “Hong Kong accounts”。

Summary

Every month, I travel to Hong Kong, and every time I talk to my friends in Hong Kong who work with finance, I get a little bit of a taste and a bit of a taste for the word “finance in Hong Kong”。

In the past, many operations have treated Hong Kong as an “account entry point”: clients come from the Mainland, accounts are opened in Hong Kong, funds go around several paths, followed by securities, funds, Hong Kong's shares or financial products。

With the tightening of regulatory policy in China and Hong Kong, however, the day of finance in Hong Kong has become increasingly promising. After all, there's a lot of demand in the marketHong Kong will have a chance。

It's just this opportunity to come and have nothing to do with most people。