Andrew To participates in the IR Global Guide – A Jurisdictional Guide to Opening a Foreign Bank Account

Foreward by Andrew Chilvers

For companies and individuals looking to move into new jurisdictions for business opportunities, setting up a bank account is a crucial part of the process. But this is never as straightforward as it seems.

In all countries, banks are obliged to crack down on fraud and any potential financial scullduggery. As a result, they tend to be very risk averse. Regardless of where a business establishes an office in the world, local banks will generally have the newly arrived expatriates jumping through various hoops, pulling their hair out in frustration.

The new arrival will need the relevant paperwork, including personal identity papers, a personal and business address, personal references and other numerous documents. And that’s just the beginning.

Every jurisdiction has its own banks and banking rules, which are often complex and bureaucratic. Consequently, seeking advice from local legal and financial experts before setting up a bank account is imperative if a company is it get the right account for its particular business objectives. This is why it’s so important to use local advisers who are experts in the jurisdiction to provide information about the local banking rules.

What is the general risk appetite of banks in your jurisdiction and how does that affect setting up a new business bank account?

In recent years most banks In Hong Kong have been reluctant to open a corporate bank account for their clients. There are a number of reasons for this.

First and foremost, a bank looks for profit. It sounds logical, but it’s an often overlooked factor in the discussion about opening bank accounts. While many people think – and banks claim – that the reason it’s difficult to open bank account is simply because of strict risk management policies, this is only part of the story. Even the Hong Kong Monetary Authority does not deny that lack of profitability is the real reason for rejection.

Hong Kong banks have not yet adapted to the 21st century where almost anything can be done online. There are many entrepreneurs and digital nomads that have incorporated an offshore company in Hong Kong, but they may not be based in Hong Kong as it’s not necessary when running an e-commerce business that can operate from anywhere in the world.

To open a bank account, a bank performs a so-called ‘Know-your-customer’ process (KYC). During this process, the bank needs to verify different elements; for example, it needs to understand what the business does and conduct checks on the shareholders and directors. Neat Business follows stringent due diligence processes, so for companies with more complicated structures it will take longer to perform all necessary checks.

Especially for new businesses and start-ups without financial history, a bank will want to know more about the nature of your business to make sure you are not engaged in money laundering or criminal activities. This is understandable, but regrettably many traditional banks do not understand new business models very well. Because of an anti-risk mentality, paired with the uncertainty about whether the company will be profitable for the bank, they would rather automatically reject an application than spend time to investigate and better understand it.

How accommodating are banks in your jurisdiction for opening a business and personal bank account?

Not very accommodating. Ironically, Hong Kong is a cosmopolitan and international city in many ways, until it comes to opening a corporate bank account. If you’re a permanent resident, it may be easier for you to open a personal and a corporate bank account than if you are not living here or have a certain nationality.

• How varied are banks’ vetting procedures? It really depends. From our experiences, the famous banks are more difficult to open personal as wells as corporate bank account in Hong Kong.

• What documents need to be provided?

1. Original minutes for bank account opening approval

2. Original ID document of directors and shareholders

3. Original Business Registration Certificate and Certificate of Incorporation

4. Original Memorandum and Articles of Association

5. Company chop/common seal

6. Other statutory records

7. Address proof of directors

8. Business proof, such as purchase orders, sales/purchase invoices, contracts, bills of landing, etc.

• How long does it typically take and what is the process? 4 to 8 weeks

Should you join an internationally reputable or established bank rather than a local bank?

This is based on your preference. I can’t see much difference between the two for a limited liability company.

• Is it easier to set up a local bank account and what does that mean for your business? Sometimes but not always. For our client’s ordinary course of business, I can’t see any difference.

• What would be clients’ perceptions if you set up a business account with a local bank? Not much, from my perspective.

• Are international banks’ vetting procedures more difficult than local banks? That’s exactly the case.