Leanne Ho comments on how the CRS are impacting the financial services industry in Hong Kong
Opening a bank account should be an easy process. For example, India’s central bank, the Reserve Bank of India, has amended its know your customer (KYC) rules to allow banks to open new bank accounts using one time pins (OTPs) on mobile phones. The net effect is that opening bank accounts can become a relatively painless process for citizens as long as banks comply with the government’s KYC rules.
The effort is part of the government’s financial inclusion strategy and while it may seem like the simplification of account process may open up a can of worms when it comes to money laundering, the central banker has put caps on bank accounts that make use of eKYC and appropriate policies in place to track potential black money movement in the country’s banking system.
Post the global financial crisis of 2008, there is a concerted effort by governments and regulators to reign in money laundering and funding of illicit activities including terrorist activities and tax evasion. One such effort is the Common Reporting Standard (CRS) which sets forth reporting and due diligence requirements. The CRS is part of the OECD (Organization of Economic Cooperation and Development) new global standard for automatic exchange of financial account information between governments. The other component is the Model Competent Authority Agreement (CAA) which contains details of how the proposed exchange of information can be effectively executed.
One of the side effects of this effort is an increased difficulty in opening up bank accounts whether it is personal or as a business entity.
Under the CRS, the information to be reported include details of the account holder and information relating to the investment income, account balances and sales proceeds from financial assets associated with the account.
Hong Kong joins over 100 countries that have declared commitment to implementing the standard. According to PwC, as a second wave participating jurisdiction, Hong Kong financial institutions are to collect information beginning 2017 and report this to the Hong Kong Inland Revenue Department in 2018 to facilitate the commencement of information exchange by the end of the same year.
Fintech Innovation reached out to business management consultancy Hawksford to get clarity on how these new standards are impacting financial services in Hong Kong.
What is the state of banking transparency in Hong Kong? How does this compare to markets like Singapore, the US or the UK?
Hawksford Managing Director for Hong Kong, Leanne Ho said that as a leading financial hub, Hong Kong has always been known to have a robust and transparent banking system. In recent years, global financial markets, encompassing Hong Kong, are blurring traditional banking boundaries.
Financial institutions, in particular banks, are expanding beyond their geographic and traditional product boundaries to seek and exploit new market opportunities, in order to meet intensified competition from non-bank financial institutions and customer demand for new products and services. In doing so, it is extremely essential and important for banks in Hong Kong to maintain a clear and balanced transparency system, taking into account that such steps will not be too onerous and costly to maintain in a competitive business environment.
From a wealth management perspective, what are the challenges faced by (1) industry players; (2) regulator; and (3) clients when it comes to compliance and the need for transparency and privacy?
Getting clients to meet the compliance requirements is challenging as some, if not most, view such an exercise as an intrusion to their privacy. Generally, we note that Asians are not comfortable in revealing their sources of wealth. Nonetheless, through a well-informed and educated process, clients have been more receptive in doing so.
Originally published by Fintech Innocation. Read the original here.
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