Commentary on Political Economy

Sunday 8 November 2020


Hong Kong regulator clears funds and banks to implement US sanctions

Global financial groups with operations in Hong Kong complain they have yet to receive detailed government guidance on how to comply with a tough new national security law imposed on the city by Beijing © REUTERS

Hong Kong’s securities regulator has privately advised financial institutions they can implement US sanctions without automatically violating a tough national security law imposed on the city by Beijing.

The move, which is aimed at reassuring foreign investors in the Asian financial hub, comes as international companies complain that the government has yet to release concrete guidelines on the law’s implementation months after its introduction.

Beijing imposed the national security law on Hong Kong in June following more than a year of anti-government protests. In response, the US announced sanctions requiring financial groups to cut ties with Hong Kong and Chinese officials involved in the legislation, including Carrie Lam, the city’s leader.

Yet lawyers have warned that institutions that did so ran the risk of triggering a clause in the security law that threatens harsh penalties for offenders who “collude” with a foreign government to impose sanctions on Hong Kong.

In response to the confusion, officials from Securities and Futures Commission, Hong Kong’s markets regulator, have privately assured global banks that it would be unlikely they would be breaking the law were they to implement the US sanctions, two people with direct knowledge of the situation said.

The agency, which based the assurance on an interpretation by Hong Kong University legal professors, suggested the law was targeting those who proactively colluded with a foreign power to sanction the Hong Kong government, not those passively complying with US laws. The SFC officials cautioned, however, that the national security law was not under the agency’s jurisdiction.

“[Banks] are not too worried any longer about a conflict with the [security law],” one of the people said.

Critics of the security legislation, which punishes crimes such as subversion with up to life imprisonment, worry it will erode Hong Kong’s rule of law and the civil freedoms guaranteed to the city on its handover from the UK to China in 1997.

But one international bank executive told the Financial Times that they were less concerned about the law after the SFC’s reassurances.

Noel Quinn, HSBC chief executive, when asked last week about the bank’s ability to comply with both US sanctions and the national security law, said: “We’re confident of our ability to navigate that situation.”

Most companies would say it’s highly unlikely we would get in trouble [with the law] . . . I think it’s too early to draw any conclusions

Hong Kong businessman George Cautherley

In another concession from the government, the SFC has dropped a plan to force cloud technology providers, such as Amazon, Microsoft and Google, to agree to a data-sharing scheme that would have given the regulator access to clients’ information, two people with direct knowledge of the negotiations said.

The cloud providers’ customers include large financial and fund management groups.

The technology companies’ opposition to the plan had hardened after the passage of the security law, the Financial Times has previously reported.

“People have come to terms [with the fact] that the law is here to stay, people aren’t hitting the panic button, no one is running,” said one person with knowledge of the negotiations.

But financial institutions remain uneasy about a lack of detailed official guidance on the law for their legal and compliance departments.

International chambers of commerce in the city put a list of questions about the law to the Hong Kong government through a forum called the International Business Committee, chaired by Hong Kong’s most senior bureaucrat, Matthew Cheung, the chief secretary.

In its reply, seen by the FT, the government provided short answers and refused to assume legal responsibility for its advice.

“We received their answers. I read it again and again and I nearly fell asleep, [there were] so many vague expressions,” one businessman involved in the committee said.

Multiple senior legal professionals and businesspeople told the FT that they believed the Hong Kong government and regulators were mostly unable to provide solid guidance because they either did not know or wanted to avoid straying into the central government’s jurisdiction.

“I don’t think the Hong Kong government knows, probably because consent from Beijing is missing,” said another businessperson of the International Business Committee meetings.

With Hong Kong’s stock market thriving and China’s economy recovering from the pandemic, surveys of foreign businesses show few are prepared to abandon the city entirely, although many are considering shifting resources to other centres such as Singapore.

“Most companies would say it’s highly unlikely we would get in trouble [with the law] . . . I think it’s too early to draw any conclusions,” George Cautherley, a Hong Kong businessman, said.

The SFC declined to comment. The Hong Kong government said it had “not heard any negative feedback” from members of the IBC about its response and its “door remains open” to international chambers.

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