Hong Kong’s Bank Secrecy Laws Leave Financial Institutions Exposed to Crime

Financial institutions operating in Hong Kong must be more aware of the territory’s stringent secrecy obligations, industry officials warn, citing a mismatch between the obligations applicable to different regulators and their own expectations.

The Importance of Understanding Secrecy Provisions

Although information may not be covered by statutory secrecy, there may still be an expectation from the Securities and Futures Commission (SFC) or Hong Kong Monetary Authority (HKMA) to treat it as confidential. This highlights the need for legal and compliance teams in financial institutions to understand the breadth and scope of secrecy provisions.

“The key is to remind them of the importance of complying with these provisions,” said Gareth Hughes, a partner at Ashurst in Hong Kong. “Care needs to be taken to ensure that information flows within organisations do not breach the provisions that are in place.”

The Securities and Futures Ordinance (SFO)

The Securities and Futures Ordinance (SFO) contains lengthy and complex secrecy provisions, including section 378, which prevents banks and financial institutions from divulging information about their investigations.

Breach of these secrecy obligations is a criminal offense, punishable by a fine of up to HK$1 million ($127,000) and two years in prison. The Banking Ordinance also contains statutory secrecy provisions, but these do not have the same scope as those in the SFO.

Expectations from Regulators

Despite this, institutions are expected to respect any expectations that the HKMA has regarding confidentiality. The HKMA’s investigation powers may not match those of the SFC, but it still expects information provided by authorized institutions to be held in strict confidence.

“Many institutions in Hong Kong are subject to both banking and securities regulation, so they need to take their duties of secrecy very seriously,” said Julian Russell, a director at Pacific Risk in Hong Kong.

Compliance Requirements

The HKMA’s limited ability to exercise powers under the SFO means that secrecy obligations contained in section 378 may apply when it is conducting an enquiry under the SFO. This highlights the importance of compliance officers raising awareness of secrecy provisions with training and ensuring that there is no unintentional breach of the SFO.

“A lack of training could result in a lack of awareness, which could have ramifications for the institution or individuals,” said Chris Fordham, partner at EY in Hong Kong.

Conclusion

In light of these complexities, financial institutions operating in Hong Kong must ensure they are aware of their secrecy obligations and take steps to comply with them. Failure to do so may expose them to criminal charges and reputational damage.