Bank Account Risk Management: Tips for Hong Kong Banking Operations

Bank account risk management in Hong Kong has become a pressing concern as financial institutions tighten compliance checks and increase closures of corporate accounts, especially those linked to cross-border activities. To navigate this evolving landscape, companies must implement robust strategies for managing banking-associated risks, ensuring clear transaction records, timely responses to due diligence requests, and ongoing monitoring of regulatory changes to prevent unexpected account termination.

In recent years, banks in Hong Kong and other offshore financial centers have significantly tightened their standards for managing overseas corporate accounts. This shift is driven by heightened global compliance requirements, evolving anti-money laundering (AML) standards, and increased regulatory scrutiny.

As a result, there has been a notable increase in instances where banks have forcibly closed corporate accounts, often with little warning. Such disruptions can severely impact cash flow, payroll, supplier payments, and overall operational continuity, especially for companies reliant on cross-border transactions.

This article outlines the primary reasons for forced bank account closures and offers practical guidance on how to maintain and manage your accounts to prevent such events. We also discuss recommended risk mitigation strategies, including maintaining multiple accounts and staying aligned with shifting regulatory expectations, to help enterprises ensure uninterrupted financial operations in an increasingly compliance-driven landscape.

For instance, the Hong Kong Monetary Authority (HKMA) has intensified its enforcement actions. In July 2024, it fined DBS Bank (Hong Kong) HK$10 million (US$1.29 million) for failing to conduct enhanced due diligence on high-risk customers and inadequate monitoring of business relationships. Additionally, the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2024 (hereinafter, the “AML/CTF Ordinance”) introduced stricter controls on digital payment platforms and virtual assets.

These developments highlight the importance of proactive account management and compliance. By understanding the reasons behind account closures and implementing preventive measures, businesses can better navigate the complex banking landscape in Hong Kong and other offshore financial centers.

Why are corporate bank accounts being closed?

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Banks in Hong Kong and other international financial centers are adopting more risk-averse approaches to corporate account management, particularly when dealing with cross-border transactions involving mainland China. This shift reflects a broader trend of intensified due diligence, regulatory alignment with global AML/CFT standards, and pressure to minimize exposure to high-risk clients or jurisdictions.

While these measures aim to strengthen financial system integrity, they have also led to an increase in sudden account terminations, often without prior warning. The impact can be immediate and severe, especially for companies dependent on international banking infrastructure to support payroll, supplier settlements, or cross-border invoicing.

Understanding the most common triggers for forced bank account closures is therefore essential. Below, we outline key factors that typically lead banks to classify corporate clients as high risk and proceed with account termination:

• Inactive or dormant accounts: Accounts showing minimal or no activity over a prolonged period are often classified as dormant. Banks may consider them redundant or risk-prone and opt for closure to reduce compliance burdens.
• Non-Compliance with AML/CFT requirements: Banks are under growing pressure from regulators to scrutinize transaction patterns. Unexplained fund movements, dealings with high-risk jurisdictions, or receipt of large payments from opaque sources can trigger red flags and lead to account suspension.
• Failure to provide timely documentation: Periodic due diligence requests are standard practice. Failure to submit updated company registration details, shareholder information, or supporting documents for transactions may result in account closure, especially if such delays create a compliance gap.
• Suspicion of involvement in financial crime: If an account is linked—directly or indirectly—to illegal or fraudulent activity, banks are required to act swiftly, often terminating the relationship without advance notice.
• Opaque or frequently changing company structures: Banks may view companies with overly complex structures, undisclosed beneficial owners, or frequent changes in shareholding as high-risk. Lack of transparency increases the likelihood of enhanced scrutiny or eventual termination.
• Unclear or inconsistent transaction purposes: Irregular or unexplained fund flows, particularly involving large sums, can raise serious compliance concerns. Banks expect consistency and documentation that clearly aligns with the declared business scope.
• Third-party account management: Accounts operated by intermediaries or individuals who are not formally authorized representatives of the company may be flagged for lacking internal controls or transparency.
• High exposure to sanctioned or high-risk jurisdictions: Repeated transactions with countries classified as high-risk under international AML standards, especially where documentation is lacking, can lead to account reviews or closure.
• Tax and legal non-compliance: Unresolved tax liabilities, late submissions, or regulatory reporting failures—whether in Hong Kong, mainland China, or other jurisdictions—can reflect poorly on a company’s risk profile.
• Violation of financial or regulatory requirements: Any breach of a jurisdiction’s financial laws or operational requirements, such as foreign exchange rules or capital controls, can serve as grounds for immediate account closure.
• Shifts in bank risk appetite or policy: Banks continuously recalibrate their risk frameworks. Accounts that no longer align with a bank’s updated internal policies may be phased out, even in the absence of any wrongdoing by the client.
• Frequent corporate–personal account transfers: Excessive or unjustified transfers between corporate and personal accounts may signal potential misuse or money laundering, prompting internal review and possible closure.

How to prevent forced bank account closures in Hong Kong

The closure of a corporate bank account—especially one held offshore in Hong Kong, Singapore, or Dubai—can significantly disrupt cross-border operations. Given the increasing regulatory burden on banks, especially under tightened AML/CFT obligations, businesses must actively manage their accounts to remain in good standing.

Below are consolidated strategies that go beyond basic compliance to help enterprises proactively safeguard their banking access.

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To reduce the risk of account suspension or termination, companies, particularly those operating across borders or involving China, should adopt a proactive and structured approach to bank relationship management. The following measures go beyond baseline compliance and align with evolving expectations in offshore financial centers such as Hong Kong.

Maintain consistent and purposeful account activity

Accounts with prolonged inactivity are often categorized as dormant and subject to closure. Companies in early-stage development or between revenue cycles are advised to maintain a modest but regular flow of operational transactions, such as local vendor payments or strategic deposits, to demonstrate commercial intent and maintain an active account status.

Notably, regular, low-value disbursements (e.g., for IT services, consultancy retainers, or regulatory filings) can help maintain a transaction history aligned with the company’s stated operations.

Prepare for ongoing due diligence reviews

Banks typically conduct periodic reviews—annually or semi-annually—to update Know-Your-Customer (KYC) and risk profiles. Companies that fail to respond in a timely or comprehensive manner risk being classified as non-compliant. Maintaining a centralized and regularly updated compliance file is essential. This should include:

• Current business registration certificates and licenses;
• Documentation of ongoing commercial activity (e.g., contracts, invoices, digital footprint);
• Financial records (audited or unaudited, as applicable); and
• A list of directors and ultimate beneficial owners (UBOs).

Moreover, assigning an internal compliance liaison can ensure that all bank correspondence is tracked and responded to promptly.

Align transaction activity with stated business operations

Banks assess whether a company’s transaction behavior reflects its declared business model. Irregular flows—such as large or unexplained remittances, or incoming funds from unrelated jurisdictions—are subject to enhanced scrutiny. Firms should be prepared to substantiate transactions with:

• Clear descriptions of purpose;
• Supporting documentation (e.g., contracts, shipping documents, payment instructions); and
• Risk assessments for counterparties or jurisdictions involved.

Additionally, adding structured memos or references to payment instructions may help reduce ambiguity during automated monitoring processes.

Minimize exposure to high-risk jurisdictions and personal transfers

Frequent transfers involving countries subject to sanctions, offshore finance centers, or jurisdictions flagged by the Financial Action Task Force (FATF) may elevate a company’s risk rating. Likewise, regular movements between corporate and personal accounts may raise questions about fund segregation or tax compliance.

Maintain clarity and stability in corporate structure

Rapid changes in shareholding, management, or declared business scope can complicate risk assessment and introduce uncertainty. Banks generally favor clients with transparent and predictable ownership structures. Proactively disclosing such changes, along with rationale and updated documentation, can prevent risk reclassification.

Suggested documentation should include a current organizational chart, alongside the most recent Articles of Association and shareholder registry, which should be readily available for submission during compliance reviews.

Monitor regulatory developments in key jurisdictions

Banks expect clients to remain informed and responsive to evolving regulatory environments. In Hong Kong, the AML/CTF Ordinance continues to expand in scope, with enforcement actions now extending into virtual assets and fintech platforms.

Firms engaging in cross-border finance, trade, or digital services should monitor local and international guidance to remain compliant. 

Additional risk mitigation strategies

The impact of forced account closures can be profound, particularly for businesses that rely on a single banking relationship. To reduce operational disruption, consider implementing the following risk mitigation measures:

• Maintain a dual banking structure: It is prudent to maintain at least two corporate bank accounts—one primary and one secondary. This ensures that, in the event of an account closure or suspension, companies can maintain business continuity and avoid service disruptions. A secondary account acts as a contingency, allowing operations to proceed without delay while alternative banking solutions are explored.
• Leverage digital banking solutions: With the rise of digital banking and fintech platforms, companies can now access more flexible account opening services with relatively streamlined compliance requirements. Many of these digital-first banks offer remote account setup and faster processing times, which can be especially useful for businesses looking to diversify their banking relationships or those in need of backup accounts. Digital banks can also provide access to global payment solutions that align with modern business needs.

Managing corporate Hong Kong bank accounts

Overseas corporate bank accounts are critical assets for international business operations, but come with increasing regulatory oversight. Proactive management, including maintaining a diversified account structure, staying ahead of regulatory changes, and ensuring operational transparency, is essential for minimizing the risk of disruptions.

For companies seeking to review or optimize their banking arrangements, expert guidance can provide significant value. Should you require assistance in assessing or adjusting your current banking practices, do not hesitate to contact our team.

Dezan Shira & Associates’ tax team in Hong Kong can assist with the preparation of the tax return as well as conducting a tax review on your current reporting strategy. To schedule a meeting with our team, please contact China@dezshira.com.

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