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Hong Kong’s global banks brace for ‘cold war’ to escalate

Three quarters of the world’s top banks do business in Hong Kong. But they’ve been getting squeezed by changes forcing them to fall in line with Beijing’s agenda — and there may be signs of even tougher times to come.

Financial institutions have been grappling with rising geopolitical risks, which have put pressure on how they operate in Hong Kong. The latest blow: orders to block access to retirement funds for Hong Kongers looking to leave the city on special British passports issued largely during colonial rule. This month, politicians also floated a new anti-sanctions bill that would bar foreign entities and individuals in Hong Kong from complying with sanctions against China, which now controls the former British colony. Experts say this could create headaches for financial institutions in the city, due to the global nature of their work.

The bill was expected to be passed in Beijing last week, but the vote was postponed, according to Tam Yiu-chung, the Hong Kong delegate of the National People’s Congress Standing Committee. He said the the delay would give authorities more time to deliberate details, suggesting an eventual return. Its likely implementation means that “most people expect that financial institutions in Hong Kong are going to be on the front lines,” according to Nick Turner, a lawyer at Steptoe & Johnson who advises banks on economic sanctions.

“They’re integrated into the international economy. They handle a lot of transactions between the United States and Hong Kong and the rest of the world. And so they have some exposure to US law,” he said. “That’s where the real conflict could exist.”

Big global financial institutions, such as HSBC (HSBC), AIA (AAGIY) and Manulife (MFC), have already been put in a tough spot over tighter curbs on access to pensions. In January, the Hong Kong government said it would no longer recognize British National (Overseas) passports as valid proof of identity. That led to another announcement this spring, which prevented people from using BN(O) passports for the early withdrawal of mandatory provident funds (MPFs). Millions of residents store their retirement savings in such accounts, which can typically be accessed at the age of 65.