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Hong Kong regulators and address verification

October 13, 2017

So one of my pet peeves is how to prevent “institutional stupidity”.  That’s when you have a lot of smart people that are trapped in a system that ends up making decisions that make no sense.  So it’s nice when you have “moments of sanity.”

The Hong Kong regulators have removed the address verification requirement for banks and securities companies.  Now in order to set up an account, you only need proof of identity and you don’t need to provide proof of residency.

Finally, someone has common sense because:

  • first of all, it should be obvious but if you are an evil person that wants to blow up the world and sell drugs to children, it’s not that hard to forge a cell phone bill receipt.  It’s the people that want to follow the rules that this causes problems with.
  • second of all, the address verification requirement hits rich people really hard, because rich people are quite mobile.  They are flying around on their private jet from hotel to hotel, mansion to mansion.  They have twenty different apartments in ten different cities.  What is their address?  Also, there is a big security issue.  If I’m a billionaire who is quite reasonably afraid of getting kidnapped or harassed, I’d rather not let people know exactly where I am physically.

But this is significant because:

The problem with having the Basel Committee act as a de-facto legislature is 1) who the hell elected them to make the rules and 2) what’s the process for accountability if the standards make no sense.

The action of the Hong Kong regulators is quite useful because it puts the international bodies on notice that HK will not implement a “guideline” or “recommendation” if it makes no sense.  The problem with all of this bureaucracy is that you start with the FATF making a recommendation, then BIS adds more stuff, then the HK government adds more stuff, then bank compliance adds more stuff so by the time I’m sitting trying to open a bank account, nothing makes sense, and there is no one I can complain to.

The other thing is that this cleverly gets rid of a lot of securities regulations that make no sense.  Most securities registration procedures are territorial.  SEC registration doesn’t apply for example, if you have a security that isn’t marketed to US residents.  By removing the residency verification, you’ll set up a system that you are unlikely to which one of your residents are US residents which makes it harder to enforce registration requirements, which don’t make sense anyhow.

The clever thing about this is that governments really don’t care that much about enforcing securities laws on foreigners.  They *do* care a lot about enforcing tax laws, and address verification doesn’t reduce the amount of taxes that they can get.



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