The US Hong Kong Autonomy Act was signed into law on Tuesday 14 July 2020.  It enacts new provisions that affect trade and finance globally, and not just that which is restricted to Hong Kong.

The Act has come in response to current events in Hong Kong and the erosion of the provisions made under the Joint Declaration signed between the UK and the People's Republic of China in December 1984.

For international finance, the reach of the Act is truly global due to the prevalence of the US dollar in international trade. There are three sections of the act which will stand out for financial services:

Section 5:

• This is concerned with the ?identification of foreign persons involved in the erosion of the obligations of China under the joint declaration??.and foreign financial institutions that conduct significant transactions with those persons?.
• Under section 5(a) ?foreign persons? will be identified and reported to the appropriate committees within the first 90 days of the enactment of the act.
• Under section 5(b), Thirty to sixty days later a second report will be filed that identifies foreign financial institutions knowingly conducting significant transactions with those identified in the report filed under s 5(a).

Section 6:

• This sets out the sanctions against those listed in the reporting under s 5(a) above. These sanctions specifically highlight property dealings (assets) and visa restrictions for those persons, including direction to Homeland Security to exclude persons from the United States.

Section 7:

• This sets out that within a year of being included in the report filed under s 5(b) above, financial institutions that conduct significant transactions with those listed under s 5(a) will have no fewer than five of the ten sanctions listed under section 7 imposed on them.

This is a significant set of prohibitions. It includes the prohibition of loans or credits from US financial institutions s 7(b)(1) and the prohibition of being a primary dealer in US government debt instruments s 7(b)(2).

The sanctions against foreign exchange under s 7(b)(4) effectively removes access to the US dollar market. This would have a knock-on impact for global trade transactions undertaken by the institution on behalf of its customers.

With the first report due before mid-October and the foreign financial institutions report due before the end of the year, international financial institutions will need to undertake several reviews.

A full customer review will be required to ensure that none of those listed under s 5(a) are being dealt with.

Banks will also need to undertake a review of their correspondent banking relationships to ensure that they do not have agreements with any of the ?foreign financial institutions? listed under s 5(b).

While the Hong Kong Autonomy Act seeks to punish those accused of being ?involved in the erosion of the obligations of China?, it has arguably targeted international financial institutions as a method for enacting this punishment. In doing so, it is effectively restricting those listed from accessing the international financial system.