Big banks in Britain are preparing for any potential escalation of Western sanctions against China and have shared their “scenario planning” with the British and American governments, claimed a report by Reuters based on information from a senior financial official.

According to Neil Whiley, director of sanctions at lobbying organisation UK Finance, the initiative entails discussing the potential effects of any penalties placed on China as well as sharing lessons learnt from other sanctions frameworks, notably those on Russia.

Banking institutions are creating backup plans in case geopolitical tensions between the West and China worsen, according to seven sources in the financial sector, after many businesses were caught off guard by the pace and scope of the sanctions on Russia. They did not anticipate penalties to alter soon.

The research by UK Finance, which represents over 300 companies including HSBC, Barclays, and JPMorgan, looks at the transparency of asset ownership and control as well as how simple it is to track down Chinese goods, according to Whiley.

It also focuses on the breadth of Western and Chinese business relationships across industries, particularly supply chains in risky fields like technology, and strives to draw attention to policies that can backfire if implemented in China.

The work has been done in the midst of Western and Chinese tensions over Taiwan’s status, which Beijing claims, expanding export restrictions, allegations of Chinese espionage, and a security crackdown by Beijing on businesses.

According to Whiley, UK Finance called biweekly meetings of major British and foreign banks over a period of months before drafting a paper with tens of thousands of words. The paper was not accessible to Reuters.

The draught was finished in August and recently distributed to connections in Western administration, according to him.

Requests for response from the United States Treasury Department, which oversees the Office of Financial Sanctions Implementation, the British Foreign Office, and Barclays went unanswered. JPMorgan chose not to respond.

Because they were not licenced to speak in public, three top bankers in London who declined to be identified claimed their boards had addressed the likelihood of future, more stringent Western penalties against China.

A lawyer who counsels banks stated that scenarios ranging from significant cyberattacks to a military intervention in Taiwan might potentially lead to additional restrictions on China.

“The biggest financial institutions are … determining whether the exposure they have (to China) is tolerable given a pessimistic direction of travel for geopolitics,” said one security expert, who declined to be named.

The unprecedented sanctions imposed on Russia after its full-scale invasion of Ukraine, which made it difficult for some businesses to transfer assets out of the country or quit positions, have contributed to the preparations.

One of the bankers claimed that the sanctions on Russia had “removed naivety” among firms and forced them to consider the risks associated with China more carefully.

Prior to a meeting between Chinese President Xi Jinping and U.S. President Joe Biden next month, communication between government officials from the two countries has improved in recent months.

The second-largest economy in the world, China, continues to be crucial to Western supply chains. According to Chinese customs data, the trade gap between the European Union and China increased from $208.4 billion to $276.6 billion in 2022.

China and British finance have a tight relationship. Due to the fact that HSBC and Standard Chartered generate the majority of their revenues in Asia, they are compelled to operate on both sides of geopolitical faultlines.

There were no comments available on the issue from HSBC and Standard Chartered.

Whiley claimed that the UK Finance project did not represent expectations or requests for more sanctions and was instead intended to be a component of industry-wide “horizon-scanning” to evaluate potential dangers across various jurisdictions.

Financial institutions are aware of the hazards, though.

Another banker, who works for a banking with operations in Asia, claimed that the bank’s board was preparing for increased tensions between China and Taiwan as well as possible financial market repercussions, such as currency and equity movements.

As worries about a potential military response by China rise, certain insurers, including Lloyd’s of London underwriters, have increased prices and reduced coverage for risks involving Taiwan. This was exclusively revealed by Reuters in August.

In light of this, four lawyers in London reported a spike in calls from financial clients looking for advice on China, ranging from risk assessment and compliance with penalties to how to handle any investigations or enforcement.

One attorney, who wished to remain anonymous, claimed that there was such a high demand for help that his company last month organised its first client-only lecture on Russia, China, and how geopolitics were influencing sanctions and compliance.

“Companies will … want to make sure that for long-term engagements with Chinese entities, they have robust sanctions provisions in their contracts and agreements,” said Leigh Hansson, a London and Washington-based lawyer at Reed Smith.

Lawyers claimed that the aggressive U.S.-steered approach to the semi-conductor and technology industries as well as talks of foreign policy are contributing to banks’ fears.

In order to prevent Beijing from having access to cutting-edge technology that can accelerate military breakthroughs or human rights violations, the Biden administration has limited chip shipments to China. In response, China levelled charges of economic coercion.

One attorney stated that he did not anticipate a recurrence of the Russia response and that “commercial reality” would not influence China-related foreign policy decisions.

“(Any sanctions) will be very much targeted at specific companies, specific products and services,” the lawyer said.

(Adapted from Reuters.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Uncategorized