Hong Kong regulators see limited sanctions impact as banks weigh action

By Alun John and Scott Murdoch

HONG KONG (Reuters) - Hong Kong financial regulators sought to calm market fears on Saturday as global financial firms in Hong Kong weighed cutting ties with local clients after the United States imposed sanctions on senior Hong Kong and Chinese officials.

Washington imposed sanctions on Hong Kong Chief Executive Carrie Lam and 10 other top officials for what it calls their role in curtailing political freedoms in the territory, prompting a sharp rebuke from Beijing.

The escalation in U.S-China tensions comes after Beijing imposed sweeping national security legislation on the financial hub in late June. Western governments condemned the law, while supporters said it would restore stability after a year of often-violent pro-democracy, anti-China protests.

Hong Kong's Securities and Futures Commission "is not aware of any aspect of the (law) or the U.S. sanctions ... that would affect the way in which firms carry on their normal operations in Hong Kong", said a spokesman for the Hong Kong markets regulator.

The Hong Kong Monetary Authority, the banking regulator, said in a circular that "unilateral sanctions" had no legal status in Hong Kong, and unlike United Nations sanctions, banks in Hong Kong were under no obligation to comply with them.

The circular did not elaborate on the impact on the financial sector.

After Friday's sanctions, which the Hong Kong government called "shameless and despicable", U.S. and non U.S.-banks are assessing what action to take amid fears of getting caught in the crosshairs of Sino-U.S. tensions.

"Most foreign banks in Hong Kong have been working internally for the last few weeks to prepare a list of people who will the main target of the U.S. sanctions," said a senior banker with a leading European bank in Hong Kong.

Banks in Hong Kong will now "forensically examine the networks of the people named on the sanctions lists and see if there are any banking relationships which would put the banks at risk," another banking source said.

The sources declined to be named due to the sensitivity of the matter.

The sanctions prevent U.S. companies and people globally from any dealings with the 11 sanctioned people.

They do not directly apply to non-U.S. entities, "but those companies would breach the rules if they dealt with a sanctioned person while also interacting with a U.S. person or the U.S. financial system, for example a bank processing a wire transaction via a U.S. correspondent bank," said Nick Turner, a lawyer specializing in sanctions and anti-money laundering at the law firm of Steptoe and Johnson in Hong Kong.

(Reporting by Alun John, Scott Murdoch and Sumeet Chatterjee; Editing by Himani Sarkar and William Mallard)