Regulatory changes in Washington that have boosted shares in investment banks will have little affect on private banks, globally or in Asia, according to Michel Longhini who heads global private banking for Switzerland based Union Bancaire Privée.
Nonetheless Longhini said that UBP, which acquired the Asian business of British private bank Coutts last year, is still planning further growth in the region. The bank is aiming to increase its assets under management in Asia to US$15 billion, up from the current level of approximately US$12 billion, but Longhini said this was just a “short term target”.
UBP is expanding at a time when the private banking industry in east Asia is consolidating, with number of other banks withdrawing from the region. These range from large universal banks like Barclays, which sold its wealth management operations to Singapore’s OCBC last year, to specialist private banks such as Edmond de Rothschild which is closing its office in Hong Kong. The challenge of meeting new, or newly enforced, regulations is often described by analysts and bankers as being a factor in this turbulence, due to the additional cost burdens it brings.
“Compliance is a clear global trend with which we have to live. I think the requirements on regulatory matters are increasing everywhere ... and are clearly an additional cost,” said Longhini.
“Though I hear that there is a certain president who might be changing that,” he added.
Earlier this month, US president Donald Trump ordered a major review of the banking rules that were put in place following the global financial crisis. While opposition Democrats argued against the policy, bank stocks rose on the news.
However, Longhini believes the changes Trump might want to make are unlikely to affect the private banking sector significantly.
“There are two big things for private banks – one is the AML [anti-money laundering] responsibilities, and the other part is taxation transparency, with FATCA in the US and CRS from other countries. At this stage I don’t expect to see significant changes in either,” he said, referring to the US Foreign Account Tax Compliance Act and the multi-jurisdictional Common Reporting Standards.
Failures in compliance related to AML breaches or taxation misdemeanours have been expensive for private banks. Coutts was fined 6.5 million Swiss francs (HK$50.3 million) by Swiss regulators earlier this month, and S$2.4 million (HK$18.6 million) by the Monetary Authority of Singapore in December, both for breaches of anti-money laundering requirements in relation to the 1MDB scandal.
UBP’s acquisition of Coutts was an assets only transaction and, as such, UBP did not inherit Coutts’ legal issues or liabilities.
Nonetheless, Michael Blake, head of Asia Pacific for UBP, described 1MDB as “a wake up call for the industry generally”.
“It emphasised the need to ensure high level of client take on and monitoring, and the need to make sure you get the culture right,” Blake said.
One impact of the growing attention paid to compliance is that private banks around the region have been forced to remove a number of higher risk clients from their books.
“With the Coutts acquisition, we brought in the clients after a selection process and due diligence, and there had already been a huge review of the portfolio in Asia prior to the acquisition,” Longhini said.
“High risk clients, and politically exposed people have to be reviewed on a case by case basis when you make an acquisition, and there is always a certain number you don’t take on board, but in the case of Coutts it was a very small number.”
With these clients now checked and integrated into the UBP system, the goal for the bank it to do more with them.
“We will make further hires, and we need to reach our near term target of US$15 million of assets under management, but in the short term there is capacity in the existing client base,” said Longhini.
“Expansion is the plan, but we want to expand through adding to our product offering and advisory capacity in the region, with things like such as private debt, and global high yield products. We are lucky with this acquisition that we have a good book of clients that stayed with us through the integration and the goal is now to unlock this potential.”