The inevitable evolution of Asia’s wealth hubs

By:
Rob Hartley
Published on:

As offshore moves onshore, will there be a challenge to the position of Singapore and Hong Kong as the wealth centres of Asia?

As offshore banking becomes ever more challenging, Asia’s traditional bastions of the industry, Hong Kong and Singapore, find themselves in uncharted waters. On one hand, they stand to benefit as regulation dents Switzerland’s stature as the offshore centre of choice for the world’s wealthy. On the other, centres such as Shanghai and Jakarta are emerging as competitors. The new paradigm taking shape in the Asian private banking scene is throwing up some big challenges for the traditional offshore havens. Their ability to meet those challenges will determine whether they retain their dominant position.

The dynamics of private banking in Asia may be changing, but the market can take heart from the fundamentals. According to the Boston Consulting Group (BCG) Global Wealth 2014 report, global private financial wealth jumped 14.6% year on year in 2013, to a total of $152 trillion. The report shows that Asia-Pacific, excluding Japan, was the fastest-growing region worldwide. The private wealth of the region jumped to $37 trillion in 2013, a rise of 30.5% year on year, says the report. The main drivers of the rise were strong nominal GDP growth in China and India, combined with high savings rates in both countries. The jump in private financial wealth ran alongside a global 11% rise in assets under management (AUM) by wealth managers, again with Asia-Pacific seeing some of the strongest growth figures, the report says.

The shake-up in Asian private banking is in no small part due to the effects of a new regulatory environment within the region. Eva Law, founder and chairman of the Association of Private Bankers in the Greater China Region, believes the regulatory approach is tightening and expects to see new regulation on areas such as advisory behaviour.

"In Hong Kong, we are expecting the announcement of the competency benchmark," she says. "The Hong Kong Monetary Authority together with the Private Wealth Management Association, the Hong Kong Institute of Bankers and the Treasury Markets Association, are currently developing the enhanced competency framework. Obviously, it will shape the regulatory approach for the private wealth management business."

In China however, Law believes the most significant regulations are new guidelines from the China Banking Regulatory Commission on the trust business, which address the crucial issue of succession management. Previously, wealthy families in China used offshore solutions for succession management, or possibly just left the issue unmanaged. It is now possible to invest in an onshore trust, according to Law.

New versus old

While Singapore and Hong Kong still dominate as locations for private banking in Asia, signs are emerging that new wealth centres are keen to fight them for new business. Law sees Shanghai as the emerging centre for wealth management in North Asia and Indonesia as a new player in Southeast Asia. According to Law, China’s production line of new millionaires is feeding Shanghai’s growth as a private banking centre, with nearby new riches in countries such as Mongolia also adding to its rise, while Indonesia is benefiting from rising wealth in its domestic market.

"Regulators in China are actively managing the industry and their regulatory standards are also catching up with the developed markets," adds Law. "I see the market operating in an orderly fashion and it is also on a good development track. The key worries are about the shadow banking system and the possible significant downturn of the property market that may cause short-term instability to the market and industry as a whole."

But, despite the signs of growth in both Shanghai and Indonesia, it will be hard to replicate the history and tradition of Hong Kong and Singapore, where the culture of private banking has been built up over decades.

bassam  
Regulation has definitely had a great impact on how business can be conducted

Bassam Salem 
"Citi’s private banking business in Asia began in the early 1980s and therefore Citi has been witness to the evolution of both financial centres for well over 30 years," says Bassam Salem, Asia Pacific CEO of Citi Private Bank. "Both have grown drastically over the years and those changes can be characterized by a higher level of sophistication and better regulation. This has been extremely beneficial for the wealth management business, setting the stage for increased product availability, a greater pool of talent, highly sophisticated infrastructures, quality premises and working environment and internationalization. An obvious change being internationalization, whereby in the past the business catered to only Asians and that has changed to include a clientele that is more international and diverse."

Salem agrees about the importance of regulation in changing the environment for wealth management in Hong Kong and Singapore, but prefers to highlight the benefits to these two established centres rather than the threat to their business.

"Regulation has definitely had a great impact on how business can be conducted," he says. "Regulators have stepped up the quality of supervision tremendously and this is necessary as the wealth management business continues to attract a wide range of players as well as clientele in these two key centres. As a result, Hong Kong and Singapore have become more highly regulated locations but more importantly they have also evolved into being more sound and trusted centres as well."