Hong Kong v Singapore regulatory battle for private wealth

With growth comes pain. Scorpio Partnership has written extensively about Asian wealth growth. The pain element has not received much coverage, but in regulation it clearly raises its head.

The Asia dynamic to this issue is the good cop/bad cop role of the Hong Kong and Singaporean regulators and, therefore, a battle between two competing centres. Today it is Hong Kong as the role of bad cop and Singapore as good cop, a full reverse on the situation five years ago.

This battle is key to the dynamic of the Asia private wealth management sector, and it can have only one winner.

Bad cop
In Hong Kong, where the regulators were previously seen as the friend of industry, there is now little positive engagement between the private wealth management sector and the four regulatory bodies that oversee it: the Hong Kong Monetary Authority, the Securities and Futures Commission, the Office of the Commissioner of Insurance; and the Mandatory Provident Fund Schemes Authority.

Hong Kong wealth management executives see an uncooperative at best, and downright hostile at worst, regulatory environment. Worse still, the sector has no voice and no consistent access to the regulators, certainly not at the right level, and little understanding of the pressures directing the actions of regulators. There often exists a “them and us” mentality.

Further, a strong perception exists that the regulators do not distinguish private wealth management from retail financial services and thus the sector is “lumped in” with the rest. This creates unnecessary administrative burdens and a tick-box mentality for standardised lines of business with no subtlety around the differences of private wealth management.

The result of this friction is a direct cost to business. While growth is so often the agenda for the market, the regulatory difficulties represent a serious impediment. In Hong Kong, it is argued by private-banking executives, the industry is suffering from the regulatory authorities not viewing the sector as a strategic opportunity to be pursued.

Good cop
If Hong Kong presents challenges and frustrations, Singapore offers an opportunity and explicit support for the sector. Indeed, in many ways it represents the new benchmark for private wealth management services for Hong Kong and others to replicate.

The regulator, the Monetary Authority of Singapore (MAS), yes, one body, not four, is seen as a partner to the private wealth management sector: fully supportive, indeed instrumental, of its growth and committed to invest where necessary.

According to industry figures, the MAS’s reputation is built on four key differences from Hong Kong.

Firstly, Singapore strategically defines the private wealth management sector as a part of its growth plan, and so it is fully supportive of its development.

Secondly, it clearly distinguishes private wealth management from other financial services sectors, and thereby supports those differences.

Thirdly, the MAS is easier for industry participants to navigate, understand and influence, because it is a single regulatory body.

And fourthly, the MAS engages with the industry to deliver Singapore’s message of openness.

One manifestation of this good cop approach is the initiative of the Private Banking Advisory Group (PBAG). Aimed at promoting high standards for the sector in Singapore, PBAG unveiled a code of conduct which includes all private bankers having to pass a new competency assessment called the Client Advisor Competency Standards before providing any financial advice to clients. This will be administered by the Institute of Banking and Finance.

The code also lays down 'market conduct principles' relating to the business conduct of institutions and individuals across areas such as ethics and professionalism, client relationship management and risk management.

This latest move by PBAG, with the full backing of MAS, is another step in Singapore moving ahead of Hong Kong in the battle for Asia-Pacific private wealth management.

This is not to say all is wonderful in Singapore, but it is clear that if there were a choice to be made between the two jurisdictions, Singapore would come out on top.

For the private-banking industry, however, Hong Kong, with its access to North Asian investors, is too important simply to let go. The industry in Hong Kong must come together to act as one body and one voice. This includes defining what it is, what it needs and what it wants.

It also means collectively understanding the regulators in Hong Kong and their pressures, plus establishing that the sector understands it must pursue the right business and do it in the right fashion. Ultimately the industry must convince Hong Kong’s bad cops that when there’s a good cop patrolling the same neighbourhood, that’s where business is going to go.

Stephen Wall is a director at Scorpio Partnership in London. His views are based on industry dialogues.