China’s continued easing of the rules governing renminbi trading and settlement is luring private banks to make Hong Kong a booking centre for client assets.
Following the application by Julius Baer and several other wealth-management firms for a Hong Kong banking licence (as reported by AsianInvestor last month), Zurich-based Clariden Leu is considering doing the same. It is also looking at setting up a representative office in mainland China – something Julius Baer has also committed to.
The main driver behind these moves is that firms with a Hong Kong banking licence can now trade, settle, wire-transfer and execute in RMB and participate in the RMB bond market, says Kenneth Toong, Hong Kong-based Asia chairman of Clariden Leu.
However, gaining approval is a long process, he tells AsianInvestor, taking anything from 18 to 24 months from start to finish. It could take 18 months to obtain the licence from the Hong Kong Monetary Authority and several more to obtain the relevant activities licence from the Securities and Futures Commission.
Julius Baer says it expects to upgrade its Hong Kong presence to a booking centre by the end of the year, and it plans to open a rep office in Shanghai and a trust company in Singapore next year.
Two other Swiss firms – BSI and Pictet – have not yet applied for a banking licence in Hong Kong, but it's not something Pictet will rule out, and a BSI spokeswoman says the firm will investigate "all growth opportunities" in Asia as it expands its presence in the region.
Hong Kong used to be an active private bank booking centre before 1997, but in anticipation of the UK's handover of the territory to China, firms appeared to favour Singapore as an alternative booking centre to their home countries, says Toong.
But now that China is introducing measures to encourage the territory’s development as an offshore RMB centre, private banks are keen to get in on the action.
While it’s possible for firms without banking licences to operate via licensed broker-dealers, they want to be able to do so on their own account, says Toong.
However, he does not believe that Hong Kong will overtake Singapore as a booking centre in terms of existing client asset volume and business activity.
“Singapore is a good base for back-office services, while Hong Kong is a great marketing centre,” says Toong. “It’s more cost-efficient and easier to set up back-office infrastructure and so on in Singapore, and Singapore offers a more conducive environment for foreigners, especially those with young children.”
Hong Kong is a perfect platform for covering China, Taiwan, Japan, South Korea and the Philippines, he adds, whereas Singapore plays the same role for India, Indonesia, Malaysia and Thailand.