This year’s budget speech by the financial secretary puts the industry and family offices at the center of its pandemic recovery plan while raising the prospect of streamlined suitability processes.

The financial hubs of Hong Kong and Singapore like to take playful, and sometimes not-so-playful, jabs at each other.

Hong Kong fancies itself, rightly or wrongly, as a stock and bond trading hub swaddled by reams of the region’s best prospectus-coddling investment bankers, or i-bankers, as they are called in local parlance.

Singapore, somewhat more surreptitiously, instead decided a couple of decades back to place more emphasis on private banking and wealth management and then, on family offices.

Pandemic Melee

Now, with the end of most Covid-19 measures in both cities, that all seems to be changing. Each seems to want a piece of the other’s business as well as some stake in the future digital asset industry, or whatever remains of it after the crypto winter ends.

At least that seems to be one of a key take from this year’s budget speech by Hong Kong’s financial secretary, Paul Chan, on Wednesday.

He not only lauded the role of the asset and wealth management industry, but also said it was «an important component contributing to our status as an international financial center».

Stiff Competition

According to him, it has about $4.5 trillion in assets under management and employs 54,000 people and the government will now «actively take forward» measures strengthening its status as a hub for those businesses. But what does it actually intend to do?

First off, compete with Singapore for family offices. Although much of the detail was announced last December, he reconfirmed a tax exemption for certain transactions managed by single-family offices based here, with the concession to be applied retroactively to April last year.

Above that, he intends to spend $12 million over the next three years to attract new family offices, with a steering group being created to oversee a summit at the end of March while providing specific training for wealth management staff.

Streamlined Suitability

He also mentioned that the government would work with regulators to refine measures and tax for both the asset and wealth management sectors and review existing concessions related to funds and carried interest.

But here he mentioned a very important point, and one that has unfairly burdened wealth managers and private banks to no end since at least the mid-2010s – the local regulatory approach to suitability. Complying with it is difficult, onerous, and extremely expensive, particularly for foreign bank branches based here, and something that he well hinted at in his speech.

«On wealth management, regulators will on a risk-based principle and subject to appropriate protection for investors, streamline the suitability assessment and disclosure process for sophisticated or ultra-high net worth individual clients», Chan indicated.

Unintended Consequences

For many, that will hopefully bring about some of the more ridiculous unintended consequences of the current suitability regime, at least when it got off the ground.

Until a couple of years ago, that included the undifferentiated blanketing of client email accounts with never-ending term sheets, senseless risk profile questionnaires, arduous reviews of solicited and unsolicited trades, and the constant call-backs for identification and re-identification. 

It is not really the kind of thing you want to be doing with the ultra-wealthy. And should those measures be eased in relatively short order, Singapore may find that it has some competition for business for the first time in a while.