As significant levels of money and assets continue to leave the mainland, the ultra-high net worth now seem to be playing regional financial centers of Hong Kong and Singapore off each other.

In the middle of 2023, Singapore was all the rage as the pre-eminent regional family office hub for the ultra-high net worth from the mainland. 

The city-state had a cachet, location, and infrastructure - plus a receptive government. Whatever you wanted, you could ostensibly find it there, something that finews.asia reported on at length.

Not So Fast

Fast forward a year and one very public money laundering scandal later, and much of that seems to have come crashing down like a house of cards, at least temporarily.

«Nikkei Asia», which recently published two articles (registration required) on the matter, said Hong Kong is again up there in the lights as the family office hub of choice given the heightened scrutiny in Singapore due to the scandal.

Tighter Requirements

But the truth of the matter may be somewhat more complicated. As finews.asia commented last year, Singapore significantly ratcheted up its so-called global investor program in early 2023.

It essentially put the city-state out of easy reach for anybody except billionaires, meaning that even centimillionaires now need to do a serious double take before burdening themselves with a bunch of new forever costs and requirements.

Rising Backlog

The «Nikkei Asia» article also indicates a rising backlog of applications in Singapore and even several rejections. Although it is hard to tell, it likely would have happened anyway given the heightened scrutiny in planning before the money laundering scandal broke publicly.

But that case certainly doesn’t help matters. The pace at which the Singaporean government and the police have moved to convict and, just as importantly, confiscate assets, has probably been a rude awakening call for many.

Mainland Issues

The scandal has led to 10 jailings, with a cursory look at the names showing a substantial number of them are more than likely directly from the mainland – or of Chinese descent.

There is a second consequence of all of this. Much of the wealth in China is caught between a rock and a hard place as there are strict restrictions on capital outflows from the mainland. That means a significant proportion of the money wouldn’t be considered clean in many jurisdictions to begin with, even though a recent piece by finews.asia shows that China continues to lead the world when it comes to the outflow of millionaires.

Underground Channels

As a result, the high-net-worth and the ultra-high-net-worth usually have to resort to the same underground channels that outright financial criminals potentially use – unless they emigrate, something a 2023 article by Bloomberg (paywall) hints at.

Just that fact can make the flows and assets very hard to differentiate in practice. In the wider financial crime industry, banks and governments alike in major jurisdictions are well versed in keeping tabs on it, but it tends to slow things everything down to the point that nothing moves, or at least not very quickly.

Shared Service

The events of the past year are probably going to change the way Singapore scrutinizes family office applications and assets in a way that better mirrors industry practice and we may even end up seeing financial crime experts working in the larger family offices, or as individual consultants being used as a shared service between them.

But this also raises questions about the advantages of Hong Kong as a regional family office hub, as an article in finews.asia on Monday indicates that speed and clarity of processes currently favor the city right now. 

Mainland Scrutiny

But the question right now is how sustainable that will be. For one, «Nikkei Asia» indicates there are latent perceptions that assets in Hong Kong may eventually be subject to oversight from the mainland.

Moreover, in the recent saga related to a nephew of the Dubai ruling family, the government was at pains to state that any capital was welcome «as long as lawful and rule-compliant».

Clean Assets

Speed may be a virtue for wealthy clients from many parts of the world looking to base family offices here, but it is a hard argument to make for those from the mainland unless they are officially migrating, even though many, ironically, sit right at the city’s doorstep.

The challenge for all family office hubs, in Hong Kong and elsewhere, will be how to do a better job figuring out what mainland assets are clean or not.

Due Diligence

Besides, family offices cannot open in any jurisdiction and sit there in isolation. They need local banking relationships, which means that any institution they work with will have to ask for watertight identification and documentation of family relationships, sources of wealth, and sources of funds.

Even in the age of fintech, blockchain, and generative AI, that kind of thing still happens at a snail’s pace regardless of where you are.