Banking Industry

Private Banking

Specification of

Competency Standards

(Draft)

Part Content Page

1 Environmental Scan for the Private

Banking Sector in Hong Kong

1-30

2 Digest on Stages II to IV of SCS

Development of

Private Banking Sector

31-36

3 FUNCTIONAL AREAS OF

PRIVATE BANKING SECTOR

in Hong Kong

37-42

The Hong Kong Institute of Bankers

December 2013

By

Environmental Scan for the Private Banking Sector in Hong Kong

1

PURPOSE OF THE REPORT

“The current report is the first stage of the Specifications of Competency

Standards (SCS) development for the Private Banking sector of the

Banking Industry. The purpose of the report is to outline the

developmental trends in the political, economic, social and technological

environment faced by the banking industry in order to discern critical

competences required of a private banker.

The major usage of the report is to provide input for human capital

development and does not incline to provide recommendations on

business development. The readership of the report covers practitioners

in the private banking industry, training practitioners, training providers,

tertiary education institutes and general public who are interested to know

more about the industry.

After the SCS development of the Retail Banking and Corporate &

Commercial Banking sectors, the Private Banking is the third sector in the

banking industry to develop the SCS. The current report adopts a similar

format to those of the Retail Banking and Corporate & Commercial

Banking sectors to allow easy reference across different sectors of the

banking industry. ”

2

SECTION 1

INTRODUCTION: RISE OF

WEALTH MANAGEMENT

BUSINESS IN ASIA

3

POTENTIAL OF THE PRIVATE BANKING INDUSTRY

Banking is a major industry in Hong Kong which its boom and wax carries critical

importance to the economy. In recent years, private banking business has become

the next hotspot. Many banks are planning to expand their private banking

business. This is not surprising as industry players are eyeing the fast growing

wealth generated by the Mainland China.

The potential of the private banking business is huge. In 2012, the population and

wealth of worlds’ high net worth individuals (HNWIs) reached record levels1 . As

revealed by another survey, global wealth is expected to rise by around 40% by

2018. The major growth will come from the emerging markets which will account

for 29% of the growth. Among which, China will be the major driver2 .

Without a doubt, the expanding affluent population in Asia will have increasing

demand for private banking services. Many global private banks are shifting

resources from Europe and the U.S. to Asia. Owing to its close tie with China,

Hong Kong definitely can benefit from the growing affluence of Chinese HNWIs

who see Hong Kong as a preferred choice of wealth management3 .

This represents unprecedented opportunities to Hong Kong. It is clear that there

will be a larger number of wealthy people who demand private banking services.

The question is what Hong Kong banking industry should do to take the private

banking business to the next higher platform and out-compete other regions as the

priority choice of HNW customers.

1 “World Wealth Report 2013”, Capgemini and RBC Wealth Management.

2 “Global Wealth Report 2013”, Credit Suisse.

3 “Asia-Pacific Wealth Report 2013”, Capgemini and RBC Wealth Management.

4

RECENT DEVELOPMENT IN THE HONG KONG PRIVATE

BANKING INDUSTRY

The private banking industry in Hong Kong has taken active steps to capitalize on

the potential. In 2012, the Hong Kong Association of Banks has commissioned the

McKinsey & Company to conduct an independent research with the objective of

defining the vision and key building blocks to support the development of the

private wealth management industry.

To support the development of a competitively vibrant market, the report put

forward a few recommendations. In terms of regulatory framework, private wealth

management should be recognized as a separate segment from retail banking and

regulations should be tailored to its specific characteristics. As far as talent supply

is concerned, there should be more specific competency requirement for client-

facing staff. Externally, the industry players should put on concerted effort to

promote Hong Kong to customers globally.

The industry has made significant steps forward. In view of the distinct nature of

the clientele and operations of private banking businesses, the Hong Kong

Monetary Authority (HKMA) issued a circular in 2012 4 to provide further

clarification to private banks on the regulatory requirements governing the sales of

investment products. The circular promulgated a definition of “Private Banking

Customer”. Moreover, the circular also introduced “portfolio based” assessment of

suitability in relation to sales of investment products to private banking customers.

Suitability assessment can be conducted on a holistic basis and private banks

need not mechanically match client’s overall risk tolerance level to product risk

level on a per transaction basis. On a positive note, the circular recognizes a real

distinction between private and retail banking.

4 “Selling of Investment Products to Private Banking Customers”, Circular, the Hong Kong Monetary Authority, 12 June 2012.

5

Moreover, the Private Wealth Management Association (PWMA), an industry-led

association has been set up with the purpose of developing and promoting Hong

Kong’s private wealth management industry. The PWMA will roll out an Enhanced

Competency Framework (ECF) which specifies the competency requirements of

client-facing staff in the Private Wealth Management Industry.

To align with the industry’s directives, the Banking Industry Training Advisory

Committee (ITAC) decided to launch the development of Specification of

Competency Standards (SCS) for the private banking sector to foster the grooming

of human capital. With this objective, a series of interviews with regulators and

senior bankers from international, local as well as Chinese banks5 were conducted

to discern the political, economic, social and technological outlook of private

banking industry and the qualities of a successful private banker.

5 Interviews were conducted with representatives from the Hong Kong Monetary Authority,

Legislative Council, Banking Industry Training Advisory Committee as well as senior bankers from

the Bank of East Asia, China Construction Bank, Hang Seng Bank, JP Morgan and Executive

Committee of the Private Wealth Management Association.

6

SECTION 2

PEST SCAN

7

A. POLITICAL FACTORS

The regulatory, legal and tax environment are critical factors to sustain the

competitiveness of Hong Kong as a private wealth management center in Asia.

Over the years, the government has put in effort to create a stable political and

open market environment for the private banking industry.

Sound Fundamental Attributes

Hong Kong definitely has certain fundamental attributes that make it well placed to

become the leading regional private banking hub. It has been long noted for its

robust legal framework, independent judiciary and a simple and low tax system.

For example, there are well established laws to protect the confidentiality of client

information. Moreover, only profits and income derived in Hong Kong will be taxed.

There is no tax on capital gains, dividends and interests, etc. These advantages

can facilitate the creation and accumulation of wealth thus making Hong Kong an

attractive place to HNWIs to park and manage their wealth in Hong Kong.

Furthermore, with the abolition of estate duty in 2006, it was hoped to attract more

local and overseas capital inflow. Moreover, The Trust Law (Amendment)

Ordinance 2013 6 was passed by the Legislative Council. It is an important

milestone to modernize the trust regime which has not been substantially revised

since 1943. Trust services have been growing in importance as part of wealth

management services, the modernization of trust law can definitely bolster the

competitiveness of Hong Kong’s trust services industry, which in turn enhance

Hong Kong’s status as an international asset management center.

6 For details, please refer to Trust Law (Amendment) Bill 2013.

8

Increasing Regulatory Requirements

During the post-crisis years, banks are facing an increasingly challenging

regulatory environment. During the interviews