Banking Industry Private Banking Specification of ... · PDF file Commercial Banking sectors,...
Embed Size (px)
Transcript of Banking Industry Private Banking Specification of ... · PDF file Commercial Banking sectors,...
Part Content Page
1 Environmental Scan for the Private
Banking Sector in Hong Kong
2 Digest on Stages II to IV of SCS
Private Banking Sector
3 FUNCTIONAL AREAS OF
PRIVATE BANKING SECTOR
in Hong Kong
The Hong Kong Institute of Bankers
Environmental Scan for the Private Banking Sector in Hong Kong
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. ”
INTRODUCTION: RISE OF
BUSINESS IN ASIA
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.
RECENT DEVELOPMENT IN THE HONG KONG PRIVATE
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.
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.
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.
Increasing Regulatory Requirements
During the post-crisis years, banks are facing an increasingly challenging
regulatory environment. During the interviews