1. EF5603
Private Banking
And Its Regulations
Dr. LAM Yat-fai (林日辉博士)
Doctor of Business Administration (Finance)
CFA, CAIA, FRM, PRM, MCSE, MCNE
PRMIA Award of Merit 2005
E-mail: quanrisk@gmail.com
2:00 pm to 3:15 pm
Saturday
23 March 2013
2
Outline
What is private banking?
Private banking services
Regulations on private banking
Private banking in China
3
Private banking customer
Regulatory definition
At least USD 1 mn of assets under the
management with the bank; or
Total investable assets of at least USD 3 mn
Operational definition
A bank officer visits a customer’s office to
conduct banking transactions for you
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Wealth pyramid
Private banking
Personal banking
2. 5
Wealth segmentation of
private banking customers
6
Source of wealth
7
Why private banking?
- customer’s perspective
HNWIs have too much money
Protection against inflation
Capital appreciation
Social status
Safety custodian of wealth
Tax avoidance and/or deferral
Estate planning
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3. Why private banking?
- bank’s perspective
Good profitability = Higher revenue, lower cost
Business referral from PB customers
Corporate decision makers
Other high net worth individuals
Low regulatory capital requirements
9 10
11
Cost to revenue ratio
Profit margin 25% to 33%
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Revenues
Investment service charges
Commissions (from investment banks)
Assets custodian fee
Loan interests
Other service charges
4. 13
Business referrals from
private banking customers
14
Collateralized lending
2
8
8
10
8
6
4
2
0
Collateral Lending
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Regulatory capital
Funding from bank’s shareholders
Operational risk capital charge
1.2% of transaction amount
Credit risk capital charge
0% for lending with full collateral
8% for lending without collateral
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5. Best private banking 2013, Euromoney
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Major private banking
servicing centres
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Major private banking
booking centres
6. Relationship manager
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“关系”经理
22
No. of customers serviced by one RM
Relationship years
23 24
7. 25
Outline
What is private banking?
Private banking services
Regulations on private banking
Private banking in China
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Investment classes
27
Alternative investments
Real estates
Commercial real estates
Private equity
Initial private offer
Commodities
Red wine
Distressed debts
Cyprus sovereign debts
Hedge funds
Quantum fund
HKD 700,000 per bottle 28
8. 29
Private financial management
Portfolio management
Insurance planning
Tax planning
Estate planning
Fund transfer
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Outline
What is private banking?
Private banking services
Regulations on private banking
Private banking in China
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Regulations
Know your client
Suitability assessment
Anti money laundering
Cross border marketing
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Know your client
Investment objectives and horizon
Risk tolerance level
Investment experiences and knowledge
Financial situation
Source of funding
Investment mandates with other banks
Where does he live?
To be reviewed once every two years
9. 33
Investment advice
Portfolio basis
Diversification
Leveraging
Hedging
Mis-matched investments must be well
explained, well documented and agreed by
private banking customer
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Professional investor
A trust corporation with total assets of not less than
HKD 40 mn
An individual with a portfolio of not less than HKD
8 mn
A corporation or partnership with either a portfolio
of not less than HKD 8 m or total assets of not less
than HKD 40 m
A corporation the sole business of which is to hold
investments and which is wholly owned by an
individual who has a portfolio of not less than HKD
8 m
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Competency of industry practitioners
Private Wealth Management Association
Formed by 15 major private banks in Hong Kong
To issue code of conduct for private banking
Continue education training (10 hours per year)
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10. 37
Professional qualifications
Certified Financial Planner
Certified Private Banker
38
Private banking education
39
Anti money laundering
A bank must not be involved in money
laundering activities
A bank must seek the best effort to ensure that
the funding from private banking customers is
sourced from legal activities
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Private banking through
a limited company
Large transaction amount
Active investment transactions
Complex corporation structure
Often in form of a chain of private limited
companies incorporated in tax heavens
Gatekeeper to hide ultimate benefactor
11. 41
Cross border marketing
Relationship managers employed by banks in
Hong Kong can solicit private banking
businesses in Hong Kong ONLY
It is illegal for relationship managers
employed by banks in Hong Kong to solicit
private banking businesses in China
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Regulatory challenges
to private banking
43
Outline
What is private banking?
Private banking services
Regulations on private banking
Private banking in China
44
