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Asia's heightened illicit-money scrutiny to hit small wealth managers
June 17, 2016 / 8:56 AM / in a year

Asia's heightened illicit-money scrutiny to hit small wealth managers

HONG KONG/SINGAPORE (Reuters) - A crackdown on money laundering by Asia’s main private banking centers is forcing wealth managers to spend more on compliance procedures and may prove too onerous for smaller players, industry executives said.

Anna Marrs, Standard Chartered's CEO for Commercial & Private Banking, poses for a picture at the Reuters Wealth Management Summit in Singapore, June 14, 2016. REUTERS/Raj Narwani

Regulators in Singapore and Hong Kong, Asia’s biggest offshore wealth markets, have stepped up scrutiny of their wealth management industry in recent years, following their Western counterparts who have imposed billion-dollar fines on international banks for violating money laundering rules.

Swiss private bank BSI’s unit was ordered shut last month by Singapore’s central bank for money laundering breaches and the city-state’s and Hong Kong’s central banks questioned banks in the so-called Panama Papers leak case, underscoring wealth managers’ need for constant surveillance of money flows from clients.

Banks, including Standard Chartered Deutsche Bank and Bank of Singapore, are thus boosting investments in technology, automation and fintech firms, bankers told the Reuters Global Wealth Management Summit.

“We’ve been investing heavily to ensure that bad money doesn’t get inside the bank, anything that helps us do that is good,” said Anna Marrs, Standard Chartered’s global head of commercial and private banking clients.

Standard Chartered, which faced U.S. fines for sanctions-related violation, last year spent over $1 billion globally on compliance across the bank, a 40 percent increase over the previous year, according to its annual results.

The private banking unit of Singapore’s second-largest lender Oversea-Chinese Banking Corp is also spending on areas such as monitoring of fund flows and cyber security, a top executive said.

Bahren Shaari, CEO of Bank of Singapore, which bought Barclays’ wealth management business in Hong Kong and Singapore earlier this year, said its compliance staff has more than doubled in the last three years.

CRITICAL MASS

For smaller wealth managers, the extra spending on technology and compliance will erode profit margins and distract attention from the core business of growing assets. Wealth managers, with assets under management (AUM) of less than $25 billion, will struggle to invest in systems and people that could help stop the flow of bad money at private banks, bankers said.

“If you don’t have that kind of AUM in private banking operations out here you will not make money,” said Ravi Raju, head of Deutsche Asia Wealth Management Asia Pacific, adding the threshold in the next five years will rise to $35 billion.

Asia is emerging as the battleground for wealth managers as Western markets slow down. With 4.7 million individuals with $1 million in liquid assets, Asia Pacific is the fastest growing wealth region in the world. Yet, some wealth managers have left the region in the recent years after struggling to scale up their business and attain a critical AUM to turn profitable.

London-based Chrisol Correia, director of International AML Compliance at LexisNexis Risk Solutions, said financial institutions should expect anti-money laundering obligations to increase.

“This will lead to new operational challenges as banks’ economic crime controls are updated and expanded,” he said.

Additional reporting by Franklin Joshua in Zurich, Marius Zaharia, Paige Lim in SINGAPORE; Editing by Denny Thomas and Muralikumar Anantharaman

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