Survey and focus group participants highlighted KYC challenges, a lack of clarity on client suitability requirements, and overly onerous investor protection measures impeding professional investors.
Hong Kong’s FSDC (Financial Services Development Council) has released a new paper on the private wealth management sector.
In November 2019, the FSDC surveyed 250 HNWIs (high net worth individuals) and wealth managers, and conducted focus group meetings with experienced practitioners to identify ways to further develop private wealth management business in Hong Kong.
The focus group identified three key areas where the regulatory regime could be improved to facilitate private wealth management business.
- A majority of respondents cited difficulties in proving, with a granular level of detail, the clients’ source of wealth, particularly in the account opening process.
- Some respondents cited a lack of clarity in client suitability regulations in relation to complex products, which has resulted in some banks classifying non-complex products as complex on the basis of trading complexities and to avoid inadvertent breaches.
- Participants indicated that investor protection measures are too onerous for qualified professional investors, to the point where they obstruct day-to-day transactions and operations. Suggestions included:
- tightening the professional investor assessment criteria in exchange for more flexibility
- raising the minimum wealth threshold
- introducing additional criteria such as risk appetite
- requiring investors to opt out of certain trade disclosures
Meanwhile, only 15% of survey respondents considered Hong Kong’s regulatory regime less facilitative than global peers, citing KYC and investment suitability as the areas that need the most attention.
Participants in the focus groups also highlighted anticipation around the planned establishment of a cross-boundary wealth management scheme, which will enable residents of Hong Kong and Mainland cities in the Greater Bay Area to invest in wealth management products in each other’s market through the banking systems.
The paper also highlights a lack of talent in the wealth management and private banking sectors. Participants expect the talent gap to become more acute in the years to come.
The full paper is available here.