The authors of this article look at how the world of offshore and cross-border private banking is changing - with an impact on where the jobs are going.

Unless one had been living on a remote planet it would have been hard to avoid the stories of how, in the aftermath of the 2008 financial tsnuami, banks and other bodies faced a surge in regulation. And with regulation has come a rising demand for compliance roles. Also, the structure of the business has changed with firms rethinking their onshore and offshore footprints, with some changing tack decisively. In this article, Carlton Senior Appointments - part of the Phaidon International group - examines the regulatory landscape, banks' strategy, and the impact on the employment market. The authors of this article are Derek Addai-Tabi, head of wealth management recruitment, Europe; Abimanu Jeyakumar, head of wealth management recruitment, Hong Kong; Ciara Heneghan, head of wealth management recruitment, Singapore; Jake Knowlton-Parry, head of wealth management recruitment, Americas. Carlton Senior Appointments is a specialist provider of wealth management recruitment solutions across the US, Europe, Asia and the Middle East. The editors of this publication are pleased to publish this article although we stress that we don't necessarily agree with all the views expressed.

After a period of change and consolidation within the wealth management arena, the next step to be taken in the evolution of the industry is a change in growth strategies for banks and financial institutes. Offshore clients, especially in emerging markets, have historically been seen as the quickest route to growth; but regulatory changes and the dramatic increase in the cost of compliance when dealing with these clients makes continuing this practice very cost inefficient, in an industry where profitability is already being squeezed.

The US government’s treatment of US ultra-high net worth individuals with offshore accounts post-2009 and the banks/bankers that dealt with these individuals was a clear sign of things to come. The amnesty programme outlines that unless clients can prove they have paid the taxes they owe, the government will assume taxes have not been paid and fines will be issued.

Several firms have been hit with harsh penalties, including Wegelin & Co, Switzerland’s oldest private bank, which was put out of business as a result of this in 2013. Several further banks have been hit with substantial fines including Credit Suisse ($2.6 billion), Société Générale Private Banking ($17.807 Million), Berner Kantonalbank ($4.619 Million) and BSI ($211 million).

As the US started its bid to become more compliant, so too did the rest of the world; this led to domestic banks such as Merrill Lynch and Morgan Stanley selling the majority of their non-US business to focus almost entirely on domestic clients.

Over the past 12 months a number of the US’s international counterparts have also followed suit – Coutts has recently sold its international operation and this year has also seen the sale of RBC’s Swiss branch. In India, market regulators have contacted wealth managers operating out of Hong Kong and Singapore, as the government seeks to better regulate offshore banking in the country.

Similarly, both Hong Kong and Singapore are feeling the grasp of regulatory changes, with teams in UBS being cut. For the Hong Kong branch, this is partly down to offshore money from India being taxed and therefore the practice becoming less economically viable. For UBS Singapore, the European business has been cut by around 50 per cent.

In the UK, the government recently released details of its next move in tackling offshore tax havens, with more robust rules being put in place – rather than civil deterrents and sanctions, as has previously been announced. This has sped up the need to switch focus to domestic clients.

So what does this mean for the future of offshore private banking?

As a result of this, the finance industry is now seeking local talent to meet the needs of onshore clients. Examples of this can be found in Hong Kong, where a number of banks are focusing on hiring and developing onshore relationship managers, as opposed to relationship managers for offshore territories such as European markets. This trend is prevalent across all banks with Hong Kong-focused relationship managers, with European boutique banks making the biggest changes from traditionally focusing on international offshore wealth to now boosting the assets under management in the local region.

Similarly in Europe over the past 12 months there has been an increased push to grow and develop assets for onshore and mature markets (e.g. Western Europe). In the UK, there has been large scale disinvestment in once popular emerging markets (Latin America, Russia and Israel), with larger institutes such as Coutts, Deutsche and Barclays reducing - if not completely removing - desks in these spaces. The majority have turned their attention to developing onshore clients in regions that may have been previously underdeveloped; as a result there are now more hiring opportunities in areas such as Leeds, Bristol and Surrey.

In the US large banks such as Merrill Lynch and Morgan Stanley are increasing their minimum account sizes within their international teams, in order to make it worth covering offshore accounts and the difficulties associated with them. Merrill Lynch has increased its international threshold to $2.5 million and Morgan Stanley has increased its to $500,000. This means that all clients with accounts below these limits need to find a new bank to hold their business, a requirement that is causing advisors to leave big-name firms as they don’t want to lose their clients.

Asia is now emerging as the market with the most high-net worth individuals, meaning banking in the region – specifically Hong Kong and Singapore, as the two main finance hubs - may soon overtake that of Switzerland. In the past talent shortages within Asia called for European wealth managers to be relocated to the key financial hubs, for example Asian banks hiring and moving professionals from Switzerland over to Hong Kong or Singapore; but this trend has since passed.

Amidst all of this, a few of the mid to large Swiss banks appear to be the only institutes to buck this trend. This may be due to the lack of growth potential within the Swiss onshore market - Credit Suisse, UBS and the cantonal banks dominate the onshore space. Over the past three years some of the top tier banks below them (Julius Baer, Safra Sarasin, UBP) have had to make major acquisitions to increase their international footprint and it is within these firms where there is still an appetite to hire candidates with an international background/clientele.

In fact hiring within offshore banking is changing significantly. The days of emerging market banks actively seeking bankers with experience from developed markets and paying for them to relocate is fast dwindling. Instead banks seek local talent, with local skills and expertise, who can service local onshore clients and are more likely to continue working for the firm for a number of years (rather than international candidates who often seek a move back to their home countries after a shorter time period).