The HKMA has announced plans to turn the city-state into “a more competitive and dynamic private banking hub”.

The Hong Kong banking regulator has announced plans to turn Hong Kong into “a more competitive and dynamic private banking hub” by cutting red tape and lessening the regulatory burden.

In a speech delivered by Hong Kong Monetary Authority chief Norman Chan this week, the regulator outlined how Hong Kong can make itself more appealing to the growing number of wealthy individuals in need of private banking services.

Chan said his "vision" is that Hong Kong becomes "the most competitive and dynamic private banking hub in the region in the years to come."

He said one way is for more private banks to be set up in the city-state. From mid-2010, 7 new private banks have been set up in Hong Kong, taking the total number to 39, compared to Singapore’s 48. This is partly down to Hong Kong's privacy protection laws and lack of estate duties, which the city-state only changed two years ago. The HKMA plans to facilitate further growth by cutting red tape. 

“The HKMA is seeking to modify the licensing requirements for banks so as to facilitate a broader range of financial institutions, including those specialised in private banking, to establish an operation in Hong Kong,” said Chan.

But more needs to be done, he added. “While Hong Kong is fortunate enough to be endowed with many underlying competitive advantages, these advantages are not enough, in my view, to sustain the healthy development of our private banking industry in the long run. Hong Kong also needs a regulatory framework that is user friendly to private banking clients and yet sufficiently robust to provide appropriate investor protection,” he said.

He said that the upcoming rule changes will see a reduction in the number of times intermediaries will be required to assess their clients. The suitability assessment will no longer be required for each investment, and the risk profile assessment, which is normally required every two years, will now only be required if there has been a “material difference” to the client’s circumstances.

But he warned that the relaxed rules could not be an excuse to compromise investor protection, especially concerning suitability practices.

He also said that private bankers must improve their Mandarin (Putonghua) in order to communicate effectively with Mainland clients.

“It is hard to imagine that quality service can be provided to a mainland customer who does not speak English or Cantonese if the account manager cannot communicate in Putonghua,” Chan said.

He said that it would be “helpful if important contracts or documents are written in bilingual forms”, to support Mainland Chinese clients.

Chan concluded with the caution: “Private bankers must also bear in mind that there is a very wide range of sophistication and investment experience among private banking clients from Mainland China. So private banks must ensure that their account managers take extra care in offering investment advice and marketing investment products to the less sophisticated clients.”