The apparent conflict between the opportunities offered up by globalisation and the obstacles posed by rafts of international regulation is an interesting one for international financial centres (IFCs).
On the one hand, the macro trend of globalisation continues to shape wealth management trends. Capgemini’s World Wealth Report 2018, for instance, forecast that global high net worth individuals (HNWI) wealth would exceed US$100 trillion by 2025, presenting significant opportunities for IFCs to show their value.
On the other hand, IFCs are having to operate in an increasingly complex environment, spurred by the explosion of global financial regulation, cross-border information sharing, and intense scrutiny from media leaks.
It’s our firm conviction that IFCs fulfil a vital role in the global economy. What is clear, though, is that these trends are requiring that IFCs work harder than ever to demonstrate they are still relevant in the modern landscape.
For that reason, Jersey Finance has pursued a strategy of using evidence-based research to show that high quality, robustly compliant IFCs are part of the solution in their ability to marry together the opportunities presented by globalisation and the requirements of the complex regulatory landscape.
Nowhere is this dynamic being played out more clearly than in Asia, and it’s against this backdrop that Jersey Finance launched its latest white paper last month in Hong Kong. The research – “The future for IFCs – Views from Asia’s Wealth Management Market” – indicates that IFCs remain both viable and of considerable value to the global wealth management community.
However, there are more caveats than ever before. Transparency, simplification, efficiency, reputation, quality and consolidation, the report suggests, are the new watchwords for IFCs.
This is particularly true in an Asian context, with the paper suggesting that tax compliance and expert succession planning structures are increasingly sought after amongst Chinese HNWIs. Almost 90% of respondents to the paper’s survey, for instance, said their Asian clients are fully aware that they need to address issues relating to transparency, tax and existing structures.
In addition, 48% of respondents said succession planning is the key motivator for Asia’s HNWI and UHNWI to select an IFC, with jurisdictional and asset diversification the second biggest driver (22%).
So what does this mean for Jersey as an IFC?
There’s no doubt that the rise of Chinese wealth represents an enormous opportunity for specialist wealth management IFCs like Jersey. According to Capgemini, China, along with the US, Japan and Germany, is one of the four largest markets for millionaires, accounting for 61% of the 18.1 million HNWIs around the world. All that wealth needs managing, and it needs managing globally and appropriately – the domain of IFCs.
However, despite the appetite amongst Asian clients to seek out expert advice on succession planning and tax compliance, there are gaps in knowledge in how to get there. Notably, 89% of respondents said that clients do not know how to fix transparency issues relating to existing structures, and 82% thought that Asian clients are not well prepared for wealth transition from one generation to another.
Whilst Chinese HNWI and ultra-HNWI clients have been looking for cross-border solutions to diversify, protect and grow their wealth for some years, the reality is that the wealth management industry in Asia is still in its relative infancy. IFCs need to be alive to this and take up the opportunity to show some leadership, their quality of service and depth of expertise to match the needs of Chinese clients.
Jersey’s experience in cross-border reporting such as CRS and FATCA, its unrivalled expertise in managing cross-border structures and its top tier scores in standards of governance from MONEYVAL and the OECD stands it in really good stead compared to other IFCs, to work with Chinese clients and help them fill knowledge gaps.
Looking to the future, as the Chinese wealth community gets to grips with its global ambitions and obligations, there’s no doubt that there will be a certain amount of simplification in terms of structures and greater selectivity when it comes to jurisdictions. To survive and prosper, the IFC of the future must find its unique selling points.
Differentiation and redefining the role of the IFC will be absolutely vital, and I remain convinced that forward-thinking IFCs like Jersey can position themselves in new ways in the Asian market to play a positive, specialist role and help Chinese clients balance their global ambitions and their regulatory requirements effectively.