Hong Kong’s wealth industry to focus on compliance and ethics

FCA - Hong Kong

Hong Kong

Imagine the scenario. Sandy, a relationship manager with a private wealth company in Hong Kong has hit only 50 per cent of her quarterly sales target. In the cut-throat world of trickle down economics, not meeting the target means that Sandy will not earn a salary-making bonus and more importantly, will lose her job. Sandy needs to hook a major client with more than a few million kicking around to invest. So when a client that Sandy has been chasing for a couple of months finally calls for a meeting and offers a deal that could take our RM over target and into the firm’s very good books, how cautiously will Sandy approach the deal? Would a private wealth relationship manager refuse the business of a multi-million dollar client if there are apparent red flags for money laundering, corruption or tax evasion? Would they try to side step customer due diligence? Would they even recognise the red flags in the first place?

The Hong Kong Monetary Authority (HKMA) has endorsed a brand new standard for private wealth managers which should go some way to answering the questions raised here. The Enhanced Competency Framework (ECF) encourages customer-facing employees – the relationship managers who often know their clients better than any other bank employee – to upgrade their skills and practice in terms of competency, compliance and ethics.

A relationship manager is best placed to identify when a client’s requests or account activity is suspicious or not in line with their usual account activity. However, incentive schemes which encourage relationship managers to sign up clients in an increasingly competitive market can raise issues around ethical behaviour.

It is important to note that the standards are non-statutory, which means that practitioners can volunteer to take the training courses to gen up on professional competency, compliance and ethics, but they are not required to do so. Although this removes some of the impact these standards could have had on the private wealth management industry, it is still a step in the right direction. The ECF will be administered by the Private Wealth Management Association, an industry group, and the framework does reflect an increased industry interest in improving and maintaining professional standards. Past attitudes to training on compliance and anti-money laundering in Hong Kong has varied between institutions.

Hong Kong, living the high life

Hong Kong, living the high life

One firm I know of has experienced great challenges in convincing HK based financial institutions of the need to train employees. Perhaps the new standards and the HKMA backing hint at a change in how institutions are approaching business. Making these standards a statutory requirement would show that Hong Kong is taking competency, compliance and ethics in the private wealth management seriously.

Cleaning up the murky world of private wealth in Hong Kong could shed light on some of the practices which have allowed some in the city to amass enormous wealth, and left others languishing.


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