Will tighter scrutiny of Swiss private banks mean more business for those in the Gulf? It depends if regulation remains reasonable. Dave Waller reports.
The economic crisis of 2008 was explosive in how it claimed many of its victims – from individual CEOs right up to global giants, such as Lehman Brothers or RBS. But with much of its fall-out involving a somewhat slower burn, its impact is still being felt.
Take the level of scrutiny aimed at Swiss private banks. US investigators began investigating UBS in a tax evasion scandal in 2008, and wound up suggesting that, together with other Swiss banks and their US clients, it could be held accountable for “unpaid taxes on billions of dollars in hidden assets”. The pressure on Switzerland has barely let up since, leading many to suggest that this most private of jurisdictions may well have lost its USP.
Reports of a private banking exodus ensued. And this in turn sparked a question common among banks in the MENA region: can Switzerland’s loss be our gain? “I’ve certainly heard it said that, thanks to secrecy laws, banks in Switzerland will lose lots of private banking business to the likes of Monaco,” says Karine Kheirallah, a director in the UAE business of Falcon Private Bank, the Swiss bank. “And we’re certainly seeing Swiss banks here having lots of issues opening accounts for certain clients. At the same time more local commercial banks are setting up private banking here too. That’s definitely a trend.”
Not that the MENA region wants to be a haven for those running from the regulators. The likes of the GCC seek to promote a clean industry, an absolute necessity for anyone wishing to participate fully in the modern global financial world. You won’t get far in finance with a questionable background. Yet by finding their own level of regulation, one that’s suitably secure but remains flexible rather than restrictive, the countries in the region may just find a unique selling point of their own.
“Remember it’s not just locals here, there’s a large ex-pat community, and both could become clients of these private banks,” says Kheirallah.
“One of the reasons to bring your wealth to Dubai, for example, is security. The currency is pegged to the dollar, we have the facilities here, and the area is attracting big investors and wealthy businessmen. It’s become known as a safe-haven in the region, for wealthy people from the likes of Syria and Egypt. People know the language and the business, and it’s a good hub for both Asia and Europe too.
“Meanwhile these local banks are strong, cash-rich, and directly owned or part-owned by the government – which makes private banking clients very comfortable.”
Contrast that with the business climate in some of the world’s more established financial centres where, thanks to escalating regulation, comfort is hardly the first word that comes to mind. Take Singapore, where scrutiny has taken “jumping through hoops” to a whole new level. “If you meet someone at a drinks event in Singapore and exchange business cards, you can’t just call them up the next day,” says Gary Dugan, chief investment officer and head of investment strategy at the National Bank of Abu Dhabi. “You have to get a signed agreement that you’re allowed to call them. So we’ve had to go back through all our contacts to check the numbers are right and that we have permission to call. It’s ridiculous.”
Dugan goes on to describe this state of affairs as “insanity”. This can only spell opportunity for financial institutions in the MENA region. Here the regulation is more gentle – but that doesn’t mean scandals are developing, or clients are being ripped off.
“Regulations here aren’t as strict as Switzerland,” says Kheirallah. “The official entities are working for improved legal infrastructure and regulations, but they also want to attract a flow of investment and business. It’s hardly fair to describe it as loose, but it’s not as strict either. It is the way it is. And this will play an important role in attracting people.”
One key tactic employed by the region’s private banks is to allow for both local and remote booking. Generally clients want to do business with a private bank in the MENA region, but also get booked into Singapore and Switzerland – allowing for even safer custody of assets. Dugan says that people in the region often put “10 per cent or 20 per cent” of their assets permanently offshore in case they need to escape political upheaval or war.
It’s certainly a time of transition for wealth management, and there remains uncertainty as to which centres may stand to capitalise. Regions like Dubai are drawing people in with their solid regulations, offshore status and comprehensible and recognisable legal system.
Dugan draws parallels between Dubai now and Singapore 15 years ago. “Back then they had a lot of administration going on there, but weren’t making actual fund decisions,” he says.
“Now it’s all changed. And this could happen with the Middle East too: thanks to its laws, lifestyle and tax incentives it’s attracting both skilled financial professionals and clients, and it really can become a credible financial centre. Meanwhile the likes of Switzerland could wind up very vulnerable.”
As long as MENA regulators don’t start insisting on signed agreements before people can answer the phone to a work contact, they may be well placed to capitalise.
©2014 funds global mena