Andrew Haslip, GlobalData financial services head of content for Asia Pacific, says the recent headline-grabbing Paradise Papers leak will likely drive further consolidation in the offshore private wealth space, as more private banks sell up marginal operations.
Little wrongdoing
Haslip says while the papers include the business activity of 13,000 Appleby’s clients originating in Hong Kong and China, the direct implications for wealth managers in Asia Pacific are likely to be minimal.
“Unlike previous leaks, few reports on the subject appear to show any intentional criminal tax evasion by those involved,” Haslip says.
“Mostly the papers highlight how properly structured and packaged offshore assets and income can be held entirely legally and attract little in the way of direct tax liabilities, provided they remain offshore,” he says.
GlobalData’s 2017 Global Wealth Managers Survey shows that tax efficiency is the second most important reason for offshoring wealth globally among high net worth (HNW) investors, cited by 18.2% of wealth managers. In contrast, client anonymity comes in at a distant 2.8%.
Brace for regulation
Unlike previous large scale leaks, including the Panama papers, Haslip says wealth managers have little to worry about in terms of fines and direct legal action.
However, in the longer term, the papers are likely to contribute to further regulatory scrutiny of the industry and will lead to calls for more legislative action from politicians around the world, he believes.
The net result, Haslip says, is likely to be even more burdensome regulation for those operating in the offshore market and yet more compliance issues to deal with.
“Given that recent years have already seen a number of foreign private wealth managers selling their operations in Asia Pacific, the Paradise Papers are likely to prompt some reassessment of any small scale offshore operations in Asia Pacific as well.
“Those operating below the scale necessary to generate decent margins are likely to jettison their offshore divisions, continuing the trend of consolidation in Asia Pacific’s offshore market that has already seen many top wealth managers retreat from this previously lucrative line of business,” he says.
