From mid-2010, 7 new private banks have been set up in Hong Kong, taking the total number of private banks to 39. Further, 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. What kind of regulatory framework Hong Kong needs to support the sustainable development of private banking? 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. The regulatory framework in Hong Kong is basically a disclosure-based regime, supported by suitability assessment by intermediaries at the point of sale. In a nutshell, product issuers have to make adequate disclosure in product documents about the features and risks of investment products. Intermediaries, when making a recommendation or solicitation in respect of an investment product, must assess the product suitability for individual clients, and clearly explain to clients the key product features and risks. A proper suitability assessment starts with a robust Know-Your-Client (KYC) process and client risk profiling.
These processes not only help to fight money laundering and the financing of terrorism, but also enable private banks to obtain relevant information to better understand their clients, including their background and, most importantly, their risk appetite and investment needs. By doing so, private banks can agree on an investment strategy with clients and provide suitable products and services that fit their needs. 2  BIS central bankers’ speeches  As we all know, private banking clients cover a wide spectrum of individuals. At one end of the spectrum there are clients who are highly seasoned investors, at the other end there may be unsophisticated clients with only very basic investment knowledge, notwithstanding that they have substantial wealth. While our regulatory framework is aimed at providing appropriate investor protection to all clients, regardless of the size of their wealth, it does not mean all investors have to be treated in exactly the same way in the process of making investments. In other words, the HKMA agrees that private banking and retail banking clients can and should be treated differently in the investment process. This being the case, we need to have a clear and practical definition of “Private Banking Customer”. After consulting the industry and the SFC, the HKMA is minded to agree that a “Private Banking Customer” can be defined as a customer with either (a) at least $ million of assets under the management (AUM) with the bank concerned or (b) total investable assets of at least $ million.