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Paradise Papers to lead to more onerous regulation in Far East, says analyst

Chris Hamblin, Editor, London, 15 November 2017

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The Paradise Papers are likely to have few direct implications for offshore wealth managers in East Asia but will add to calls for more stringent regulation, according to an analyst at GlobalData.

Andrew Haslip, the financial services head of content for the Asia-Pacific region, says that the latest data dump will make politicians more likely to ask regulators to look more closely at anyone involved in the wealth management industry, but will accomplish little else. This, he thinks, will probably prompt the offshore private wealth industry to 'consolidate' further, with more private banks selling off their marginal operations.

The International Consortium of Investigative Journalists published the so-called Paradise Papers recently. These stolen records largely illuminate nearly 50 years of business activity by Appleby, the global law firm that specializes in offshore clients. They document a range of legal structures and strategies that HNW individual investors all over the world have used to minimise their tax liabilities. Most concern clients in the US and UK but Hong Kong is the fifth largest source of clients and China is the sixth.

Haslip said: “Despite the almost 13,000 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. 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. Indeed, GlobalData’s 2017 Global Wealth Managers Survey shows that tax efficiency is the second most important reason for offshoring wealth globally among HNW investors, cited by 18.2% of wealth managers. In contrast, client anonymity comes in at a distant 2.8%.”

Globaldata observes that the leak shows little in the way of wrongdoing, believing that wealth managers have little to worry about in terms of fines and direct legal action as a result of its revelations.

Haslip added: “Marginal players in the offshore wealth market are likely to see this as a key milestone at which to reassess their business. 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.”

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