Articles

Understanding offshore private banking issues

Alex Jagmetti of Falcon Private Bank addresses areas of misunderstanding in relation to offshore banking, and looks at some of the considerations for clients in terms of repatriating funds.

Date: Jun 2011

Tags: Offshore, Compliance

  • To address a key misconception relating to offshore private banking, “offshore” doesn’t necessarily mean not being compliant, given that holding money offshore is accepted in many markets
  • The key is to be knowledgeable about the do’s and don’ts, and to interpret them pragmatically
  • Repatriating funds happens in every emerging market and is to a large extent a cyclical trend
  • When considering how different private clients will engage offshore private banking going forward, there isn’t an overall concerted drive to strangle offshore assets in Asia – instead it is a pinpointed one

To address a key misconception relating to offshore private banking, Alex Jagmetti said in an interview that “offshore” doesn’t necessarily mean not being compliant.

There are many sound reasons for being offshore, he said, explaining that in many markets, holding money offshore is completely accepted.

Instead, it is about domestic licensing and what a firm can do in that particular market and when interacting with individuals either domiciled there or who originate from there.

As a result, the key is to be knowledgeable about the do’s and don’ts, and to interpret them pragmatically – which tends to mean a firm either obtains appropriate local licences for its intended business activities or develops compliant products.

Seldom do local regulations stipulate what a firm can do in another market, he added.

Repatriating funds

Repatriating funds happens in every emerging market and is to a large extent a cyclical trend, said Jagmetti.

Individuals initially export money to diversify their risk and aim for what they believe will be more stable returns, he explained.

Yet they then see that they might be able to make returns domestically – often through their companies – of 20% to 30% or even higher, so they repatriate money to re-invest in their businesses.

However, when a downturn comes, Jagmetti said they will tend to see flat or negative growth, so start losing money and look to start exporting it again.

Engaging offshore banking going forward

When considering how different private clients will engage offshore private banking going forward, Jagmetti said it depends on the individual markets.

In some markets, clients are repatriating funds because the risks are high and they face stiff penalties based on the fact that regulators and central banks in those markets are aiming to have funds repatriated to stimulate domestic growth.

In other markets, he said there is a more pragmatic approach, with the view that they can benefit from offshore funds rather than the other way round. For example, this can provide liquidity in times of scarcity.

Jagmetti said he doesn’t see an overall concerted drive to strangle offshore assets in Asia – instead it is a pinpointed one.

 
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