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Banks de-risk for many reasons, and this can potentially create opportunities for private client fiduciary providers to attract clients that have fallen into this category. Clients may find themselves looking for a new provider as their requirements fall outside of the institution’s KYC requirements or the bank has to reconsider it’s risk / reward ratios.
Private client practitioners must consider to what extent they share the institutional concerns. Certain jurisdictions and activities, aside from any regulatory direction, have to be very carefully assessed. With each case, we must ask ourselves, can we manage those risks?
Insightful regulators take the view that it is up to the service provider to consider what risks can and cannot reasonably be managed. In demonstrating this, the service provider must make it clear that market risks have been assessed, fully understood and the ability to manage perceived risks clearly demonstrated.
In some cases, banks are better placed to manage jurisdictional risks than many private client service providers who may not have branches in or access to on the ground information in the relevant jurisdictions. It can be a very useful relationship tool for private service providers to team up with such institutions with this level of knowledge to bolster their own risk assessments, by those already operating within potentially challenging jurisdictions.
If the banks de-risking is to provide opportunities, how should the private client practitioner seek to manage the risks?
Taking on any trusteeship from any other service provider carries risks, so taking on clients from a bank or other institution is no different. The same assessment criteria must be applied. Wise Counsel would suggest that in an ideal world we should be highly selective as to which cases we want to take on. Whilst acquiring a portfolio may seem highly attractive, one bad case could nullify the positive impact of the remainder. One cannot underestimate the significance of a very thorough due diligence exercise at the outset.
It will be essential to ensure that any new clients fit within either an existing risk framework or one that can be created to accommodate and deal with a new portfolio. If it is the latter, it will be crucial to consider how potential risks are going to be managed, whether by visiting jurisdictions, establishing relationships with local practitioners in that jurisdiction, viewing client trading activities on site, etc.
It will be imperative to ensure that a thorough due diligence exercise is conducted.
One must be prepared to fully KYC in the broadest possible sense the settlor and his or her family activities and jurisdiction connections.
To assist the KYC process, particularly where wealth has been created over many years and from multiple services, consider creating ‘bibles’ of documents which support a settlor’s source of wealth and source of funds.
Do not gamble on risks that in reality you may be unable to manage.
Consider whether a meeting with the regulator before taking on a portfolio with certain specific risks would be appropriate.
We live in an increasingly international and mobile world. We should always have an open mind as to whether Jersey is the most appropriate jurisdiction for any structure. Neither a settlor nor a service provider will be grateful if they consider there are attempts being made to shoe horn them into a particular jurisdiction, without specific reference to the mid and longer term objectives or having considered the appropriateness of any particular jurisdictions.
There is no doubt that an institutional de-risking programme may well provide certain opportunities to private client service providers, but these opportunities must be handled with care.
A final potential irony in the banks de-risking, is that most trust structures will require banking and/or investment advisory services. Trustees will be advised to ensure that before taking on any new trusteeship, they will be able to establish banking and/or investment advisory services quite possibly from institutions that are de-risking.
Client Director, Private Client
Wendy has over 20 years of senior management experience. She has worked for a number of global banks including 15 years with HSBC Private Bank as a Senior Manager within Private Client and with responsibility for the Middle East team.
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