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How can global wealth managers effectively deal with the regulatory agenda?

Dr. Claudia Klümpen-Neusel
German Tax Leader
Private Banking PwC (D)

During the years since the financial crisis, the sheer number of new regulations contributing to a new regulatory framework has risen to an extent that it has become difficult to sufficiently keep track of the various initiatives and to manage their partly contradictory goals. The continuously increasing regulatory requirements, with impacts on legal, compliance and risk management, among others, are contributing to cost levels in the Private Banking sector remaining high. Though the framework for the future may already be set, its implementation still has a long way to go and may likely put the Private Banking cost structure under pressure.

Based on information gathered in the PwC Global Private Banking and Wealth Management Survey 2013, some participants fear a significant increase in the costs of implementing regulations in the next two years.

The fact that multiple regulatory reforms are being implemented at the same time, on both the domestic and the international level, which partially have differing aims, may increase the burden of fulfilling all obligations of such regulation. In effect, knowing and respecting all different rules in an internationally fragmented regulatory environment may present economic challenges to efficiently do business locally in every market or to remain active in smaller markets. As a result, in order to maintain or increase current levels of profitability, a bank may want to consider strengthening its focus on its home market and / or deciding which services they want to offer to which clients.

They may be able to learn from the “Big Players” that have already restructured their wealth management business and reduced their global footprints. Regaining customer trust and deepening client relationships by selling new products and services to existing customers in the home market may be more promising and less time consuming than selling new products and services to new customers or locally in every region. Another tactical option to retain a share in the Private Banking market could be the building of partnerships. Under such structure, two types of partnerships may be likely: the so-called regional partnership and the so-called product partnership. The regional partnership aims at allying with a bank or wealth manager acting in a complementary regional market and, thus, allows banks to offer clients of both partners access to the respective local products. In a product partnership, a bank or wealth manager seeks to supplement its own product services with complementary product offerings of another partner. Focusing on the home market in conjunction with the idea of partnerships may allow Private Banks to offer extensive services to their targeted clients while simultaneously reducing the cost structure that may result from the global regulatory agenda they are facing.