Asia's wealth managers prepare for transparency

SINGAPORE/HONG KONG (Reuters) - As Singapore and Hong Kong prepare to grant foreign governments unprecedented access to the financial affairs of their bank account holders, Asia's private bankers sound confident business will only improve.

But they may be too optimistic.

In recent months, Singapore has signed 10 bilateral tax agreements that contain a new provision for exchange of information, taking it within touching distance of the 12 it needs to be taken off an OECD "grey list" of uncooperative countries. Hong Kong, too, is negotiating new treaties.

Those agreements, which follow similar changes in countries such as Luxembourg, Austria and Switzerland, will mean that treaty partners that want information on a citizen that could be relevant to tax fraud could ask Hong Kong and Singapore to pass on their bank or other details.

"Once Singapore gets off the grey list then it's not going to be seen as suspicious to have an account here," said Akbar Shah, Citigroup Private Bank's Asia head of "Megawealth," a division that manages money for clients with over $250 million.

"The crackdown against tax evasion has not helped Singapore as much as it's hurt Switzerland," said Shah. "Some of the money that was going to Switzerland might start looking elsewhere," he said, adding Middle Eastern funds should start going to Asia.

Fund flows could be positive for the Singapore dollar.

The CEO of the Swiss Bankers Association Urs Roth described Singapore as a "fierce competitor" at a briefing in the city-state on Thursday. He said Europe had not seen significant outflows to Asia, but said if European tax enforcement "went overboard," private bank clients might move.

THE CHINA FACTOR

But there are nagging concerns for the industry in Asia.

The first is the possibility that the new openness will extend not just to G20 nations, but Hong Kong and Singapore's neighbors, as well. Drawn by strict privacy rules and political stability, Asia's tycoons have long done their banking there.

That has been a source of tension in the past. For example, Lai Changxing, China's most notorious criminal, was said to keep some of his wealth in Hong Kong bank accounts, away from the prying eyes of Chinese authorities.

"People in Hong Kong are afraid that the mainland authorities will want to revise the current tax treaty," said Florence Chan, a tax partner with Ernst & Young. "They may not want certain tax authorities to know about their tax affairs."

Similarly, while Singapore has signed new tax deals with China, the UK and Australia, it has none so far with nearby countries such as Indonesia, Malaysia, Thailand or Taiwan, from where much of Singapore's funds under management come.

Experts said that if Indonesia -- which has recently taken a tougher stance toward tax evasion -- was to successfully push for a new tax deal with Singapore, it would worry banks and clients.

"That remains a scary, if so far not too likely, prospect," said Roman Scott, managing director of private equity firm Calamander Capital in Singapore and a former banker.

"Indonesia is a long way from being able to sign a deal, not just because it is not in Singapore's interests, but also because it may not be in Indonesia's interests for its political elite."

Singapore also has no such tax agreement with the United States, which is pursuing U.S. citizens around the world after successfully prising tax evaders from Swiss bank UBS (UBSN.VX).

NOWHERE TO HIDE?

DBS Group (DBSM.SI), Southeast Asia's largest bank, told Reuters that it had approaches from both U.S. citizens that did not want to sign tax declaration forms and by Swiss banks looking to offload U.S. clients. It rejected both.

So the jurisdictions could lose part of their competitive advantage. When the G20 first focused on tax havens in the Caribbean and Europe, Singapore, especially, was seen as benefitting. With the new treaties that advantage may disappear.

"It is the end of 'private' private banking as we know it," said Calamander's Scott.

The level playing field is also likely to drive the growth of onshore banking centers. DBS plans to set up onshore private banking in China, and is expanding in Indonesia.

Bankers argue that being in Asia -- with its high growth rates and wealthy entrepreneurs -- will more than make up for any shortfall in funds that once flowed to Hong Kong or Singapore because of opaque banking practices.

"Secrecy as a selling point has pretty much disappeared. I think Singapore and Hong Kong will be beneficiaries in the long-term," said Chris Meares, CEO of HSBC's private bank, at the Reuters Global Wealth Management Summit, citing their location, stability, simple tax regimes and access to bankers and products.

However, the extra complexity of making sure all regulatory commitments for each client's domicile and product choices are followed will mean more investment is needed for banks, said Michael Benz, head of products and services in Asia for UBS.

"Compliance is going to go up...Are the benefits going to outweigh the costs?" said Justin Ong, head of PriceWaterhouseCoopers's Asia wealth management practice, adding this could spur some banks to offload marginal wealth businesses.

(Editing by Muralikumar Anantharaman)