Private banks welcome regulatory crackdown
GENEVA (Reuters) - Leading bankers to the world's wealthy welcomed a regulatory crackdown from officials seeking to hinder tax evasion and money laundering, saying it was good for their business despite a huge increase in compliance costs.
Bankers at the Reuters Wealth Management Summit said the regulation revolution has forced banks to streamline and modernize how they do business, reassess some client relationships, and assess whether certain business lines are still profitable.
"We have more and more regulations but I don't feel them as a threat," said Patrick du Saint, head of Swiss private banking at France's largest bank BNP Paribas (BNPP.PA). "They are heavy to manage but it's a way of protecting us."
The love-thy-regulator attitude voiced by private banking pacesetters marks a sharp reversal to the flood of complaints over the past three years from banks forced to adopt the most sweeping changes in generations to the way they do business.
"Regulations force you to interact with your clients, and if there is one success factor with your clients, it is interactivity," said Arthur Vayloyan, a senior executive at one of the world's biggest wealth managers, Credit Suisse (CSGN.VX).
"You look at the processes (and) in the course of implementation you have the chance to clean up," Vayloyan told journalists at the Geneva summit. "It is not per se that regulation is a drawback."
Regulators and lawmakers have in many ways rewritten the global bank code in the past several years by revolutionizing the way banks account for risks through the New Basel Accord, also called Basel II.
Meanwhile, U.S. legislation like the Sarbanes-Oxley and the Patriot Act sought to crack down on lax accounting standards and murky cross-border flows of cash that could be used to finance terrorist or criminal acts.
The European Union has also introduced tougher rules against money laundering and the financing of terrorism.
Know Your Customer rules, or KYC, which require banks to know the origin of clients' money and the true beneficiary of an account, have also become obligatory in recent years to prevent money laundering and tax evasion.
All the while, the OECD has sought to pressure off-shore tax havens in parallel to EU efforts to raise taxes on citizens who choose to put away savings out of sight in countries like Switzerland or Luxembourg.
All this led to cries of "regulatory overload" by bankers and banking associations, who urged regulators to be less zealous as they worked to implement what amounted to a silent revolution in the way banks act, think and conduct business.
LOVE THY REGULATOR
Emilio Saracho, head of private banking in Europe and the Middle East for J.P. Morgan (JPM.N), said regulations needed to become complicated as financial markets themselves have increased in complexity and become globalized.
"We don't feel particularly hampered by regulators," he said. "It (KYC) is not just good practice but an obligation now."
Christopher von Oppenheim, partner at Germany's largest private bank Sal Oppenheim, said the wave of new regulations had forced some banks to wake up.
"The overall purpose is positive. It strengthens the financial sector," said von Oppenheim. "That is especially the case for a bank our size."
The heavy costs of implementing the new regulations were likely to be more difficult to bear for smaller banks, either because of the complicated compliance systems or because of the rising cost of writing credits due to Basel II's risk weightings.
"Basel II is also in our interest because if focuses companies to think in the longer term," von Oppenheim said.
