Regulation seen burdening small private banks

GENEVA (Reuters) - Small players in the private banking sector will suffer from an increase in transparency requirements that is expected to follow the recent financial markets crisis, bankers said on Tuesday.

The credit crunch, triggered by defaults on U.S. subprime mortgages, prompted regulatory calls for increased financial disclosure, especially in Europe.

"In the next 12 to 15 months we will see regulation coming in everywhere in the world," said Nicolas Cagi Nicolau, Global Head of Structured Products at SG Private Banking.

"This will clean the market."

Earlier on Tuesday, European Union finance ministers agreed to review a slew of financial rules to address a need for more clarity on investments in structured vehicles, conduits and other products that have been at the centre of the credit crisis.

In the United States, the Federal Reserve and the Securities and Exchange Commission met banks to look at their books.

Cagi Nicolau said only the larger private banks would be able to absorb the costs of providing additional information on complex financial products.

"Small banks, family offices will not be able to respond to all the constraints," he said. "You really need to give more information and expertise."

Sophisticated instruments such as structured products have come under fire during the volatile summer markets.

Some central banks, like the Bank of Italy, had to reiterate a request for more bank transparency given the complexity of some of the financial instruments involved.

"As sophistication increases, you wish to have more transparency. There are some pretty complex products out there and it's only fair to for clients to have more transparency," said Boris Collardi, Chief Operating Officer for Private Banking at Bank Julius Baer.

SOME SKEPTICISM REMAINS

Some bankers did not, however, see a need for more transparency in the world of wealth management, where clients are traditionally more sophisticated and financially educated than the average retail client.

"Once you get above a certain level, the market is plenty self regulating, and there is no need for more regulation," said Mark Cunningham, Managing Director of Private Banking at Bank of Ireland.

Others did not expect regulation to change their normal way of doing business and predicted a shift toward more loosely regulated regions of the world for segments of the banking industry such as hedge funds.

"I don't think regulation changes anything. This is an industry that pays well. What you'll see is that these funds will move around, it will be difficult to pin them down," said Jan Erik Frogg, head of UBP Alternative Investments.