The private banking sector is undergoing a transformative phase, and this is impacting which private banking hubs high-net-worth individuals (HNWIs) are selecting. While traditional hallmarks of privacy and personalized service remain important, HNWIs are looking for banking relationships that extend far beyond portfolio management. They expect to work with private bankers that can deliver multi-jurisdictional solutions, advise on sophisticated wealth preservation strategies, offer reporting for family offices, and incorporate tax effective tools in their portfolio, all while ensuring full regulatory compliance.
The Foreign Account Tax Compliance Act (FATCA) prevents US persons from using financial institutions to avoid US taxation on their global income and assets. Foreign financial Institutions and certain other non-financial foreign entities report on the foreign assets held by their U.S. account holders -(subject to withholding on withholdable payments).
The Common Reporting Standard (CRS) is an information standard for Automatic Exchange of Information developed in 2014 by the Organzisation for Economic Co-Operation and Development (OECD). It aims to limit tax evasion by ensuring the exchange of information between tax authorities.
Its based on the Convention on Mutual Administrative Assistance in Tax Matters (MCAA) which 120+ countries have signed and have been implementing since 2017 onwards.
The EU Anti-Money Laundering Directives (AMLDs) have developed over the years to counteract increasingly sophisticated financial crimes.
- The First AMLD was adopted in 1991, targeting primarily the banking and financial sectors, marking the EU’s initial legislative stance against money laundering.
- The Second AMLD came in 2001, expanding requirements to non-financial businesses and professions, including lawyers and accountants.
- In 2005, the Third AMLD aligned EU rules with the FATF’s (Financial Action Task Force) recommendations, incorporating a risk-based approach and widening the scope to include sectors like real estate and high-value goods.
- The Fourth AMLD, adopted in 2015, introduced significant changes, including mandatory beneficial ownership registers and strengthened customer due diligence standards.
- The Fifth AMLD, adopted in 2018 and entering into force in 2020, addressed emerging risks such as virtual assets, requiring cryptocurrency exchanges and wallet providers to comply with AML rules.
- The Sixth AMLD, published in 2024, extends AML obligations, empowers the new EU anti-money laundering authority, AMLA, and mandates member states to regulate high-risk sectors more strictly, including golden visa programs and certain virtual assets.
This progressive tightening underscores the EU’s commitment to staying ahead of evolving financial crime challenges across member states.
The changing private banking regulatory landscape
One key development is the European Union’s 6th Anti-Money Laundering Directive (6AMLD), which expands the scope of the current AML legislation and the breadth of criminal liability. It also harmonizes criminal law across the EU and promotes cooperation between member states on AML matters. Most importantly it compels private banks to implement sophisticated transaction monitoring systems and enhance their due diligence processes.
On the other hand the Financial Action Task Force (FATF) has also intensified its focus on beneficial ownership transparency. This has meant bankers need to adhere to much more stringent KYC collection particularly when working with a complex trust or corporate structures leading up to the beneficial owner.
Nonetheless, there is a silver lining to all these bureaucratic regulations as they represent opportunities for private bankers to enhance their operational efficiency and even identify opportunities to upsell their regulatory expertise. Private bankers that can demonstrate their thorough understanding of these complex regulations can position themselves as trusted advisers in the wider wealth and private banking sphere.
Leading wealth jurisdictions for HNWIs
Switzerland maintains its position as the premier HNWI private banking centre through sophisticated multi-currency solutions, advanced discretionary management services, comprehensive family office support, strong intellectual property protection, political and economic stability, and an intricate expertise of complex wealth structures. Swiss private banks have evolved their HNWI services to focus on legitimate tax-compliant wealth management while maintaining the highest standards of professionalism and privacy within regulatory bounds.
Singapore has emerged as the preferred Asian hub for HNWIs, offering comprehensive wealth planning services, advanced trust and family office structures, and strong asset protection frameworks. It offers sophisticated investment products and vital access to Asian market opportunities, with many affluent families opting for its Variable Capital Company (VCC) structure as an investment management and succession planning tool.
Luxembourg specializes in sophisticated cross-border solutions for European HNWIs, providing advanced investment fund structures and cross-border wealth management expertise. Similar to Switzerland it also offers comprehensive banking secrecy laws, strong investor protection framework, and vital access to European markets.
The future of private banking
The regulatory evolution affecting HNWIs has become increasingly sophisticated. Beyond the Common Reporting Standard (CRS) and FATCA, new regulations specifically target HNWIs’ typical international wealth structures. The EU’s DAC6 directive, for instance, requires reporting of cross-border tax arrangements, directly impacting how HNWIs structure their international investments and business operations.
In response to the extensive regulatory requirements – private banks are offering digital wealth management platforms, multi-entity account structures, international family office services, and global custody solutions.
For a sector that prides itself on tradition and heritage, they are now adapting to change and delivering custody solutions for cryptocurrencies, tokenization of traditional assets, and digital asset estate planning – all subject to the developing regulations governing those asset classes. Private bankers are becoming increasingly important to HNWIs supporting them with private equity investments, navigating international tax reporting obligations, currency control regulations, impact investing solutions, and access to alternative asset classes including a myriad of investment migration solutions.
The future of private banking for HNWIs lies in successfully balancing traditional relationship management with modern regulatory compliance and technological innovation. Successful private banks will be those that can leverage technology and maintain personalized service while meeting these international compliance requirements. By navigating this complex landscape, private banks can continue to attract and retain HNWI clients seeking comprehensive wealth management services.
