TECC, Budapest 2010

Current Issues in International Wealth Management & Private Banking

Ken MarcuseCompliance, Deutsche BankJuly 2010

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 2

The Private Banking World is Changing

“It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”

Charles DarwinThe Origin of Species (1859)

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 3

The Private Banking World is Changing – A Global Perspective

April 2009:

G20 Leaders declare the “end of banking secrecy” and publish black, gray and white lists of countries depending on level of tax cooperation.

April 2008:

Brazil federal police arrests bankers and raid their offices in Rio De Janeiro.

March 2009:

Selected Swiss banks ban top executive travel abroad because of fears they will be detained as the global crackdown on bank secrecy continues.

February 2009:

UBS agreed to pay $780 million fine for aiding tax evasion. The US sued UBS to enforce summons seeking records on 52,000 US clients suspected of tax evasion.

June 2009:

Swiss regulators sent inquiries to Swiss banks requesting detailed information on cross-border policies, handling of client tax evasion risk, estimates of undeclared assets.

September 2009:

The Australian Taxation Office asks banks in Australia to provide information on Australians’accounts abroad.

September 2009:

Following an undercover filming by a mystery shopper, British tax authorities investigate a bank for allegations of assisting wealthy clients in tax evasion.

August 2009:

The UK agreed to a tax deal with Liechtenstein to allow UK citizens 5 years to declare any assets held in the tax friendly principality.

February 2008:

German intelligence service paid €5m to a thief for stolen client data to investigate and prosecute German citizens for tax evasion.

May/June 2010:

Brazil obliges taxpayers to disclose assets held abroad to the Central Bank and updates the list of “tax-haven countries”and identifies for the first time “privileged fiscal regimes”.

October 2009:

Italian police raid 76 offices of Swiss banks and allegedly spy on Swiss territory, including taking photos of individuals entering banks.

Urs Zulauf,Deputy CEO FINMA

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 4

Recent Industry Events and Statements

FINMA focuses its investigation at selected financial institutions on the wrap business engaged in by certain insurance companies, whereby existing bank client custody accounts are wrapped in an insurance

policy, making it possible to pursue (…) fiscally problematic objectives.

It must be concluded that the regulations of many countries already make any cross-border

activity which goes beyond purely social contact and the provision of general (non product-specific) information a hazardous

undertaking.

A financial intermediary or its employees may be liable to

prosecution under foreign law by assisting foreign clients in tax offences.

German prosecutors have launched 1,100 tax evasion

probes against clients of a Swiss bank and are investigating bank

staff on suspicion of aiding evasion after the state bought

stolen client data.

A US client was sentenced to six months home detention for his guilty plea of failing to report his Swiss bank account from 2003 through

2008.

Germany and Switzerland have appointed a joint working group to clarify, e.g., (a) taxation of

German residents’ untaxed assets invested in Swiss banks and (b) extended market access for

Swiss banks in Germany.

President Obama signs a new act including the FATCA provisions that target offshore tax

evasion by broadening required disclosure and reporting by foreign financial

institutions in respect of U.S. account holders, backed up by expanded withholding and

penalty provisions.

BaFin launches an investigation into a Swiss bank’s German subsidiary for

possible breaches of money laundering regulations following allegations made by a former German client that the bank helped

him to evade taxes.

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 5

Recent Events: Assessing the Impact

Selection of Products and Product Providers

Country risk assessment, exploring options for each

target market

Political solutions to address legacy business and obtain market access

Staff awareness: policies, training,

supervision and testing

Increasing complexity for banking operations

Review of data security concepts

Know your client’s tax status: Awareness vs.

confirmation

No assistance to tax evasion

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 6

Increasing Importance of Risk Management in Private Banking Culture …

KPMG Survey - Key risks to be addressed by management in the next 3 years:

4%

21%

21%

21%

38%

46%

79%

83%

Other

IT risks

Proximity to client

Fee structure

Inappropriate advice

Reputational risk

Compliance risk (incl. AML &

KYC)

Changes in regulations

Source: KPMG, Survey October 2009

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 7

… Resulting in Less Time Spent with Clients

Booz & Company Survey – 60-70% of RM time spent on non-client value added activities

� Less than 15% of time spent with clients

� Scarce sales time allocated to ”friendly“ rather

than high-potential clients

� High cost staff undertaking low value-add

account servicing tasks

� High compliance effort at the side of the RM,

no pooling of admin efforts

22%

10%

10%

21%

14%

8%

15%Internal activities

Training

Issue resolution

Compliance

Post meeting

Client Meeting

Meeting preparation & travel

Source: Booz & Company

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 8

How Will the PB Model Adapt to Avoid Extinction and Grow?

� Bilateral double taxation treaties

� No aggressive tax optimization strategies

� Proof of declaration of assets

� Adaptation to today's client mentality vs. the second world war generation

� Cross-Border Market Access

� Investments in on-shore business; openings of local Representative Offices or branches

� Countries impose securities license for foreign banks to advise local residents (similar to US Person issue)

TECC, Budapest 2010 Current Issues in International Wealth Management & Private Banking // Slide 9

Cross-Border Risk Management – A Global Project Approach

� Review and update existing policy documents� E.g., client adoption, hold mail

� Establish new documents� E.g., cross-border business

conduct, tax assessment

Global policies and Guidelines

Cross-BorderRisk Management

Local Implementation

Advisory, Training & Communication Supervision, Monitoring & Testing

� Pilot project to gather experience� Further roll-out into locations

� Establish know-how sharing andidentify subject-matter champions

� Work with outside counsel where necessary

� Global Training Concept and Communication Strategy

� Involvement of supervisors’ and neutral functions in monitoring and testing

� Cross-border travel approval and review� Follow-up and report on implementation