In recent years family offices have been a focus of attention for the wealth management industry in Asia. This has been driven, in the main, by increased wealth in the region, a desire to adopt more formal, private and bespoke structures for such wealth, and the continued growth of Hong Kong and Singapore as global financial centres[i].
There has been a view[ii] in the industry that Singapore is a more attractive location for family offices than Hong Kong because it has a more favourable regime[iii]. Many practitioners have expressed a belief that “Hong Kong should introduce family office legislation like Singapore”.
Whilst family offices for ultra-high net worth families have existed for many decades in Hong Kong, it is clear that there has been recent increased focus on family offices in Hong Kong’s wealth management industry. The Asset and Wealth Management Activities Survey 2018, issued by the Securities and Future Commission, (SFC)[iv] reports figures for assets held for “family office and private trusts” and “family offices served by the Hong Kong PWM industry”. Other “multi-family offices” have launched – often with strong ties to the People’s Republic of China (PRC).
The Hong Kong Private Wealth Management Report 2019[v] sets out the view that Hong Kong should attract “more family offices” and that certain changes[vi] would assist with this. Furthermore, the respondents were of the view that Hong Kong’s institutions need to “shift their focus from ‘old money’ western family offices, to ‘new money’ family offices”[vii].
Family offices became even more topical in Hong Kong at the beginning of this year. In January 2020, the SFC issued a “Circular on the licensing obligations of family offices”[viii] . This was followed by the Family Office Symposium at which it was said[ix] that the Hong Kong Monetary Authority (HKMA) had “been working closely with the industry in further enhancing Hong Kong’s competitiveness as a family office hub” and also announcing other initiatives such as a new contact point at InvestHK for family offices.
Last year DBS and EY produced a very detailed report entitled “The Asian Family Office”[x] providing a lot of detail in this area and comparing Hong Kong and Singapore.
Family office is a very wide concept[xi] and has a large number of meanings[xii]. Of the items referred to above, only the DBS/EY Report discusses in detail the nature of a family office[xiii] but has to set out its own definition - concentrating on what would generally be accepted as a single family office rather than a multi-family office or external asset manager.
In the main, regulation is based on whether or not a certain activity is being carried out. The relevant rules may then apply differently (or not at all) depending on the nature of the activity - for example whether it is “by way of business[xiv]” or whether the service is provided to / for the benefit of recipients fitting some form of qualification – such as level of wealth (the concept of “sophisticated investor”), relationship or residence. The appropriate regulatory regime would then apply.
What the provider of the services calls itself or how the services being provided are described is not in the main the focus of regulation[xv]. As the meaning of the term is understood, the widest forms of single family office can provide some or all of a wide range of services from asset management and investment, family governance, succession planning and trusteeship to charity, philanthropy, legal, tax, education and concierge services[xvi]. In fact, a number of these services are best served by separate entities[xvii] and so the family office may not in fact be one single entity.
Such services are potentially wide in scope and most often regulated. In Hong Kong and Singapore, for example, asset management business is regulated, trust business is regulated, legal services are regulated, and travel agency is regulated. It is necessary to look at the nature of a particular family office’s services to determine whether a family office would need to be licensed for that activity.
“Family offices” per se are not separately regulated or licensed in Hong Kong or Singapore[xviii]. By way of illustration, the SFC Circular states “In Hong Kong, there is no specific licensing regime for family offices”.
A set of FAQs from the Monetary Authority of Singapore[xix] states at paragraph 17 that “the term ‘single family office’ is not defined under the SFA[xx]” and “it is not MAS’ intention to license or regulate SFOs”. There are existing class exemptions from licensing under the SFA and FAA[xxi] for the provision of fund management and financial advisory services respectively to related corporations.” In addition, it is also possible for a single-family office to seek a case by case exemption if it is, in substance, managing funds on behalf of a single family only.
Thus the exemptions relate to the recipient of the services. The majority of family offices set up in Singapore avail themselves of specific asset management exemptions. The “Global Investor Programme[xxii]” also refers to investing a sum of money into a “Singapore based single family office” as being one of the routes to residence.
The exemption to regulation is mirrored in the SFC Circular: “if the services provided by a family office do not constitute any regulated activity or they fall within any of the available carve-outs[xxiii], the family office is not required to be licensed under the SFO[xxiv].”
But should family offices themselves be regulated?
By way of comparison it is worth looking at other jurisdictions where “family offices” are specifically regulated (as opposed to jurisdictions where family offices are set up) or where the term “family office” finds itself in regulations.
The Dubai International Financial Centre (DIFC), Qatar Financial Centre (QFC), Luxembourg, Monaco, the Cayman Islands (Cayman) and the British Virgin Islands (BVI) are six such jurisdictions. Each shall be considered briefly. There are, no doubt, others such as the Dubai Multi Commodities Centre and Abu Dhabi Global Market , and many financial centres are key players in the family office environment without having specific family office legislation but often having funds regimes and private trust company regimes which are focused on single families.
The DIFC introduced regulations for single family offices in 2008 and amended them in 2011. These define a “Single Family”, a “Single Family Office” and the relevant services[xxv] which may be provided to a “Family Member”, a “Family Fiduciary Structure”, a “Family Entity” or a “Family Business” in a manner that would be expected. Interestingly, in May 2019, a consultation was launched to revise these regulations and change to multiple family offices i.e. a family office could provide services to more than one qualifying single family[xxvi].
The QFC similarly has comprehensive guidance from December 2013, defining a single-family office and a wide range of services which are covered[xxvii].
Luxembourg has a law relating to family office services[xxviii]. Service providers are required to register and carry out Anti Money Laundering (AML). It does not apply to single family offices.
Monaco, similarly, in 2016 introduced a law[xxix] for “multi-family offices” which, with a certain degree of regulation, are able to perform a number of services.
Cayman has introduced the concept of “single family offices” in respect of fund management and related AML. The Securities Investment Business (Amendment) Law, 2019 introduced the concept of a “single family[xxx]” and a “single family office” for the purposes of securities investment business for such single family. A consultation on AML for single family offices was also put to the industry[xxxi]. A “single family office is also an excluded category to the new Private Funds Law (2020). This is not dissimilar to the result in Hong Kong and Singapore.
In 2018, the BVI passed the Banks and Trust Companies (Amendment) Act, 2018. This introduced the concept of a Class IV Trust Licence for trust business and company management business “managed by family offices and other closely held groups”. The Act allowed for the BVI Regulatory Code to provide further details, but this has not yet been done!
Based on global trends, it would seem that there is no impending need for Hong Kong to specifically legislate for family offices. The best approach would appear to be changes or clarifications to existing regulations in order to attract family offices to establish in Hong Kong to utilise the services available.
[i] See e.g.: (a) “The rise of family offices in Asia” Financial Times 26/6/15; (b) “How Asia’s new money is driving boom in “family offices” in Hong Kong and Singapore…” South China Morning Post 6/11/18; (c) “Billionaire James Dyson’s Family Office Hiring In Singapore” Bloomberg 25/9/19.
[ii] Such a view pre-dates Hong Kong’s social and political disruption which increased notably during the latter part of 2019.
[iii] See by way of current example: “Hotpot Queen Opens Family Office in Singapore to manage wealth” Bloomberg 5/3/20.
[iv] July 2019.
[v] Produced by KPMG and the Private Wealth Management Association and issued on 8/10/19.
[vi] At p30 specifically in relation to trades relating to complex products.
[vii] See p16.
[viii] 7/1/20 “SFC Circular”.
[ix] Edmond Lau at the Asian Financial Forum 14/1/20.
[xi] See e.g. The Global Family Office Report 2019 by UBS/Campden Research at p8
[xii] See e.g.: “Advising Ultra –Affluent Clients and Family Offices” by Michael M. Pompian CFA, CFP at pp261-2 identifying three types.
[xiii] P5. The SFC Circular does offer a brief description.
[xiv] Frequently an area of debate.
[xv] E.g. where there is a risk to the public there are some restrictions to the use of words such as “Bank”, “Trustee” etc.
[xvi] Illustrated on p8 of the DBS/EY Report.
[xvii] Trustee companies would often be used to own fund management companies and asset holding vehicles.
[xviii] It is understood that Singapore is considering further regulation.
[xix] FAQs “on the licensing and registration of fund management companies”. Last updated 8/10/18.
[xx] Securities and Futures Act (Cap.289)
[xxi] Financial Advisers Act (Cap. 110)
[xxii] A residence programme for Singapore administered by part of the Singapore Economic Development Board. Amended from 1/3/20.
[xxiii] there is an intra-group carve-out provided the structure meets the definition.
[xxiv] Securities and Futures Ordinance.
[xxv] Investment, fiduciary, accounting, philanthropy, governance, concierge
[xxviii] The Family Office Act 2012.
[xxix] Law 1439 2/12/16.
[xxx] Requiring a degree of connection to one another in a similar manner to Cayman’s Private Trust Company Regulations.
[xxxi] Anti-Money Laundering (Single Family Office) Regulations, 2019
Richard has worked as a lawyer in Jersey, UK, Cayman Islands and Hong Kong, and is a leading offshore private wealth adviser in Asia. He specialises in private wealth, succession planning, trusts, family office, offshore structuring, economic substance, governance and related matters. Member of STEP global steering committees for Business Families and International Client. Member of STEP Hong Kong Branch Executive Committee. Member of the International Academy of Estate and Trust Law.