As published on: asia.nikkei.com, Friday 24 November, 2023.
The pace of inquiries to set up family offices in Singapore has slowed amid an investigation into a case of massive money laundering in the city-state, though some remain hopeful that the wave of Chinese wealth flooding into the city has not yet crested.
The number of single-family offices in Singapore nearly tripled from 400 in 2020 to about 1,100 by the end of 2022, data from the Monetary Authority of Singapore (MAS) shows. No official breakdown by country of origin is given, but lawyers and wealth advisors in Singapore have been courting wealthy Chinese looking to diversify from their home country.
That, however, was before Singapore police arrested 10 foreigners in August in connection with the biggest money laundering case in the city-state's history. Police allege the people laundered money made from illicit and illegal activities in Singapore.
"Recently, the number [of inquiries into family office setups] has dropped because authorities have tightened the requirements following money laundering activities," said Edmund Leow, senior partner and head of tax practice at Dentons Rodyk.
"There is also some suspicion that some families were setting up family offices in order to obtain an immigration status in Singapore, rather than for the purpose of managing their funds in Singapore," he added. This practice is frowned upon by the government.
Kia Meng Loh, who co-heads high net-worth and family office practices at Dentons Rodyk, also said the pace of inquiries has slowed.
"During COVID, we were fielding two to three queries a week at the peak. But now, it's like two to three inquiries every month," Loh said. "Those who are still interested are quality clients who know they can fulfill the higher thresholds and are serious in locating their family offices in Singapore."
A Chinese law firm that has looked into establishing an office in Singapore to target Chinese wealth going into the city is also cautious about a slowdown in such flows in light of the recent investigation, a lawyer at the firm told Nikkei Asia.
A spokesperson for MAS told Nikkei Asia that it "continues to receive a high volume of applications for tax incentives by single-family offices," but said the application process has become lengthier.
"The screening process by MAS has also lengthened in view of the more stringent criteria for tax incentives announced in 2022 and 2023 and greater scrutiny following the money laundering arrests in August 2023," the spokesperson said. It now takes around nine months to a year to process an application.
Francis Liu, CEO for private clients in Asia at Swiss private bank Lombard Odier, said the investigation could make clients more cautious about opening additional accounts. Capturing offshore Chinese wealth is part of the bank's focus in key Asia markets including Hong Kong, Singapore and Tokyo.
"Under a risk-off environment, do you really need to be actively seeking for new account opening? This is questionable," Liu said. "[The MAS investigation] could possibly hinder the appetite of actively seeking onboarding of a new financial institution."
It is not possible to say how the case will impact new wealth coming into Singapore until the investigation is over, Liu said. Longer term, however, he believes that financial institutions in the city will continue to attract global clients seeking diversification.
"There are still opportunities. But whether it's going to be China per se, it is hard to tell. Clients have gone through different cycles over the last few years," Liu said.
Many are hopeful that Chinese wealth will keep coming.
"Push factors for wealthy Chinese to go to Singapore remain strong," said a regional head of philanthropy services with another European private bank, noting that Hong Kong is no longer seen as a safe haven from Beijing's reach. "Safety and residential rights remain key for such clients," he said.
Inquiries still coming in from China include entrepreneurs in e-commerce, biotech, private equity and hedge funds, according to bankers and lawyers.
"I think we haven't seen the tail end of this move," Gregory Kallinikos, CEO for Asia Pacific for investment bank StoneX Financial, said of the flow of Chinese funds into the city. The question, he said, is when the wealth of risk-averse investors who are sitting on the sidelines at the moment will be truly deployed.
"The amount of money in [Singapore from China] is second to none, and I don't think many people want to talk about it," Kallinikos said. "The authorities in China know about this. The question now is, how will that capital be deployed? What will be the opportunity?"