Asian Private Banking Abuzz with UBS China Fiasco

Onshore China, and its rapidly growing billionaire population, is a target for most private banks in the region. UBS has arguably the best-established franchise in the competitive onshore market. Chinese regulators require foreign banks such as UBS to obtain licenses in each jurisdiction that they operate. UBS opened branches in both Beijing in 2014 and Shanghai in 2016 offices, amidst much fanfare and presumably at great cost.

Due for Interview Next Week

A female relationship manager at Switzerland’s biggest bank this week was detained at the airport in Beijing, according to a source familiar with the matter. The authorities allegedly held the UBS banker on grounds of illegally soliciting business, the source told.

The relationship manager may have violated stringent Chinese onshore regulations, which declare illegal the marketing and sale of offshore financial products.

The banker will be interviewed by Chinese authorities next week, according to information obtained. She has however received back her passport, which had been confiscated. The reasons for her detention remain unclear.

Strong Message

The Swiss bank will not comment on the detention of one of its bankers, but said that it had very stringent rules set for its bankers. «This is a strong message from the regulator that it will not tolerate fly in banking,» says one senior banker at another Swiss finance firm. The practice of «flying in» bankers, ostensibly for legitimate onshore reasons ranging from client meetings to golf trips – was one favored by many banks in capital controlled markets such as Taiwan and India.

It was, however, abandoned as banks – Swiss wealth managers in particular – ran into trouble with regulators in these onshore jurisdictions.

«Breached Lines»

«Chilling» is how another senior manager at a European bank described the developments. «The fact that it is a UBS banker – and not one at a smaller shop – is indicative of how determined the regulator is,» he explains.

A head of Taiwan business at another private bank says, «the line continues to be breached several times in onshore markets,» but it is likely there will be systemic reluctance among both bankers and their banks after the latest incidence.

Hands-Off in China

What this means for banks that have made deep investments in the China onshore market and are under considerable pressure to «move out of investment phase» is unknown. For the savvier ones, this is likely to be an inflection point.

«It is certainly hands-off China for the moment and we will implement no-fly restrictions in any case where it is ambiguous whether the purpose of the visit is strictly onshore,» confirms the senior manager.