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2019 Global Wealth Management Key Findings

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2019 Global Wealth Management Key Findings China Onshore Strategy – Foreign Financial Institution May 2020 Introduction Key speakers: Karen Ko Jay Sala Li Cui Partner Partner Chief Economist and APAC Financial Services APAC Financial Services Head of Macro Research at China Strategy & Operations Performance Improvement Construction Bank International Hong Kong Hong Kong [email protected] [email protected] [email protected] Also with you today … David Scott Loretta So Henry Zhu Michael Chen Andy Xie Partner Partner Senior Manager Senior Manager Senior Manager Financial Services International Tax and Risk Management – Financial Services Financial Services Risk Management Transaction Services Financial Regulation Strategy & Operations Strategy & Operations [email protected] [email protected] [email protected] [email protected] [email protected] Page 2 Agenda Introduction Financial liberalization The business case Navigating the path Market entries Target Operating Model (TOM) for China Page 3 Background: Financial Liberalization provides opportunities to oversea players 2020 is another fruitful year that sees new opening-up policies in China - fund management allows 100% foreign ownership from 01 April and China’s securities regulator have removed foreign ownership cap on domestic securities firm. Next year, WFOEs are expected to be allowed to apply for fund licenses and enjoy full stake in domestic targets to expand their China onshore capabilities. China further opens up financial sector series To date, EY has released a series of 8 POV reports covering the following agenda and beyond: ► The impact of the 11-point liberalization plan on the wealth and asset management industry ; exposure draft of the CSRC’s new regulations and a comparative analysis of the QFII and RQFII regime ► Opportunities to incumbent foreign financial institutions and challenges such as China’s unique operating environment – more details to be discussed later. Key regulatory milestones include: • Banking sector: CBIRC approved 18 applications for the establishment of the foreign-funded banks in the first 10 months of 2019 • Wealth and Asset Management sector: the timeline to remove foreign ownership cap has been moved For more details please forward from 2021 to 01 April 2020 ; > 20 foreign-funded institutions have obtained qualifications as access click here private securities investment fund managers • Securities sector: In Dec 2018, UBS Securities Co., Ltd (UBSS) became the first foreign-owned securities company in China Our latest series of thought leadership on “China onshore for Foreign Financial Institutions” : Blog series #0: How do Foreign Private Banks going onshore in China aim for maximum success? Blog series #1: Why should Foreign Financial Institutions accelerate their China onshore strategy? Blog series #2: What is the latest trend for Foreign Financial Institutions entering China onshore? Page 4 The Business Case Positive outlook of China Wealth Market Ranked 2nd globally for UHNW1 wealth in 2018; 14.1% rise in UHNW population was outstripped by a 32.8% rise in total net worth in same year Wealth in China is increasing … … and is driven by socio-demographic trends China individual investable financial asset size (RMB Tn) Top Financial Planning, Specialized Services used by Chinese HNW Investors: 2019 Next generation services (for inter- 34.9% generational transfer) 63.6% Personal financial budgeting and 38.0% planning 61.3% Planning and financial services for 39.5% businesses 60.5% Family office set-up and governance 42.6% advice 57.0% Current Considering/Planning in three years ► Individual wealth in China CAGR expected at 11% from 2019- ► By 2050, an estimated 330 million Chinese will be over 65 years of 2023 age ► Local players outpaced foreign private banks and asset managers ► The ageing population including the HNWIs demand specialized at +21.2% Vs +5.6% 2014-2018 CAGR services ► Inbound portfolio investment in China saw a CAGR +163% 2015 - ► Chinese’s saving rate is 3rd highest in the world – however local retail 2019 investors are shifting from saving to investing in recent years Note: 1) UHNMI is defined as an individual with investable assets over US$30m 2) Net investable assets (NIA) defined as financial assets, collectibles and precious metals held by HNWI+, less financial liabilities, main Page 6 residence, durables and consumables 3) HNWI is defined as an individual with investable assets between US$1m to US$4.9m. Sources: EY Analysis, market database The rise of client switching providers Average number of different wealth providers Increase or decrease in average % of respondents in APAC, i.e., net change of 7 6.66.7 expected usage Expected usage 6.1 6.2 5.9 6.0 (% of respondents) 5.7 5.6 5.5 5.5 The complexity 4.9 5.0 of client 22% 67% relationships 4.5 rises with 39% 62% investable 59% assets. 30% 22% 59% 19% 33% 2 17% 21% 0% 72% 20% Current number Future expected -15% 1% 65% 1/3 of clients plan to switch wealth management 34% providers over the next three years -1% 44% -13% Averaging >5 different types of wealth management 64% providers -6% Pricing (24% would switch for) ; Advisory capabilities (22%); Personal attention (22%); Technology (19%); Firms need to act now to retain and attract clients Quality and reputation (18%); Products (17%) Note: 1) It is not possible to show a country-level view of the life events due to small individual sample sizes 2) “FinTech” refers to new technologically-enabled services that enable investors to handle investment activities Page 7 without the need for human interaction Source: EY’s 2019 Global Wealth Management Research: Asia-Pacific key findings Navigating the path to going onshore in China A high level overview of key considerations from launch to business day 1 Timeline Define overall vision and Clarify guiding principals for the China ambition for Chinese onshore strategy: Overall vision market: - Ownership and control and strategy - Onshore and Offshore - China AUM contribution to the Group Overall market entry strategy: - Entry options - High level cooperation discussions - Analyze market size and Define corresponding Client & client profiling: product propositions: Product - Client requirements - Existing product mix and capabilities Strategies - Target client segment(s) - Ideal product offerings and gap analysis Pricing design and Design distribution channels, sales and competitiveness studies marketing strategy Define the future operating model according to the entry strategy: TOM design Agreed on target operating model Execute market entries plan - Location and - Organization & people JV Integration/ Acquisition/ Greenfield set operational - Products & services up planning TOM implementation set up - Finance and risk - Taxation considerations Define cyber security Define high level technology, data architecture, future and other IT regulatory Shortlist vendor/ partner Solution buildout, testing system blueprint that align with overall business strategy Technology requirement framework selection/ internal IT Define solution design and implementation and checklist Explore build, buy, partner strategies support Prepare for regulatory reporting required from Understand China regulatory landscape Prepare JV/ acquisition/license application Day 1 of business Regulatory Assess business feasibility and approval Monitor regulatory developments and ongoing likelihood of required licenses regulatory communications Acquisition or greenfield Establishing onshore presence Funding of pre-incorporation Tax configuration of IT system investment (WFOE / JV) - Location study and financial subsidy expense Fund launch – CRS and tax disclosure Tax - Potential restructuring and holding company R&D super deduction - Funding of the capital PMO and Set up governance framework Set up PMO toolkit, communication strategy, change Implementation roadmap Ongoing change management - Progress, issues and risk tracking change management and reporting mechanism management Page 8 Market Entries License Application An overview of China’s latest license application Entity type Securities Futures PFM WFOE Fund Management Foreign Bank Branch Foreign ownership 100% since 1 April 2020 100% 100% 100% since 1 April 2020 100% limit • Securities brokerage • Future brokerage • Buying and selling of • Buying and selling of • Deposits • Securities investment • Future investment stocks stocks • Loans consulting advisory • Equities, Bonds, Futures, • Equities • Financial advisor • Asset management Options • Bonds agreed upon in the Business • Underwriting and sponsoring • Fund units investment contracts scope issues of securities • Other investment objects • Securities margin trading agreed upon in the • Market making of securities investment contracts • Proprietary trading 20 working days after Regulatory 6 months after receiving all 6 months after receiving all 6 months for preliminary 6 months after receiving all receiving all required approval time required documents required documents review required documents documents Capital CNY 50 million to 500 million CNY 100 million No minimal requirement CNY 100 million CNY 200 million requirement based on planned business scope Public fund distribution; Asset management Bond Underwriting (CIBM); subsidiary; Investment Optional Public fund distribution (min. Bond Settlement Agent - - Advisory; QDII license; Corp licenses 3 year track record) (CIBM); Bond Trading Annuity management; Social (CIBM); Government Bond security management. and Market Making Page 10 M&A market – recent transactions
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