Timizzer analysis of Singapore as a major financial hub for European financial firms
Singapore has a long history of establishing itself as one of the major financial and trading hubs that serves as a gateway for global commerce. This foundation has been firmly established by the early pioneering policy makers, who possessed the vision of transforming Singapore into a First-World country in the next decade, following the early years of independence from the United Kingdom in 1965. In this article, I shall examine the attractiveness of Singapore as a major financial hub, and how European financial firms find it appealing to send up their operations in the country.
Singapore is strategically located at the crossroads of major shipping routes that link Europe to the major gateways in Asia and the Americas. Having a strategic location, during the early years since independence in 1965, policy makers have initiated the process of establishing the necessary transport, systems, and infrastructure needed to support the country’s development process. The policy makers recognised the importance of ensuring the commerce and trade flows were smooth in order to move the economy forward. Banking and financial infrastructure were part of the overall development of the early economy of Singapore. This early policy move garnered overwhelming support from local, and foreign business communities, who had their operations set up in Singapore in the early independence years, and will like to expand internationally. Such expansion plans require huge amounts of good and efficient infrastructure networks, and they were willing to provide the necessary advice, expertise and support that will help to encourage the early development of Singapore’s progress towards establishing itself as a major financial powerhouse of significant standing among the developed economies.
During the early years of independence, European financial firms such as Standard Chartered (StanChart), and HSBC, have set up their banking operations in Singapore, mostly concentrating on serving the institutional clients, dealing with trade finance, shipping, and as well as serving as a loan provider for many local business establishments seeking to expand overseas. With the growth of affluence and development seen in many Asia-Pacific economies lately, there has been a shift of the banking strategies towards the high net worth individuals. Singapore is touted as the ‘Monaco of the East’, and currently rivals Switzerland as one of the important wealth management hubs in the Asia Pacific region.
With the rising tide of the up and coming wealthy individuals, the opening of the two casino and entertainment resorts (Marina Bay Sands, owned by parent company, Las Vegas Sands Inc. (NYSE: LVS), and Resorts World Sentosa, owned by parent company, Genting Singapore), the opportunities available in many regional economies, etc., many European financial firms such as UBS, Barclays, Coutts, RBS, Deutsche Bank, have recognised these trends, and have firmly established their Asian operations in Singapore. The time zone differences with major foreign exchange hubs such as London, and Tokyo also served well for Singapore as far as conducting trade and foreign exchange transactions.
The wealth management businesses of many of these European financial firms have taken on a new direction, especially when Europe is currently in recession, and there is a flight of capital waiting to be utilised in countries such as Singapore. Singapore has long been regarded as having a liberal tax regime, with corporate and individual tax rates kept low. Several business trusts have designated their domicile status in Singapore. However, such a phenomenon does not come smoothly as seen by the recent European Union (EU) plans to clamp down the so-called ‘tax’ havens, including European countries such as Belgium, Liechtenstein, Malta, and Switzerland, among others, and some Caribbean island nations, such as Cayman Islands, Bermuda Island, etc. The authorities, such as the Monetary Authority of Singapore (MAS) are mindful of the potential backlash if there is no imposition of tough rules on enforcing its anti-money laundering regulations.
Recently, as a result of intense scrutiny by the US Department of Treasury, and EU, regarding potential tax evaders trying to shift their wealth to countries such as Singapore, local authorities have ordered local banks, including foreign ones to start implementing strict compliance standards in vetting all accounts that deemed to have suspicious links. These enforcement rules could be seen as quite harsh, and might impact Singapore’s status as a favoured banking destination, but, the local authorities do recognise that Singapore has a reputation to be protected at all times, and there could be some rationale in instituting tough enforcement regulations to protect itself from being criticised, and worst, sanctions that might be imposed by the overseas financial regulatory bodies as far as business dealings are concerned. So far, the regulations have received some lukewarm reception, with many financial firms, not wanting to risk having to violate the new regulations, have started to train their staff members, and instituting tough compliance procedures. These include European financial firms as well, who will want to continue to retain their banking licenses, and will do everything not to risk being backlashed by the local authorities.
In all, as readers might notice that Singapore does have many potential favourable conditions offered to many European financial firms seeking to establish a foothold in the country, and providing a well-diversified suite of financial services, including private wealth management products/services. Although, strict rules are bound to cause some inconveniences in terms of enforcement of tough compliance procedures, it could also serve as a hallmark of trust, much like the ‘Good Housekeeping’ label that is being endorsed by the widely recognised magazine for excellent product/service quality standards.