The launch of the Wealth Management Connect (WMC) Scheme in the Greater Bay Area (GBA) is expected to create a combined flow of funds of more than RMB 300 billion, leading to a vast number of opportunities for financial institutions across the region.
At the recent “APAC WealthTech Talks: Keys to Success GBA Wealth Management Connect (WMC)” organised by The Wealth Mosaic on 12 October 2021, Synpulse experts joined a panel of thought leaders to share their knowledge and insights on the WMC Scheme, and the potential challenges and opportunities Hong Kong banks may encounter.
Synpulse’s Director and Head of Business Innovation and Growth Andreas Mettenberger and Senior Consultant, Regulatory Compliance and Risk in Greater Bay Area Subject Matter Expert Marina Mai were joined by Thomas Tse, Director, Client Solution Greater China of InvestCloud, and moderator Mario Bassi, Senior Advisor and Lead Business Development APAC from The Wealth Mosaic.
Below are some key takeaways and insights from the session:
The Greater Bay Area, which is made up of Hong Kong, Macau, and nine cities in the Guangdong province, is considered to be the world’s wealthiest region. The region has more than 450,000 high-net-worth (HNW) families with over RMB 6 million, and an aggregate estimated RMB 2.7 trillion, in investable assets across the region. With the significant integration of the financial markets across Guangdong, Hong Kong, and Macau in recent years, the regulators announced at the end of June 2020 a cross-border investment scheme that targets the retail market in the GBA, the WMC Scheme.
After more than a year’s preparation, the WMC Scheme was officially launched in September 2021. The pilot scheme allows any institutions, which are registered under the Securities and Futures Commission (SFC) of Hong Kong to carry out Type 1-regulated activities and engage in the retail or private banking business in Hong Kong, to participate. The Scheme can also be further broken down into two parts: Northbound and Southbound Schemes.
The Scheme also allows eligible GBA residents to invest in wealth management products distributed by participating banks. Products that can be sold are set to be low-to-medium risk investment products, and the individual investor quota is set at RMB 1 million on either side of the Northbound and Southbound Schemes.
There are more than 200 banks in the Guangdong province, nearly 240 licensed banks in Hong Kong and Macau, and 21 banking groups with presence in the region. Many of them are said to be ready for the launch of the scheme, with most banks fully ready for the execution-only phase, apart from fund transfer, where some work still needs to be done to form a close-ended loop.
According to news sources, many banks also have in place strategic plans for the GBA. And through conversations with the industry, most will leverage their existing platforms to serve their WMC clients while looking out for new ideas that can support massive growth in the future.
By providing the general investors in the GBA region with access to wealth management products across the border, the WMC Scheme not only further connects the two financial markets between Hong Kong and Mainland China, but also opens the investment product universe for investors on both sides. As the exchange of RMB and HKD or other currencies will happen in Hong Kong for both Northbound and Southbound Schemes, the Scheme will strengthen Hong Kong’s position as an offshore RMB hub.
Furthermore, the Southbound Scheme involves investors from nine Mainland cities, opening personal investment accounts with Hong Kong banks and remitting funds through a close-ended loop to purchase investment products sold by the Hong Kong banks. This implies that the participating banks should have an established experience in developing cross-border RMB settlement business, the necessary internal control systems for carrying out related businesses, and operating procedures to ensure compliance.
The challenges that the banks have been facing in the last 12 to 18 months due to the COVID-19 pandemic are similar to the challenges they will face when implementing the WMC Scheme. And the solution remains the same: to enhance their digital capabilities.
Client digital onboarding and e-banking capabilities have been key digital features in the retail segment since long before the pandemic. Instead, what becomes more important is the digital engagement between the banks and their customers, such as instant messaging capabilities (e.g., Zoom advisory), integrated advisor portal and client app, and self-service management (e.g., portfolio construction via e-banking).
The private banking segment might grow an interest in the Scheme if the future development of the WMC Scheme includes the expansion of product scope, the lift of the investment ceiling threshold as well as the allowance of advisory services as a core capability of private banks. Some private banks have been observed to begin investing more in their digital capabilities and digitalising their operating model.
To design a fit-for-purpose operating model for the WMC Scheme, banks need to consider frameworks, processes, and organisational structures that can run smoothly under the Scheme’s regulatory requirements. The model should be dynamic enough for the foreseeable extension of the Scheme (e.g., a higher volume of trade quota, the introduction of more complex products, or even the permission of solicitation or recommendation in the future).
The Hong Kong Monetary Authority (HKMA) has been supportive in the adoption of technology or fintech and regtech from a strategic standpoint, with the use of technology being allowed — or even encouraged — in detailed rules within the WMC Scheme circulars. Specifically for the account opening arrangements and the sales and promotion process, which involves interaction with customers, regulators provide ample room and flexibility for the adoption of technology.
As the goal of the WMC Scheme is to serve investors across the border, requiring the customers’ physical presence at the branch can be very difficult. Having fully functional and user-friendly systems for account opening and investment order placement are almost essential.
The benefits, which digitalisation can bring to Hong Kong banks in the long run, are immense. These include reducing manual work, driving operational efficiency, improving customer experience in the digital engagement, streamlining the whole value chain, and making sure that the latest product and client investment information can be disseminated to their customers efficiently.
Especially since the pandemic, banks are leaning more towards digital solutions for account opening processes. Well-built apps and e-banking platforms can help facilitate the investment or fund transfer process in the WMC Scheme.