world of private clients 2020

THE DIRECTION OF TRAVEL IS CLEAR AND UNDERSTOOD | PRIVACY CONCERNS PERSIST AND DEEPEN

THE DIRECTIONOF TRAVEL IS CLEAR AND UNDERSTOOD TRANSPARENCY

GRAPHIC 5:

However, there is a downside to transparency – and privacy is the main price that is paid. The CRS has mechanisms to safeguard the secure transfer of data, but these procedures continue to be tested and must keep pace with technological advances to ensure leaks do not occur. Another APAC-based fiduciary says the problem comes when information is publicly available, either by design or by virtue of leaks, which “creates a sense of unease when data is floating about in the open”. This gives rise to associated concerns around physical safety, for example where information falls into the hands of criminal actors. Our research shows that 70.8% believe HNWIs are moderately or very concerned about the privacy and safety risks posed by tax transparency and reporting requirements (Graphic 4). A mere 2.4% are “not at all” concerned about such risks. “When you consider personal safety, does the public really need to know?” asks one Hong Kong based trusts and family office services provider, who has also worked in North America. This is echoed by a European trusts and fiduciary structures specialist who asserts that “shaming in the press is wholly wrong”.

Nonetheless, public scrutiny and the reputational risks of being thrust into the media spotlight or court of public opinion must be considered. A majority of HNWIs take issue with the public nature of certain transparency requirements, and the vast spectrum of new stakeholders that creates. Public beneficial ownership registers have questionable benefit, says one intermediary who believes such mechanisms are “fundamentally wrong” and may constitute a “breach of human rights”. Unfortunately, complying with the letter of the law guarantees nothing. While matters of law should be cut and dry, HNWIs must also decide what level of explanation or justification they attach to their structures, in the face of public interest and access. This is reflected by 92.4% of respondents factoring in concern for personal or family reputation when making decisions around tax structuring and compliance, with 59.2% saying it either “moderately” or “very much” impacts their decision-making (Graphic 5). “There is no objection to disclosing information, per se, but there are objections depending on the audience,” summarises one lawyer. Reputational concerns, therefore, are now a defining factor in HNWI decision-making.

PRIVACY CONCERNS PERSIST AND DEEPEN Hailed as an unequivocal good by authorities and regulators, the reality is that transparency is a double-edged sword. Our research reveals the extent to which private clients harbour concerns around information falling into unscrupulous – or merely untrained – hands. Remaining compliant with tax and regulatory authorities is both expected and accepted. “Clearly, there is a need for authority access,” says one corporate lawyer in Cyprus. With the OECD-led Common Reporting Standard (CRS) overseeing information exchanges since 2017, individuals are accustomed to the automatic exchange of information between authorities in participating countries (those that are on the CRS’ ‘reportable jurisdictions’ list). Such measures have contributed to a reduction of deposits to offshore jurisdictions and estimates from the UK’s ‘No Safe Havens’ 2019 report suggest that automatic information exchange now covers 90% of global GDP. But despite signs of the initiative’s effectiveness, campaigners in some jurisdictions want transparency to go further still.

TOWHAT EXTENT HAS CONCERN FOR PROTECTING PERSONAL & FAMILY REPUTATION BECOME A DEFINING FACTOR IN DECISIONS AROUND TAX STRUCTURING AND COMPLIANCE?

38%

34%

21%

very much so

moderately

not particularly / no different to previously

not at all

WORLD OF PRIVATE CLIENTS | NOVEMBER 2020 10

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