Monaco hints at using multi-family offices to renew its position as a financial centre after passing relevant legislation.
The idea of private banks being supplanted by multi-family offices alongside asset managers in Monaco has made headway since the National Council – the Monegasque Parliament – passed a law on 29 November 2016, aiming to regulate the activity of MFOs (multi-family offices) in the Principality.
Amendments to the draft law put forward by the Monegasque government, allowing banks and asset managers to establish MFOs in the Principality and the ability given to MFOs to manage portfolios, were finally removed to avoid possible conflicts of interest.
“The law will spur foreign residents of Monaco to favour local MFOs rather than those of their countries of origin. It is estimated only 10% of the assets of Monaco’s foreign residents are currently deposited in banks established in the Principality. There is a huge potential to explore here,” says Thierry Crovetto, the rapporteur of the law on MFOs and CEO/independent fund analyst at TC Stratégie Financière.
Monegasque MFOs will be categorised in one of two ways: some will only focus on administration but will not be allowed to process financial transactions, while those in the second category will be able to transmit financial orders and provide financial advice to their clients.
The second type of MFOs will need both authorisation from Monegasque regulator the Commission de Contrôle des Activités Financières (CCAF) and the Monegasque government, as well as starting capital of €300,000.
“A few legal safeguards have been enshrined in the text. The remuneration will be that pertaining to clients only. In addition, banks and asset managers cannot be major shareholders of MFOs that will establish themselves in the Principality. We do not want to see asset managers selling their products through the setup of MFOs in Monaco,” Crovetto explains.
He notes that the new law has sparked interest from Monaco-based single family offices wishing to turn themselves into multi-family offices, but also from Swiss family offices interested in establishing subsidiaries in Monaco.
The change comes after a number of years of consolidation in the private banking sector locally.
“We had around 45 private banks in 2009 and in 2017, we expect to have less than 30 in Monaco,” Crovetto estimates.
“The banking world is changing as it enters ever more into the digitalisation era. A shift is happening. Tailored services will be brought by other financial structures such as MFOs rather than banks,” he adds.
Throughout 2016, a series of changes took place: Safra Sarasin acquired Credit Suisse Monaco in March, while Goldman Sachs shut down its representative office, and HSBC announced in October the bulk of its private banking clients in Monaco were moving to CFM Indosuez Wealth Management.
Monaco changing to become increasingly seen as an onshore rather than off-shore financial centre is one factor seen to be behind these deals.
The Principality signed an automatic exchange of information agreement with the EU in February 2016, which is to be ratified by 2018.
Costs associated with regulatory compliance, for example, in response to Fatca, have favoured M&A in the space. Meanwhile, the low-rate environment has continued to weigh on local banks’ profitability.
But job cuts in the Monegasque banking sector pose a threat to Monaco’s social security and pension schemes, Crovetto highlights.
“Jobs could be trimmed amid reshuffle ongoing in the local banking space. These jobs need to be recreated to maintain the system, but it remains difficult to open new positions in Monaco in certain sectors such as industry.
“By voting in the law on MFOs, we are seeding future jobs. But that will not effectively happen before three to five years [from now] as MFOs will grow slowly as an emerging business,” he adds.
Another axis to focus on for Monaco could be the development of foreign funds managed from the principality in parallel to the emergence of MFOs, Crovetto believes.
Some €12.3bn in assets of foreign funds – French and Luxembourg Ucits funds – are advised on or managed by Monaco-based companies.
They were also managing or advising some €19bn of assets deposited outside Monaco as of end of December 2015.
Monaco’s market size in figures
- €49.2bn Assets managed and/or advised by Monaco-based companies
- €14.9bn Assets under discretionary management
- €17.9bn Assets under advisory
- €12.3bn Assets in foreign funds managed by Monaco-based managers
- €4.1bn Assets managed in Monaco-domiciled funds
As at 31 December 2015. Source: 2015 annual report, Commission de Contrôle des Activités Financières (CCAF)
This article was first published in the December 2016/January 2017 issue of InvestmentEurope.