BI Deputy Governor Muliaman Hadad on Friday said the central bank would issue a special regulation on private banking services, only after the revelation of a scandal at Citibank Indonesia where a senior relationship manager had siphoned off more than US$2 million from clients’ accounts over a period of almost three years until her fraud was discovered a few weeks ago.
Later in December 2008, preliminary police investigations found how Bank Century (now Bank Mutiara) clients had lost more than $120 million because the investment products of PT Antaboga Delta Securities they bought turned out to be fraudulent. The bank customers seemed to have been lured and misled by Bank Century’s private banking officers to buy those fraudulent securities.
Yet more damaging were the suspicions that many big transactions through private banking seemed to smack of money laundering.
Testimonies in the trial of corrupt tax auditor Bahasyim Assifie in Jakarta in January and the preliminary findings of the investigations of the fraud at Citigold last week showed how private banking relationship managers often conducted big transactions in the homes of wealthy clients.
Assifie was sentenced in early February to 10 years in prison for corruption and money laundering worth around $7 million.
Many major commercial banks, amid the fierce competition to attract big depositors, have set up private banking departments or wealth management services especially to serve customers with deposits of more than Rp 500 million ($55,000).
Private banking is about much more than traditional banking services of deposits and loans.
But don’t confuse private banking with real private banks, such as Swiss UBS, Julius Baer and Credit Suisse, which serve only super-rich individuals. Julius Baer, for example, manages more than $190 billion in assets, and only accepts clients with at least $3 million to invest.
At ordinary commercial banks, the management assigns a relationship manager to each of the rich customers to provide a comprehensive menu of sophisticated products and services that cater for their particular financial needs. The managers address a client’s entire financial situation and needs that can increase fee-based incomes.
The problem, however, is that many of the wealthy clients have very low financial literacy. They are put under the wealth management (private banking) department not because of their educational level, but because of their big financial assets.
Thus many of them tend to fully trust their relationship managers for any transactions they need, unconsciously making themselves vulnerable to scrupulous practices by bank officials who, under fierce competition pressures for career promotions or bonuses, may resort to reckless dealings without taking into account the risk profile of their customers.
Given the increasingly fierce competition in the banking industry, bank managements also tend to reward relationship managers only for the number of wealthy clients or the volume of clients’ financial assets they can bring to their banks, disregarding manners and protocol for how such achievements should have been made.
This is the main reason why BI should establish a strong oversight mechanism and enforce a stringent code of conduct for private banking services.
From : The Jakarta Post
