Data exchange to combat tax evasion seen affecting Hong Kong private banks

An upcoming international information exchange system will affect the private banking industry and a number of companies in Hong Kong and Singapore, say analysts.

The Common Reporting Standard is the Organisation for Economic Co-operation and Development's (OECD) and G20's version of the Foreign Account Tax Compliance Act, a United States law designed to combat tax evasion.

The standard is due to start on December 31 next year, when financial institutions in participating jurisdictions are expected to collect information on new clients and conduct due diligence on existing clients. From January 2016, there should be automatic exchange of tax information among 44 early-adopter states.

"These changes will create much greater challenges for wealth management firms everywhere," said Richard Weisman, a lawyer with international law firm Baker & McKenzie.

The early adopters of the standard include Britain, Germany, France, as well as offshore centres like Bermuda, British Virgin Islands (BVI) and Cayman Islands.

"With the Common Reporting Standard, the ability for people to hide their money in banks is going to disappear. The ability to hide behind an overseas company will be a thing of the past," said Charles Kinsley, China tax principal at KMPG.