Comment: Coutts, the government and client confidentiality
Coutts & Co can trace its history back to the late 17th century and during that time it has experienced recessions, depressions, financial turmoil and various changes of ownership. But never in its more than three hundred years of existence has it been owned by the government – that is until yesterday.
The Queen’s bank, as it is often referred to in the UK, is 100% owned by the Royal Bank of Scotland, which yesterday ended up being bailed out by the British government to the turn of £20bn – and effectively passing 60% control over to Whitehall.
Coutts contributed nothing to the sad state of affairs RBS now finds itself in – described by many as one of the biggest banking humiliations in the history of British finance – but it might have to bear some of the consequences.
This is because it can be argued that government ownership – however that is structured – is incompatible with private banking.
For one thing, the media, and politicians, are becoming critical of the parties thrown by private banks for their clients. Coutts has yet to appear in their sights, but derogatory articles have just appeared about a lavish party held for Dexia’s private banking clients in Monaco’s most expensive hotel literally days after it was bailed out by the Belgium, France and Luxembourg government.
For another, whatever the rights and wrongs about private banks being bailed out by governments, Coutts will need to deal with the issue of client confidentiality.
Coutts has a substantial business in Switzerland and Singapore – two offshore centres that pride themselves on the importance of banking client confidentiality.
But the British government, along with a host of other governments, is cracking down on undeclared accounts held in offshore centres. In August, HM Customers and Revenue said that it would intensify its crackdown on undeclared offshore accounts.
Whatever the truth, Coutts clients are likely to fret that the British government might now be in a position to get access to Coutts accounts and make sure they are properly paying their tax. How might many of Coutts’ clients feel now that the bank is effectively owned by the British government – especially ones with offshore bank accounts?
Similar considerations, as regards the German tax authorities, have not encouraged Swiss private banks to sell their souls to Deutsche Bank over the years, despite the superficial synergies. The UK government’s original stance on the non-dom status of individuals was particularly unpopular with the wealthy because it suggested confidentiality would be breached.
Coutts is quick to point out that its owners have never had access to client accounts, and will not do so in future.
A spokeswoman for your bank said: “Shareholders are not entitled to seek access to client information. As the government becomes a shareholder in our business, we would expect no change to the rules and principals of banking and confidentiality.”
The bank also makes the point that the Swiss and other offshore centres are regulated by the jurisdiction they are in, not the UK.
“RBS Coutts is regulated in Switzerland, under Swiss law. Coutts & Co is regulated in the UK, under UK law and the exchange of client information between the two companies is not permitted, except with the expressed permission of the client,” said the spokeswoman.
Nevertheless, however unjustified their stance, there might be quite a few clients of Coutts that will be feeling a little less secure then they did before one of the world’s oldest private banks passed into government hands yesterday.
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