Keeping compliant: Navigating SFO regulations globally

The world of Single Family Offices (SFOs), organisations dedicated to managing the wealth and serving the needs of a single high net worth family, is undergoing significant transformation. As global political dynamics shift, including elections, conflicts, and legal developments, SFOs are increasingly considering relocation to adapt to these changes, and the centre of gravity for new SFOs is changing. The 2024 UBS Billionaire Ambitions Report highlights a growing mobility among billionaires, who are becoming more geographically diverse, while wealth can move around the globe more frictionlessly than ever before, adding complexity to the management of their affairs. This trend is mirrored in the SFO sector, with emerging wealth centres challenging established jurisdictions.

Family offices have traditionally focused on financial services, but now offer a holistic suite of services, including financial education, concierge, transport, and protection. While SFOs cater exclusively to one ultra-high net worth family, Multi-Family Offices (MFOs) serve multiple clients. Globally, there are approximately 10,000 SFOs and 5,000 MFOs, according to a report by DBS Private Bank and the Economist.

Regulatory approaches to SFOs vary significantly across jurisdictions, but a central consideration for SFOs is the degree to which their activities are regulated, and the burden of any regulation on their day-to-day functions.

Some jurisdictions, like the UK, Jersey, Luxembourg, and Switzerland offer exemptions that reduce regulatory burdens, allowing SFOs to operate similarly to other investment management businesses but with fewer constraints. These jurisdictions do not prescribe the legal form of SFOs and permit non-financial activities, providing flexibility in service offerings.  However, the downside of this approach is that it is inherently uncertain, and ongoing advice is required to ensure that the SFO remains within scope of the relevant exemptions.

Other jurisdictions, including Singapore and the Abu Dhabi Global Market (ADGM), have more defined exemptions, prescribing the structure SFOs must adopt to remain unregulated. These jurisdictions are more restrictive, with specific requirements for corporate form and asset relationships. Singapore offers tax incentives, albeit with investment restrictions, while both jurisdictions allow the SFOs to provide non-regulated services (such as education, protection or personal support).  A key advantage for SFOs in these two jurisdictions is that they are outside the EU, and therefore impose relatively more relaxed AML and data protection obligations.  However, this may be changing – Singapore, for example, recently consulted on requiring all its SFOs to have a business relationship with a Singapore-licensed entity, which will be required to conduct AML checks on all their clients, effectively imposing AML regulation “by the back door”.

Finally, some of the newer jurisdictions on the SFO landscape, such as the Dubai International Financial Centre (DIFC) and the Qatar Financial Centre (QFC), have crafted tailored regulatory regimes for SFOs, offering clarity but imposing higher ongoing obligations like annual reports and physical presence requirements. These regimes may appeal to principals seeking reputability and good governance, despite the added compliance costs. A distinct regulatory regime can also be useful for SFOs operating a global portfolio, where, for example, physical presence requirements in the middle east can assist with ensuring it does not inadvertently become tax resident elsewhere.  This can be harder if based in other jurisdictions where SFOs’ status is less clear.

Globally, SFO regulation is evolving, with jurisdictions consulting on changes to attract these lucrative customers. Singapore, for instance, is considering allowing co-investment by non-family members, which could enhance employee performance incentives and reassure principals because the risk of their investments is being shared. Since SFOs will be seeking to attract talent from the banking, funds or private equity industries, particularly from jurisdictions where such practices are widespread, being able to involve limited third party investment may be a useful way to recruit the sharpest minds to manage the principals’ wealth for the SFOs.

As new wealth management centres emerge and the world’s private capital increasingly diversifies, offering specialised services like Islamic Sharia law-compliant structures may also enable some of the newer jurisdictions to challenge established hubs in innovative ways.

A significant trend is the focus on multi-generational planning, driven by the increasing number of billionaire heirs. UBS estimates that they will inherit USD $6.3 trillion in the next 15 years, prompting SFOs to expand their services to support generational transfers and education, often a source of anxiety to their principals. Being able to provide these services alongside the more traditional investment management function will therefore be a key consideration for many SFOs. This is not currently possible in, for example, the more heavily regulated jurisdictions.

For jurisdictions aiming to compete with established wealth management hubs, this generational shift presents an opportunity. However, the appeal of established jurisdictions lies in their experience and stable regulatory environments, which challenger jurisdictions must develop over time to attract the world's wealthiest individuals, who will understandably be cautious about entrusting their net worth to a newcomer jurisdiction. Ultimately, there is no single “best” jurisdiction for SFOs, and a benefit of the diversifying SFO landscape is that it will be easier to find a better fit for a given principal or their SFO. Taking advice in a timely manner will, as always, be key to situate the SFO as optimally as possible and to avoid any unpleasant surprises on establishment or in future.