Open Your Bank Abroad: The Offshore Banking Checklist in 2022

When planning to open your bank abroad, you may get lost in too many recommendations from different sources. Here is our experts’ brief checklist of the 7 most important steps to focus on. This article will help you make a successful start in the offshore banking business and avoid possible risks. Should you need advice on more specific matters, please forward your questions to us and book a free private online consultation on how to open your bank abroad.

When your vision is clear and the strategy is right, you can design cost-effective business processes, involve the best talents, comply with the rules, get access to development resources, and secure a steady return on your investment. 

Offshore Banking

It is a far-fetched idea, though, that some domestic experience or knowledge, solid funds, and good intentions to open your bank abroad can guarantee you success in offshore banking. This global industry can be very rewarding, yet it is much more challenging than it may seem. It is tightly controlled and monitored. Auditors and regulators keep a watchful eye on each and every transaction. New players in the offshore banking market are studied inside out. Mistakes, ignorance, or negligence can cost a fortune. 

Therefore, our insights deserve your attention as a brief yet comprehensive guide on how to open your bank abroad and achieve your goals. Please use these 7 step-by-step recommendations as a checklist of what will work best for you and your goals:

  • design a sound business plan 
  • secure the sufficient start-up capital 
  • recruit a reliable team 
  • create an efficient banking system 
  • adopt the right compliance procedures 
  • obtain the required offshore banking licenses 
  • open a correspondent account. 

A sound business plan to open your bank abroad

When you are planning to open your bank abroad, start thinking about your offshore bank as a start-up company. Regardless of its place of incorporation, the bank will need to win the trust of the regulator from the very beginning.

A well-structured, detailed business plan will be your primary tool.

A sound business plan designed before you open your bank abroad shall include the founder’s financial statements (from a holding company or an individual), an operational plan for at least 3 years, covering all business areas, a risk assessment report, an outline of how the start-up capital will be used, the minimum liquidity estimations, the projected customers’ profiles, other details.

You need to highlight in the business plan your special attention to security matters, the choice of the banking software, the job requirements and the HR policy, and some other key aspects that you cannot omit when you are planning to open your bank abroad.

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The purpose of the business plan is to demonstrate your vision, strategy, experience, competence, and trustworthiness.

Your business plan needs to convince the regulator that it is safe and worthwhile to grant you a banking license. Requirements for offshore banks remain stringent everywhere. Every bank is under the tight control of the regulators, and bank licenses are not issued to any applicant. It is especially true in small jurisdictions, as one troublemaker can be a threat to the entire banking sector of the country.

To be on the safe side when you are preparing to open your bank abroad, you can refer to our professional advice on how to draw up and submit your business plan. We are ready to assist you in finding a seasoned expert who will help with all the particulars of a winning business plan. 

A start-up capital to open your bank abroad

Step 2 should be to analyze the financial resources you may require to open your bank abroad. We have a valid reason to discuss this subject as a separate key to success. It may seem that the mere statement of your start-up capital in the business plan is sufficient. However, it is not.

In real life, things often turn out differently. Laws that provide for an opportunity to establish banks (including offshore banks) may contain additional requirements and restrictions. Legislation is constantly being revised. The actual barriers to entry have been raised in recent years.

Most countries require that the registered capital of a bank needs to be from $2M to hundreds of millions of dollars, often fully paid up or assured before the issuing of the license. In some countries, it can be withdrawn soon after the launch of the operations. 

However, many jurisdictions require a minimum balance sheet of at least $1M deposited with the Central or Government Bank as a security deposit in the event the bank is wound-up. 

Moreover, most offshore jurisdictions prefer to issue banking licenses to renowned and respected financial corporations or entities that have a bank license and can prove they have been in existence elsewhere. 

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From the very start of planning to open your bank abroad, please note that in most jurisdictions, the bank’s license may be canceled if it does not physically operate for at least 3 months.

You need to be sure that your Tier 1 capital (or the paid-in capital deposited into your corporate bank account when the license is issued) plus your Tier 2 capital (the reserve) can guarantee you will afford the banking business start-up and operation after you open your bank abroad for at least 24 months, covering all expenses, including employees. 

Therefore, if you are going to open your bank abroad, you should look for some offshore jurisdictions where the costs are lower, and the minimum capital requirements are more benign. Here are some examples:  

  • To get started in Vanuatu, the required paid-up capital of a private offshore bank may be from $500,000. The minimum balance to be maintained is $500,000. The license application fee is included in the government registration fee and annual renewal fee of $16,750. The annual license renewal fee is $8,000
  • To form a bank in Panama, you will need the minimum initial capital of $3M (International License) or $10M (General license). The minimum capital to be maintained as a financial guarantee is $250,000. If you are a holder of a European banking license, it will be a lot easier for you to open a new offshore bank in Panama. The authorities may even decide to lower for you the minimum authorized capital requirements.
  • Just recently, to start a bank in Puerto Rico, anyone could invest the minimum start-up capital from $550,000, including the $300,000 deposit in another local bank and the minimum corporate capital of $250,000. The current situation is different.  In most other cases, offshore banking licenses are issued to new offshore banks on a case-by-case basis. The more you can afford, the better your chances are to get the license. Experts estimate that a new applicant should have between $2.5M and $5M in Tier 1 capital. A bank license can cost from $4M to $10M.
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FYI: In April 2022, the law was enacted in Panama that allows using cryptocurrencies as a payment method for loan repayment and commercial payments inside the country.

Please note that undercapitalized banks quickly fail. Besides, the capital requirements for an offshore bank may be misleading. While the minimum capital requirement is low compared to other quality jurisdictions, the actual operating costs may turn out to be much higher. 

When you compile financial estimations for your business plan, you need to rely on verified data. That is why we recommend a consultation with an experienced professional. 

Advice on staffing matters after you open your bank abroad

After you are sure you have enough money and a business plan up your sleeve, you need to consider the HR matters. People have always been the backbone of this industry. It is especially important to hire competitive talents if you plan to open your bank abroad.

The CVs of your key employees and the bank’s beneficial owners need to be submitted to the regulatory authorities as part of your application package. They have to introduce your entity as a team of highly qualified bank officers.

Here are the 3 most valuable life hacks on HR recruitment if you wish to open your bank abroad: 

  1. You should hire at least 1 or 2 local bank officers as your top managers. This will present your Board of Directors as a convincingly professional body. The licensing authority will appreciate such an approach, so the chances for your application to be accepted, processed, and approved will be very good.
  2. If for some reason, you decide to involve some expat bankers, you should choose those who may already have well-established contacts with the local business elite. Their facilitation in the selection and employment of on-site staff can be a great asset.
  3. A very fruitful idea can be to open your bank’s overseas offices in Europe or other regions, depending on your target markets. This is a direct way to attract new customers and open new business chapters. An IT office with outsourced technical specialists is a very helpful solution. They may be hired from different countries and network remotely. 
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Please remember your bottom line: the location of your staff will play a major role in the overall operational costs of your bank.

Core banking software to look for when you open your bank abroad

Banks have long quit using ledgers and hard-copy archives. They save all the data on customers, their accounts, transfers, and audits in the core banking system (CBS). This software processes every transaction carried out by your bank account holders. This is a sort of CRM commonly used in business.

The core banking system, apart from managing information about customers, also processes instant money transfers, helps with the KYC and AML/CFT chores, and may communicate with other databases for screening and storing any meaningful information. 

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Your core banking software will have a major impact on your operations and services. That is why you should select it well in advance before you open your bank abroad.

The CBS cost will be your largest startup expense when you open a bank abroad. Its scope, the volume of operations, the quality of the infrastructure in the country of your banks’ incorporation, and some other variables will define the software price. It usually ranges between $100,000 and $1,500,000. There are much more expensive systems too. 

The CBS installation and testing usually take some time. The actual operations may start within 3 to 6 months after your software has been installed. The most proactive and forward-looking business people choose and install their core banking system before they receive all the necessary approvals from the local authority. This saves time and makes it possible to launch your bank operations right after bank owners receive the full banking license. Otherwise, you may run the risk of wasting the first months, which can be a reason for the regulator to revoke your license. 

Compliance arrangements when you open your bank abroad

Banks are repeatedly blamed for being slow, overly meticulous, and too focused on fault-finding. One of the reasons behind this is that all banks are obliged to comply with the banking KYC rules and thoroughly verify their customers and transactions.

The bank’s system of control and monitoring is developed around its core banking system mentioned above. All the incoming data need to be processed according to certain norms and procedures. In case your offshore bank violates any of the anti-money laundering (AML) or Know Your Customer (KYC) regulations, FATCA rules, and CRS standards, its correspondent accounts will be shut down, and the bank itself will be subject to penalties.

Please keep in mind that the banking industry fines may amount to billions of dollars. Not all the banks can weather this storm. It is especially true for small offshore banks, whose main purpose and objectives are to service certain businesses or families.

Be prepared to detail all the compliance procedures in your business plan. It is studied all over, so any mistake may be crucial and cost you your offshore banking license.

The regulators audit new banks on a regular basis. The purpose of this is, inter alia, to protect the country’s own banking sector against any potential shocks. There have been already critical situations when a failure by one bank prompted the regulator to shut-down correspondent accounts of all offshore banks in the country. This made it impossible for all financial institutions in the jurisdiction to perform any USD or EUR transactions, make or receive transfers, and conduct any other normal business activity. The regulators are particularly scrupulous about banks, whose licenses do not allow any transactions with the locals.

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FYI: you may establish your compliance department or engage external experts in compliance works. A rule of thumb is that for small private banks, outsourced compliance services can be a cheaper and easier option than an in-house qualified compliance officer.

Compliance procedures take much time and rather a specific qualification. Such experts may cost banks a lot of money. It is therefore more reasonable to hire an independent professional provider/agency with extensive experience.

Such providers charge a set-up fee, an annual certification fee, a per-client onboarding fee, and an ongoing due diligence fee. Even so, it is still more cost-effective than keeping an in-house compliance department.

Offshore banking licenses required to open your bank abroad

You will need to take the following two steps to get your banking license, i.e., get a preliminary license and an operational license.

The preliminary license is issued to you after your business plan has been reviewed and risks assessed. If the decision is in your favor, you’ll be allowed to incorporate a company with the word “Bank” in its name and proceed with other arrangements. They include the authorized capital formation, personnel recruitment, the core banking system installation, compliance matters, etc.

After you notify the regulator that you’re ready to launch operations, it will inspect your systems and procedures. Within a few days, if everything is approved, you will get a license and a permit and can start onboarding your clients. 

Any international bank shall submit quarterly reports and annual audits.

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Of all types of licenses, you will need an international license that allows you to work with international customers.

It is not as easy as it may seem unless you know exactly what to do and how to handle things. As mentioned before, a real-life course of events often does not justify one’s expectations, and legal systems keep changing too fast to keep track of them. Some offshore jurisdictions claim they issue international banking licenses to novice foreign bankers, while in fact, they do not.

You might wish to try a different path – start with opening a local bank in order to apply for its international license later. However, this option is much more expensive and will take a lot of time.

Let us assure you that you should open your bank abroad only where they issue international banking licenses. 

You are welcome to refer to our experts if you have any concerns or doubts about how to open your bank abroad. We are always available with our expertise, experience, and partners, should you decide to share your concerns and objectives with us.    

It generally takes us from 3 to 6 months to help our clients with obtaining an offshore banking license.

A correspondent account after you open and operate your bank abroad

Any bank needs happy customers, while their customers need to have an opportunity to send their money to the bank and withdraw it wherever necessary. A bank dealing only with some local currency of a tiny island can hardly be very popular across the world.

To process operations in USD, EUR, CHF, or BPS, you will need correspondent accounts. This is vitally important for an international bank, and any bank fails in the absence thereof.

If most of your clients’ transactions are in USD, you will have to partner with a correspondent bank that conducts operations in USD. The most convenient way is to look for a partner bank in the USA. Likewise, if you are going to hold accounts in Swiss Francs, you should partner with a Swiss Franc correspondent bank. 

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You should always try to have correspondent banks in the same country as the operating currency.

This arrangement may be quite expensive. Besides, there is always a risk that a small mistake could be treated as a violation, and the regulator or the partner may shut down your correspondent account down and refuse any further cooperation. 

This is the reason why banks tend to have several partners. You should never rely on only one foreign bank.

Do you find our prompts useful? There are many more recommendations and insights we could offer if you decide to open your bank abroad. Our seasoned experts are ready to share their experience, updates, and advice, and assist you in your application, help with documents, suggest the right bank system, and open the correspondent accounts you need.

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You are welcome to contact our experts for further details and assistance at info@offshore-pro.info or in the messengers given above.

Where can you open your bank abroad?

A bank is always a serious financial venture. Nevertheless, it is just a business many people across the world open and run. All you need is adequate resources and some relevant experience. The main key to your success is the license. Besides, you need to know and meet all the requirements set for internationally active banks. It takes longer to open your bank abroad than to establish a regular company. However, nothing is impossible, and only the sky is the limit. If you rely on professional advice and help, you may even get your banking license within quite a short period of time.

Do you need a special kind of license to open your bank abroad?

A bank license is mandatory for any bank. No regulator would allow you to perform any banking operations in the absence thereof. You can open your bank abroad nearly anywhere. However, you should know in advance if you will be able to receive an international banking license in the jurisdiction of incorporation. It may be quite challenging in some countries, while others are softer in their approaches, and some guidelines can be quite misleading. The main difference is in the minimum amount of the registered capital required and the size of the fixed minimum capital to be placed on deposit as a reserve. Other differences refer to the requirements set for the banks’ documents, the procedures, and the policies.

How long will it take you to open your bank abroad?

Several factors influence the time you may need to open your bank abroad and launch its operations. It depends mostly on the country that issues your banking license, the time it may take to verify your documents, the bank managers’ procedures, the origin of your funds, the availability of the core banking system, the necessary equipment, and the like.

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