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Banking License Application Tips: Expert Consultation

This article is a brief introduction to banking license application opportunities around the world.  We have compiled the hereby information for those who are going to start an offshore bank (i.e., a financial institution established in an IFC by a non-resident owner). Should you need more information on banking in some jurisdiction of your interest, please book a free consultation with our experts. 

Banking License

What aspects should be considered before filing a banking license application?

Why do many investors, corporations,  international companies start banks? Ownership of a bank gives them huge reputational and business advantages. This is because the banking sector and banks per se are always perceived by the public as a symbol of wealth and economic maturity. 

Why is it very difficult to register a bank in some countries unless the founder is a solid high-profile corporation holding banking licenses issued by other states? There can be different reasons for this, but the main one is the general mistrust towards newcomers. The fear of bank fraud, money laundering, and economic failure is at the root of all rather stringent financial and bureaucratic requirements set for banking license applicants.

If you are going to set up a bank, you will have to be prepared for quite a few bureaucratic and financial challenges, because the regulators in many states actively protect their national financial and tax sectors from possible adverse consequences and risks.

A free individual consultation with our experts can be booked these days to help you understand the following nuances of offshore banking license application and discuss the specifics of some jurisdiction that can suit you best:

1

The main types of banking licenses.

2

Possible challenges.

3

The step-by-step outline of the banking license application process.

4

Requirements set for the reserve capital.

5

Timelines and costs of obtaining banking licenses.

6

How to choose a jurisdiction for starting your bank.

7

Rules for promotion of an offshore entity.

8

Advantages of setting up a banking institution.

A free meaningful consultation with our experts will allow you to finetune your choice of the right jurisdiction and plan your steps towards setting up an offshore bank. 

Moreover, a discussion with our experts will also help you estimate whether the efforts and cost of obtaining a banking license are justified by all the benefits that your banking institution can give you. 

To book this free consultation, you are welcome to write to our e-address given at the top of this page.

Having made this invitation, let us share what most international corporations mention as the main benefits of owning an offshore bank: 

  • Ownership of a bank is an effective tax planning tool;
  • It enhances the high international image of the corporation or holding company;
  • It benefits the more active management of financial flows;
  • It provides more open access to the financial data of competitors and partners;
  • It widens access to the financial markets of a particular state(s) for capital raising purposes;
  • It enables them to use flexible and confidential bank accounts;
  • It secures asset protection at the international level;
  • It simplifies the financing of companies’ holdings and financial groups;
  • It is a method to open credit lines and obtain loans. 

Which type of banking license is the best?

License types differ by territory and specify relevant restrictions.

For example:

A general license (Class A) allows banking services internationally. In most jurisdictions, banks licensed in this way are allowed to provide services to the local population as well as to non-residents.

A restrictive or “internal” license (Class B) allows banking institutions to serve customers only within a certain territory. Such a license also prohibits banks from rendering services to some categories of customers. Besides, it is associated with restrictions on services in foreign currencies. In other words, such an offshore bank will be considered captive, able to serve only those organizations that are specified in the license.

To answer the question about the best type of license, the applicant needs to discuss with an expert the plans, limitations, and possibilities of the chosen jurisdiction, market, bank profile, and other relevant matters.  In some cases, an internal license can be the best choice. In other cases, an international license will be more reasonable.

Can the bank lose its banking license?

Please note that it would be a mistake to think that a banking license is a lifetime document. National regulators, which in most cases are central banks, have the right to revoke the license in case of non-compliance with the established norms or any other serious violations. 

An offshore bank may face the revocation of an issued license on the following grounds:

Loss of banking license
  • when the bank capital adequacy is too small (less than 2%);
  • in case of the bank’s cash shortages;
  • if the bank violates requirements of customer due diligence prescribed by international standards, etc. 

In the event of revocation of the license, the Central Bank of the state that has issued the license has the right to appoint provisional administration for the bank to address the current management issues.  

What can be the key takeaways from a discussion with experts about your private ownership of an offshore bank? 

If the banking business is properly structured and all required rules are followed, licensed banks can offer their services to private and corporate clients eternally. 

Benefits of setting up your bank abroad:

  • The owners of private international banks get money not only from depositors but also by borrowing from each other;
  • High-level confidentiality is guaranteed by the strictest laws protecting financial institutions;
  • A private international financial institution receives tax privileges, including those relevant to dividends, interest, management remuneration, and other fees;
  • Ownership of such a company is not burdened by complicated bureaucratic procedures (except for continental offshore jurisdictions);
  • It is easy for foreign owners of a bank registered in an offshore jurisdiction to enter the community of private international bankers, which opens up a lot of additional opportunities for business;
  • Full integration into the international banking system through online banking, electronic services, online brokerage products, etc;
  • An offshore bank has the freedom to choose how it allocates its resources, without any obligation to buy certain types of securities. 

You can discuss with our experts the following questions during a free consultation: 

  • How can one obtain a permit for banking business within the EU?
  • Where to and by which rules can one apply for a banking license in tax-free jurisdictions?
  • What does one need to consider when designing a business plan for an offshore bank?
  • What taxes and how much privacy are banking organizations with foreign ownership entitled to?
  • What are the reserve requirements and the terms for depositing required reserves?
  • How can a chosen jurisdiction be briefly characterized (a legal brief)? 
  • How is the banking license issued and handed over to the bank? 

To order a free consultation on a banking license application, please write to the e-address at the top of the page.  

Who needs customized advice on the banking license application issues? 

First of all, expert advice is critically important for investors and owners of companies who intend to develop financial activity abroad. Our assistance includes a detailed description of the procedure for obtaining a banking license in a particular country, answers to the clients’ questions of interest, as well as joint analysis of the client’s specific situation. 

Free advice on obtaining a banking license is also necessary for entrepreneurs wishing to systematize the already collected information, as well as foreigners who are at the stage of designing a business plan and selection of proper jurisdiction for opening an offshore bank.   

What are the general requirements for banking company formation?

This is a very important question. The rules for obtaining a banking license and the capital requirements may vary across jurisdictions. In any case, the vast majority of jurisdictions require to submit the following information to get licensed as a financial institution:

  • the name of the bank and its legal form;
  • the aim of the application (if it is for opening a branch of a foreign bank or creating a new company);
  • names and background details (CVs) of the directors;
  • Certificates of police clearance for applicants and CEOs;
  • banking and business references;
  • information on the economic management of the applicant/applicants’ firms;
  • the bank shareholder(s) details;
  • the type of shares issued (registered shares, priority shares, non-voting shares, etc.);
  • the par value of the bank’s issued shares and the type of currency used;
  • capital structure and its security;
  • the bank’s capital reserves;
  • information about the origin of the resources to be invested into the bank formation;
  • document confirming that the registered capital is paid in (if registered in the country of the bank location);
  • a document confirming payment of all taxes, stamp duties, and royalties;
  • reference data on the registered office in the country of registration, as well as the reference details of the registered agent or representative (if necessary);
  • auditor and lawyer reference details, including their registered office in the country of domicile;
  • the types of services to be provided to clients;
  • geography of the bank’s activity;
  • measures to protect the company from cyber-attacks, fraud, or criminal activities;
  • business plan (usually required to be designed for a period of 3 to 10 years);
  • the benefits to the host country from the activities of such an institution;
  • signed and submitted applications for the issuance of a banking license.

Please note: as of today, the amount of the paid-in registered capital required by most jurisdictions is in the amount of 3 to 5 million USD, which is considered as a security deposit in case of liquidation and needs to be deposited with the Central or State Bank.

Our banking license application tips: a brief overview of jurisdictions 

Along with the knowledge of all set-up requirements, the owner of an offshore bank needs to understand the existing terms and conditions for obtaining a license and for the bank’s further effective operation in a particular jurisdiction. 

In our experts’ opinion, the most favorable environment for the establishment of a banking institution nowadays is provided by the following states:

1

The Cayman Islands prefers investment advisory and captive banks.

2

St. Lucia issues the Class A banking licenses, as well as Class B banking licenses limited to conducting business only with non-residents of St. Lucia. This is one of the most recommended solutions. 

3

Vanuatu – for captive banks of European parent companies. 

4

St. Kitts – similar to Dominica – issues offshore banking licenses. Local banks are regulated by the regional Eastern Caribbean Central Bank (ECCB). 

5

Belize is ideal for deposit banks (you have to consider quite high capital ratios).

6

Panama is a favorable place for banks struggling for a world-class reputation and high-profile connections (please note that the country has an additional advantage in terms of lower labor costs). 

7

Luxembourg licenses well-known financial institutions holding licenses issued by other states.

During your consultation with our experts, you can also learn about the required documents and other rules for opening banks in Australia, Great Britain, Hungary, Germany, and other countries that are particularly attractive for financial activities in and beyond the EU.  

Cyprus, Latvia, Lithuania, Malta are no less attractive countries for starting or expanding banking activities. The costs and timeline of a banking license application vary across these countries. That is why a discussion with our expert is highly recommended for prospective bankers. Besides, some jurisdictions are specialized in specific types of banks. That is why your choice of the jurisdiction requires expert knowledge and careful analysis of both the current and projected business structures.

During the consultation, having obtained from you specific answers about the current state of your business and your aspirations, we will sketchily compare several jurisdictions so that to help you narrow your choice. 

You are welcome to book a free consultation if you are going to create an offshore payment system, an offshore physical bank, or a digital bank.  

What are the advantages of having a private offshore bank?

Many multinational corporations and holdings prefer to set up their corporate bank abroad intending to widen their access to international capital markets, extend their high-profile reputation internationally, and enhance assets protection. Multinational companies prefer to expand their presence wherever they can benefit from all the advantages of well-known international financial centers. While maintaining a high level of confidentiality, a banking company abroad gains more flexibility to manage accounts.

How to arrange a free consultation on license application abroad for a bank with foreign ownership?

You can contact our experts by writing to our e-address given at the top of this page. The consultation allows you to analyze the current status and capacity of your business, select the best jurisdictions according to the individual plan, and learn about all the possibilities and requirements for obtaining a license abroad for your future bank.

How much does a banking license cost abroad?

There cannot be any definite answer to this question. The amount of needed investment depends on several variables. As a rule, before applying for a banking license, an applicant is required to deposit the necessary minimum capital with the Central Bank (or another national regulatory authority of a particular country). This amount is country-specific. The cost of a license also depends on its type – whether you need an internationally valid general license or a restrictive license for captive banks.

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