Founding a successful financial institution is no mean feat and the increasingly complex world of regulation is making it tougher. It was once easy Starting an Offshore Bank in island tax havens, such as Vanuatu and Nauru. However, the modern banking world is particularly wary of “shell” banks, and this has meant that these sorts of offshore bank licenses are becoming harder to obtain and use.
Having given you a few of the complications, there are still options around for the savvy individual, with appropriate capital and experience, to form and license a new offshore banking operation. In fact, 2022 could be the year that more EMI (Electronic Money Institutions) and Offshore Banks start popping up.
Why Start Your Own Offshore Banking Operation?
Sure, it’s nice to think of owning your own Swiss Bank or private offshore institution but you really need to ask yourself what your use case is for such a vehicle. You may simply want to run internal treasury operations through your own institution and, in this case, having a banking license can make a lot of sense.
Alternatively, you might be seeking to use technology to provide offshore services to an underserved market such as crypto investors and traders. Again, a licensed banking operation goes a long way to establishing your credibility with potential investors and banking clients.
Additionally, you may see fractional reserve banking as highly risky and choose to brand your future banking operations as being backed by gold deposits such as services like Gold Money. In this case, maintaining an appropriate banking charter makes perfect sense.
You will need to answer exactly what it is that you are seeking to obtain or achieve with your newly minted offshore bank license. This will help you in avoiding significant mistakes in the future as well as this information is typically required as part of your business plan that is tendered to the regulator.
Ultimately, having your own offshore bank can be a goldmine or a complete money pit and it all comes back to defining and developing your use case and business plan.
What Countries Offer Offshore Banking Licenses
Banking licenses are widely available in almost every jurisdiction in the world. However, I will narrow the list down to offshore jurisdictions only as this is likely to be more relevant for most of you reading this guide.
Firstly, your choice of country is incredibly important because they all have varied regulations and requirements. Additionally, the sort of banking business that you are intending to undertake plays a big part in that decision. For instance, you may find certain countries dislike crypto-related banking operations and, subsequently, your chance of receiving a license from them is quite limited.
Also, your target client base is likely to also heavily dictate which country’s licensing regime fits your business. This is why tax havens, such as the Cayman Islands, serve clients mainly from the Americas and their geographic location supports easy access and speed of transactions. Subsequently, it’s always advisable to base your operations in places that provide advantages to your targeted client base.
Anyway, to answer your question the main offshore banking and licensing jurisdictions are as follows:
|Country||License Types Offered|
|Antigua||Class I – III International Banking|
|Bahamas||Restricted and Unrestricted Offshore|
|Belize||Class A and B Offshore|
|Cayman Islands||Class A – D International Banking|
|Dominica||Crypto, Investment and Offshore|
|Gibraltar||Offshore Banking and Financial Service|
|Lebanon||Restricted and Unrestricted|
|Luxembourg||Full Banking Licenses|
|Montserrat||Offshore Banking (must be connected to parent)|
|Nauru||Restricted and Unrestricted (Not Currently issuing)|
|St Kitts & Nevis||International Banking|
|St Lucia||Class A & B International|
|St Vincent||Class A & B International|
|Turks & Caicos||International Banking|
All of these offshore jurisdictions have different licenses classes and application requirements. In addition, they may not all be currently open for banking applications as the various regulators are often unwilling to grant licenses despite being officially able to do so.
Ultimately, you need to do your research to determine which countries fit both your proposed banking operations as well as your risk profile.
How Much Capital is Required for Starting an Offshore Bank
I’m often asked as to how much capital is required to be “paid in” in practice to secure a banking license. Obviously, every jurisdiction is different but, at the bottom end, you can expect around US$500k to be the minimum for restricted or class B banking licenses. At the top end, for instance, in Luxembourg, you can expect to need approximately €8.7 million in unencumbered capital.
This capital will need to remain on your bank’s balance sheet and cannot simply be removed after the initial check. It forms part of the solvency requirements for your offshore bank and, therefore, must be always maintained. In fact, this is something that the regulators will regularly check and if you are found below this level your license may be revoked.
In some countries, they will require this capital to be lodged with the central bank in a bond or interest-bearing account. This is not as common as it used to be in the less prominent tax havens, but it still occurs in some cases.
It should also be noted that you can’t spend or use this capital and part of your bank’s risk management and solvency procedures will need to address regular solvency and capital adequacy testing. Subsequently, you need to be prepared to also have enough capital within the company to allow for any operating costs.
Ultimately, you will require more capital than the minimum to establish, and operate, your licensed offshore bank. This is typically where your use case and business plan again becomes important as, unless you need it, there is little reason to tie up high amounts of capital in locations such as Luxembourg.
What is a Realistic Cost for Licensing
Probably the first thing you are going to need is a savvy banking consultant who is familiar with the licensing regime in your country of choice. Their job is really to assist you in developing your business plan and completing all of the application paperwork and conducting the due diligence on your behalf. Without an agent to smooth the application process, it’s unlikely that you will be able to successful gain a banking license.
Unfortunately, experienced banking consultants don’t come cheap, and nor should they! Their services and skills are typically in demand and, therefore, you can expect to pay anywhere from US$20k to $50k for their services. There is a significant amount of work involved in completing an application of this nature so don’t expect to do it cheaply if you want to obtain a bank license.
Additionally, there are a raft of government application charges to consider and these are different across all jurisdictions. However, I will list the average costs for what I would expect to pay for a typical Class B – Belize Offshore Banking License.
Minimum Capital – US$1,000,000
Application Fee – US$ 500
Annual Licensing Fee – US$15,000
Professional Agent – US$10,000
Total Expected Outlay Just for the Licensing Process – CIRCA US$25,500
Obviously, you will also need to establish an office and key staff within Belize to support your banking operations. This will come at an additional cost depending on the scope of operations you expect to undertake.
Ultimately, obtaining the license is relatively inexpensive but the real cost comes in the form of your office and staff setup , as well as the opportunity cost of having the capital, kept unencumbered in your bank.
Application Procedures for Starting an Offshore Bank
Again, every country operates its application process differently. However, most reputable jurisdictions will require due diligence on all directors/controlling officers/shareholders to be conducted first before any application will be entertained.
Subsequently, you would need to work with your service provider to get all of the documentation together and legalized appropriately. This is a monumental task and should not be considered a ‘tick and flick’ exercise because much of the central bank’s opinion of you comes from the due diligence review.
After you have cleared this hurdle, your full application will need to be prepared. This would also normally be accompanied by a completed business plan and supporting documentation showing your banking plan is sound. Additionally, you are likely to be asked for things like solvency and risk policies, trading policies, and all manner of corporate documentation.
The application typically is then reviewed in what is known as the Pre-application stage. It’s a chance for you to meet with the central bank regulators and receive feedback and ask any questions that may arise. At this point, you should have a fairly accurate idea of how successful your application is likely to be.
The next stage is the application review and this is where the central bank will go through your documentation in detail and, in due course, provide you with a decision. The process can be quick or slow depending on lots of different factors but be prepared for a 3 to 6-month wait for a decision in most jurisdictions.
Hopefully…at this stage you have received your license and you can then commence with setting up Swift, bank cards, correspondent accounts, and all your internal infrastructure.
Conclusions and Next Steps
Obtaining an offshore bank license is a real challenge in 2022 but it can bring with it an amazing business opportunity for the right operators. Banking is going through a renaissance of sorts with the advent of EMI operators starting up around the world. Additionally, clients have realized that many of the older banks don’t actually provide the best service and are now voting with their feet.
Applying for a license is definitely not the easiest thing to do in the offshore world but if you are prepared and experienced, and have expert help, then your chances are good. If you would like to talk next steps, then please contact our consulting team: