As the world continues to shrink, more people are seeking to bank offshore, and are being confronted by new hurdles in the form of compliance. Given the increased scrutiny on financial institutions banks are increasingly being very detailed with their document requirements. Subsequently, this guide will cover What is a Bank Reference Letter and how you can go about requesting one.
What is a Bank Reference Letter
In short, a bank reference letter is a document issued by a bank that confirms you are an account holder and contains basic information about your bank account operations and provides a short opinion on your history and ability to meet financial obligations.
Read on for more information on how to use such a document.
Why Would You Want a Letter from Your Bank
As mentioned, compliance is becoming increasingly onerous in the offshore world. 2022 has seen a ratcheting up off know your client requirements and banks are now more cautious than ever before on who they deal with.
Subsequently, more banks are now requesting a reference letter as part of their initial client due diligence. It’s panful, and slows down the on-boarding procedures, but is a required step for most of the decent offshore banks. Additionally, even some accountants and lawyers, in offshore jurisdictions, are now requesting similar documentation to prove your identity and trustworthiness.
Understand, that in 2022 banking facilities are no longer considered a right but a privilege and seemingly appear to be a form of membership to some sort of special club. Therefore, as much as the current rules are ridiculous, you need to play the game and provide documents like bank reference letters to get in the door.
What is Contained Within a Reference Letter
This is a tricky one as it really depends on the bank and their templates. There is no standard agreed form for a bank letter and, therefore, it depends upon the specific institution and also the level of information requested. It should also be noted that banks are careful to not disclose too much information regarding their client given the privacy laws in most jurisdictions.
The basic information that is normally contained on most bank reference letters is the following:
- Account Holders Name
- Account Holders Address
- Account Number
- Length of Time as a Client
- Whether the Client Has Operated Their Account in an Acceptable and Trustworthy Manner
- Whether Any Credit Has Been Approved and the Repayments Have Been Satisfactory
It normally does not contain balance or transaction information unless this has been specifically requested to be included by the account holder. Additionally, as solely a reference letter they typically provide no opinion on whether you can meet a potential bill or transaction.
The important part of the letter is that they state your account is in good standing and has been operated appropriately. Reading between the lines with bank letters is a key skill and this suggests that you are a trustworthy client.
Are There Any Alternatives?
This will come down to what documents your “new” proposed bank wants to see. You always have the opinion of seeking out an offshore bank that does not require a bank reference letter. There are still plenty of banks around operating without the dreaded request for one.
Additionally, some banks and professionals will, instead, request a reference letter from a lawyer or accountant that knows you professionally. In this case, they really are only confirming your identity for KYC purposes and just using a third party to do so. They are much easier to obtain and professionals, that you do business with, are normally quite happy to provide a professional reference.
How Do You Request a Bank Reference Letter
Securing a letter from your bank is normally easy, albeit time-consuming. In my experience, most junior staff at the branch and phone level have never heard of bank reference letters and will simply refer you around the bank until they find someone that knows how to request one.
However, try not to be shocked when they present you with a bill of US $50 or $100 for the privilege of someone producing it. I’m certainly not cheap but it annoys me to pay such a fee for something that is produced at the press of a button from a template, effectively.
Additionally, you may find that the requesting bank wishes the reference letter to be forwarded directly to them and not via you. This is to avoid the doctoring of documents which has been rampant in recent years. Subsequently, many banks have now taken to not accepting reference letters directly from clients and are actually even ringing the sending institution to confirm its validity.
Also, be aware that many banks are not quick at fulfilling these sorts of requests and this has meant I’ve often had to follow up numerous times to ensure it has been sent of in a timely basis.
Conclusion and a Quick Warning
Obtaining a bank reference letter is as simple as walking into your branch, locating the right person, and requesting one. You can expect to be charged heftily for the privilege and you may also find that the sending is relatively slow, especially if it requires mail service. Ultimately though, you should be able to secure a reference with not too much trouble on your part.
Finally, I have a quick word of warning on Bank Reference Letters in 2022. Many Western countries have become wise to the fact that, in many cases, they are now required to secure an offshore bank account. Subsequently, some countries have taken action to add the request of such a letter to the reportable transactions register.
Ultimately, if your country is one of the few that have taken this approach, you may find the very act of securing a reference puts you on a list that your local tax authority may choose to review in the future. The next ten years are going to be strongly about data collection and analysis, and I firmly expect legacy brand countries to keep squeezing additional tax revenues and fines from wherever they can get them.
Stay Safe!
Steven James
