international bank for sale in Dominica

For Sale: Fully Operational International Bank Licensed in Dominica

We are delighted to present a rare opportunity to acquire a fully operational international bank licensed in Dominica. This bank is in impeccable standing, regulated exclusively by the Financial Services Unit (FSU) of Dominica, and comes with a clean operational history, evidenced by spotless audit reports for 2023 and the expected for 2024. With the current regulatory climate making it nearly impossible to obtain new banking licenses in Dominica, this offer is exceptionally valuable.

Dominica’s regulatory framework, under the Offshore Banking Act of 1996 and its subsequent amendments, has established the country as a reputable jurisdiction for offshore banking. The country’s favorable legislation, which includes strict confidentiality rules and competitive tax structures, has positioned it as a prime location for international financial entities. Banks licensed in Dominica benefit from a range of services, including retail banking, investment banking, and wealth management, among others. The regulatory environment ensures that banks maintain high standards of compliance, especially concerning anti-money laundering (AML) and know-your-customer (KYC) regulations​ (Allied Fintech)​​ (Bank License Pro)​.

This bank, which will be transferred with no deposits or loans on its books, provides an excellent foundation for new ownership to commence operations without any legacy issues. It includes a basic core banking system and a USD correspondent bank, facilitating smooth and efficient international transactions. Furthermore, the bank is supported by an experienced team, including a Chief Compliance Officer, ensuring that it meets all regulatory requirements from the outset.

The international banking license held by this bank allows it to offer a wide range of services to clients worldwide, except within the CARICOM countries. This flexibility opens up vast opportunities for global business expansion and client acquisition. Dominica’s strategic location in the Eastern Caribbean enhances its appeal, serving as a gateway to both regional and international markets, thus improving trade and investment opportunities​ (Premier Offshore Company Services)​​ (Vardikos)​.

The bank’s asking price is $4,000,000 USD, which is negotiable. This price includes the international banking license, the core banking system, the correspondent bank, and the transfer of all existing employees. Given the clean financial slate and the strong regulatory standing, this bank represents a unique investment opportunity for those looking to enter or expand in the international banking sector.

Investing in this bank offers several advantages. The clean audit reports from the FSU are invaluable for maintaining and upgrading correspondent banking relationships, which are crucial for operational success. Additionally, the rare banking license ensures that the new owner can operate within a highly regulated and reputable jurisdiction, known for its stability and favorable tax environment. Dominica’s government has consistently supported the development of its financial services industry, which includes continuous efforts to attract investment and improve infrastructure.

In summary, this fully operational international bank in Dominica represents an exceptional opportunity for strategic investment in the global banking sector. With its pristine regulatory standing, robust operational infrastructure, and strategic location, it is well-positioned to provide comprehensive banking services to a worldwide clientele. For inquiries and further details, please contact us.

Invest in your global banking future today with this unparalleled offer. Secure your foothold in the international banking sector with a clean, ready-to-operate institution in Dominica.

Contact us at info@banklicense.pro for more information.

Nave Bank Opens First Digital Bank in Puerto Rico

Nave Bank Opens First Digital Bank in Puerto Rico

In a big moment for Puerto Rico’s financial sector, Nave Bank, thas obtained authorization from the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Puerto Rico Office of the Commissioner of Financial Institutions (OCIF) to initiate operations.

This approval is especially significant as it marks the establishment of the first new domestic bank in Puerto Rico in over 20 years and is only the fourth banking license granted this year throughout the U.S. and its territories.

NOTE: Nave bank is a domestic banking charter. It has been 20 years since a new license of this type has been issued. There are also about 60 international banks operating in Puerto Rico.

Highlighting the monumental nature of this authorization, Nave Bank’s CEO, Carlos M. García, illuminated the gravity of becoming the island’s foremost community bank with a digital concentration. García brought attention to the fact that since 1995, the number of active banking institutions in Puerto Rico has dwindled from 21 to a mere six, with 90% of local banking activities centralized in just three banks.

The founders behind Nave Bank’s inception are an eclectic mix. From seasoned experts of both local and U.S. banking professionals specialized in areas such as technology, business management, and finance. Intriguingly, many among them are alumni of Forward 787, a talent amplification initiative kickstarted by Red Ventures in the aftermath of Hurricane María.

Under its operational design, Nave Bank is poised to assume the role of a Minority Depository Institution (MDI), aiming to escalate its functions in structured phases. The bank’s initial effort will focus on the digital and banking fiscal requirements of Puerto Rican businesses. In its second phase, Nave Bank will expand to offer comprehensive Business and Consumer banking solutions.

Mariel Arraiza, the President of Product and Consumer Banking at Nave Bank, envisions the future trajectory with optimism. She stresses the institution’s ambition to pioneer an unparalleled, consumer-centric banking paradigm, underpinned by streamlined procedures and avant-garde technological frameworks. This technology-backed structure, as Arraiza elucidates, will ensure a fortified digital milieu adhering to the apex cybersecurity norms.

The ethos of Nave Bank is distinctly community-oriented. It aspires to foster financial solutions that catalyze community growth and steer Puerto Rico into a progressive tomorrow. The foundational team of the bank remains devoted to surmounting client anticipations, nurturing local prowess, and presenting banking services that are advantageous, straightforward, and transparent.

In terms of financial backing, Nave Bank boasts an impressive roster of investors. Red Ventures, spearheaded by Puerto Rican entrepreneur Ric Elías; BayBoston, an initiative of Carlos M. García, with an investment portfolio rich in community and digital banks; and Ribbit Capital, known for its stake in fintech magnates like CreditKarma and Nubank, form the investment triumvirate. This is further bolstered by contributions from five of the foremost U.S. banks and a consortium of over 20 local patrons.

Nave Bank plans to go live (open its digital doors) in September, setting up its branch and administrative hub at 1608 Ponce de Leon Avenue, Santurce. As the bank rolls out its operations, further intricacies regarding its introductory business offerings will be unveiled.

In essence, Nave Bank’s emergence on the Puerto Rican financial horizon is not merely the introduction of another bank; it hopefully signifies a transformative stride towards a digital, inclusive, and forward-thinking banking landscape.
For more information on setting up a digital bank, using an international banking license, in Puerto Rico, please contact me at info@premieroffshore.com. I will be happy to work with you to build an online bank in the US territory of Puerto Rico.

How to Buy a Bank in the United States

How to Buy a Bank in the United States

In this 13 page post, I’ll look at the requirements and suggested path to buy a bank in the United States. The purpose of this article is to give you guidance on the process, costs, timeframe, and license types available when looking to purchase a bank in the United States. 

Note that most of my articles cover topics around setting up or buying international banks, especially in the US territory of Puerto Rico. Here, I’m using the term “United States” to mean domestic banks in the continental US and not an international bank licensed in a US territory. Specifically, I’m looking at banks licensed by a US state, the OCC, or other license types (see below).

I’m also assuming that the buying group has or will have foreign shareholders. A buying group of all US persons might not require a Bank Holding Company and can buy a US bank as individuals (though, this is probably a bad idea). A group that includes non-US shareholders will require a Bank Holding Company as described below. 

An Introduction to US Bank License Types

In the United States, the banking system is unique due to its dual banking model, allowing banks to be chartered either at the state level or the federal level. Here is an overview of the three primary types of banking licenses:

1. State Banking Licenses:

These are issued by individual states’ regulatory agencies.

Characteristics:

  • Regulation and Oversight: State-chartered banks are regulated by their state’s banking department. They may also be members (and thus under the oversight) of the Federal Reserve System.
  • Membership: They have the option but are not required to become members of the Federal Reserve System. Non-member banks are overseen by the FDIC (Federal Deposit Insurance Corporation) for deposit insurance purposes.
  • Coverage: State banks can only operate within the boundaries of the state where they are chartered unless they have specific agreements or branches in other states. Some larger state banks may operate in multiple states.

2. Licenses issued by the Office of the Comptroller of the Currency (OCC):

The OCC is responsible for chartering and supervising all national banks.

Characteristics:

  • Regulation and Oversight: National banks are subject to federal regulations and oversight by the OCC. They are required to become members of the Federal Reserve System and have their deposits insured by the FDIC.
  • National Scope: Unlike state banks, national banks can operate branches across state lines without the need for separate banking licenses in each state.
  • Naming Convention: Typically, national banks have the words “national” or “national association” in their names, or the abbreviation “N.A.”

3. Other License Options:

A comment on the US Federal Reserve: While the Federal Reserve doesn’t directly issue banking licenses in the same way the OCC or states do, it plays a role in the regulation and oversight of bank holding companies and state-chartered banks that choose to be members of the Federal Reserve System.

Characteristics:

  • Oversight of Bank Holding Companies: Any corporation that controls one or more banks is considered a bank holding company and must register with the Federal Reserve. These entities are then subject to the Federal Reserve’s regulations and oversight.=
  • State Bank Membership: State-chartered banks that choose to become members of the Federal Reserve System fall under the Federal Reserve’s jurisdiction for certain aspects of regulation and oversight.
  • Monetary Policy: While not directly related to the issuance of banking licenses, the Federal Reserve plays a pivotal role in the U.S. banking system due to its responsibility for setting monetary policy.

Other License Types: 

These are  other financial institutions or entities with federal oversight but not directly chartered by the OCC.

  • Federal Reserve Member Banks: These are banks that have elected to become members of the Federal Reserve System. They include both national banks (which are automatically members and are supervised by the OCC) and state-chartered banks that opt to become members. The latter is supervised at the state level and by the Federal Reserve, not the OCC.
  • Federal Savings Associations (or Federal Thrifts): Historically, these were supervised by the Office of Thrift Supervision (OTS), but after the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the oversight responsibilities of the OTS were transferred to the OCC. Therefore, it’s a misnomer now to refer to any federal bank “not licensed by the OCC” since the OCC oversees Federal Savings Associations as well.
  • Credit Unions: These are member-owned financial cooperatives. Federally chartered credit unions are supervised by the National Credit Union Administration (NCUA), not the OCC.
  • Edge Act and Agreement Corporations: These entities engage in international banking and finance activities. They are supervised by the Federal Reserve. The Edge Act corporations are federally chartered, while Agreement corporations are state-chartered but operate under an agreement with the Federal Reserve.

The choice between seeking a state or national charter depends on a bank’s business model and strategic goals. A bank aiming to operate regionally might opt for a state charter, while one with national ambitions would likely choose a national charter. Whichever license a bank chooses, it’s imperative for them to adhere to the strict regulations set by the respective oversight bodies to ensure financial stability and protection for their customers.

How to Buy a Bank in the United States

Here’s a guide on how to purchase a state or nationally chartered bank in the United States, especially when involving non-US shareholders or investors.

Step 1: Set Up a Bank Holding Company

A Bank Holding Company (BHC) is essentially a parent company that owns or controls banks and other subsidiaries. Setting up a BHC is a prerequisite for individuals or entities, especially those with non-US shareholders or investors, intending to buy a bank in the US.

Why a Bank Holding Company?

  • Regulatory Compliance: The Federal Reserve, the US central banking system, has put in place regulations that require entities desiring to own or control a bank to set up a BHC.
  • Simplified Purchase: Once you have a BHC approved and licensed, approaching banks for purchase becomes easier. Without this approval, potential sellers will be hesitant to engage with you, knowing the time-consuming nature of the approval process.
  • Protection for Non-US Shareholders: For those transactions involving non-US shareholders or investors, a BHC can offer a layer of protection and structure that simplifies ownership and control over the bank.

The bottom line is that no US bank for sale will bother to engage with a group that includes non-US investors unless and until your BHC is in place. A seller will know how difficult it will be and how long it will take for approval. A BHC is your pre-approval and gets you in the door and identifies you as a serious buyer. 

Step 2: Get Your Bank Holding Company Approved and Licensed

Once you decide to set up a BHC, you’ll need approval from the Federal Reserve. This process can be intricate and requires significant documentation and scrutiny. It’s advisable to consult with legal and financial professionals who are familiar with the process.

The approval process can take at least 12 months, which is why potential sellers often prefer dealing with approved entities. The waiting period is a testament to the seriousness and commitment of the potential buyer. I will discuss this in more detail below.

Step 3: Approach Banks for Purchase

With your BHC in place, you’re in a position to approach banks for purchase. This doesn’t mean you can buy just any bank; the Federal Reserve and other regulators will scrutinize the purchase to ensure it adheres to regulations and won’t pose undue risks to the financial system. Factors such as capital adequacy, management expertise, and financial health will be closely examined.

Step 4: Conduct Due Diligence

Before finalizing a purchase, conduct thorough due diligence. This involves a comprehensive examination of the bank’s financial statements, operations, assets, liabilities, and other critical metrics. Again, having experts on your side is crucial to navigate this complex process.

Step 5: Finalize the Transaction

Once you’re satisfied with your due diligence, you can move to finalize the transaction. This will involve negotiating the terms of the sale, including the price, conditions, and any post-acquisition obligations. Make sure all agreements are legally documented.

Step 6: Operational Transition

Post-acquisition, there’s usually a period of transition. Depending on the size and complexity of the bank, this can involve integrating IT systems, consolidating operations, or even rebranding the bank.

Determining the Purchase Price of a Bank in the United States

The premium at which US banks sell can vary widely based on a multitude of factors, such as the health of the bank, its financial performance, strategic fit for the acquirer, competitive landscape, prevailing economic conditions, the State in which it operates, how valuable it’s book of business is to the buyer, and more. Typically, banking industry professionals use several financial metrics to determine the value of a bank and, by extension, the potential purchase or offer price.

Key Metrics Used to Value Banks:

Price-to-Book Ratio (P/B Ratio): This is the most commonly used metric when valuing banks. It compares a bank’s market value to its book value. A P/B ratio greater than 1 indicates that the stock is selling for more than its book value, while a ratio less than 1 indicates it’s selling for less. If banks in a particular region or of a certain size are generally selling for a P/B ratio of, say, 1.5, then a bank with a book value of $100 million might be valued at $150 million in a sale.

The common price-to-book (P/B) ratio used when buying a bank is around 1 to 2. This means that investors are willing to pay 1 to 2 times the bank’s book value for the stock. However, the P/B ratio can vary depending on a number of factors, such as the bank’s size, growth potential, and risk profile.

For example, a small bank with strong growth potential may have a P/B ratio of 3 or higher. This is because investors are willing to pay a premium for the bank’s stock, as they believe that it has the potential to grow rapidly and increase its book value significantly. On the other hand, a large bank with a stable financial performance may have a P/B ratio of 0.5 or less. This is because investors are not as willing to pay a premium for the stock, as they believe that the bank is unlikely to grow rapidly or increase its book value significantly.

Price-to-Earnings Ratio (P/E Ratio): While more commonly used for valuing non-financial companies, the P/E ratio can still provide some insights when valuing banks. It compares the price of a bank’s stock to its per-share earnings.

The common price-to-earnings (P/E) ratio used when buying a bank is around 10 to 15. This means that investors are willing to pay 10 to 15 times the bank’s earnings per share for the stock. However, the P/E ratio can vary depending on a number of factors, such as the bank’s size, growth potential, and risk profile.

For example, a small bank with strong growth potential may have a P/E ratio of 20 or higher. This is because investors are willing to pay a premium for the bank’s stock, as they believe that it has the potential to grow rapidly and generate significant profits. On the other hand, a large bank with a stable financial performance may have a P/E ratio of 5 or 6. This is because investors are not as willing to pay a premium for the stock, as they believe that the bank is unlikely to grow rapidly or generate significant profits.

Loan Quality: This examines the health of a bank’s loan portfolio. A bank with a high amount of non-performing loans will be valued less than a bank with a healthier loan portfolio.

The most common loan quality ratio used when buying a bank is the non-performing loan ratio (NPL ratio). This ratio measures the percentage of a bank’s loans that are considered to be non-performing. Non-performing loans are loans that are delinquent or in default. A higher NPL ratio indicates that a bank has a higher risk of default, which can make it a less attractive investment.

Other common loan quality ratios used when buying a bank include:

  • Loan loss provision ratio: This ratio measures the amount of money that a bank has set aside to cover potential loan losses. A higher loan loss provision ratio indicates that a bank is taking a more conservative approach to lending, which can be seen as a positive sign.
  • Loan-to-deposit ratio: This ratio measures the amount of loans that a bank has made relative to the amount of deposits it has on hand. A higher loan-to-deposit ratio indicates that a bank is more exposed to risk, as it may not be able to cover its loans if there is a large number of defaults.
  • Credit concentration ratio: This ratio measures the percentage of a bank’s loans that are concentrated in a single industry or borrower. A higher credit concentration ratio indicates that a bank is more exposed to risk, as it may be more vulnerable to a downturn in a particular industry or borrower.

Net Interest Margin (NIM): This metric represents the difference between the interest income generated by a bank and the amount of interest paid out to its lenders, relative to the amount of its interest-earning assets. A higher NIM indicates better profitability and efficiency.

The common net interest margin (NIM) ratio used when buying a bank is around 3%. This means that the bank is earning 3% on its loans and investments, after paying interest on its deposits. However, the NIM ratio can vary depending on a number of factors, such as the bank’s size, location, and business model.

For example, a large bank with a national presence may have a higher NIM ratio than a small bank with a local presence. This is because the large bank has more bargaining power with its depositors and borrowers, which allows it to earn higher interest rates.

A bank’s NIM ratio can also be affected by the interest rate environment. When interest rates are rising, banks can earn more on their loans and investments, which can boost their NIM ratio. However, when interest rates are falling, banks can earn less on their loans and investments, which can hurt their NIM ratio.

Efficiency Ratio: This measures a bank’s overhead as a percentage of its revenue. A lower efficiency ratio means that the bank operates more efficiently.

The efficiency ratio is a financial ratio that measures how efficiently a bank operates. It is calculated by dividing a bank’s non-interest expenses by its net income. A lower efficiency ratio indicates that a bank is operating more efficiently, which can lead to higher profits.

The efficiency ratio is often used when buying a bank because it can provide insights into the bank’s operating costs and profitability. A bank with a low efficiency ratio is typically considered to be a good investment because it is likely to be more profitable.

The efficiency ratio can also be used to compare banks to each other. Banks with lower efficiency ratios are typically more efficient and may be better investments.

The formula for calculating the efficiency ratio is: Efficiency Ratio = Non-Interest Expenses / Net Income

  • Non-interest expenses are the costs that a bank incurs in order to operate, such as salaries, rent, and utilities.
  • Net income is the amount of money that a bank earns after paying its expenses and taxes.

A lower efficiency ratio is typically considered to be better. A bank with an efficiency ratio of 50%, for example, is operating more efficiently than a bank with an efficiency ratio of 75%.

The efficiency ratio can be a useful tool for evaluating a bank for purchase. However, it is important to consider other factors as well, such as the bank’s loan quality, capital ratios, and management team.

Here are some of the factors that can affect a bank’s efficiency ratio:

  • Size: Larger banks typically have lower efficiency ratios than smaller banks. This is because larger banks can spread their fixed costs over a larger number of customers.
  • Location: Banks located in urban areas typically have higher efficiency ratios than banks located in rural areas. This is because urban banks have higher rent and labor costs.
  • Business model: Banks that focus on retail banking typically have higher efficiency ratios than banks that focus on investment banking. This is because retail banks have more predictable income streams.
  • Management: Banks with good management teams typically have lower efficiency ratios than banks with poor management teams. This is because good management teams can find ways to reduce costs without sacrificing quality.

It is important to consider all of these factors when evaluating a bank’s efficiency ratio. A low efficiency ratio is not always a good thing. A bank with a low efficiency ratio may be cutting corners in order to save money. As a result, the bank may have lower quality loans or a less stable financial position.

Return on Assets (ROA) and Return on Equity (ROE): These are profitability metrics. They measure a bank’s ability to generate earnings from its assets and equity, respectively.

The common Return on Assets (ROA) and Return on Equity (ROE) used when buying a bank is around 1% and 10%, respectively. This means that the bank is earning 1% on its assets and 10% on its equity. However, the ROA and ROE can vary depending on a number of factors, such as the bank’s size, location, and business model.

For example, a large bank with a national presence may have a higher ROA and ROE than a small bank with a local presence. This is because the large bank has more bargaining power with its depositors and borrowers, which allows it to earn higher interest rates and charge lower fees.

A bank’s ROA and ROE can also be affected by the interest rate environment. When interest rates are rising, banks can earn more on their loans and investments, which can boost their ROA and ROE. However, when interest rates are falling, banks can earn less on their loans and investments, which can hurt their ROA and ROE.

Return on Assets (ROA) is calculated as Net income / Total assets. It measures how much profit a bank is generating per dollar of assets.

Return on Equity (ROE) is calculated as Net income / Shareholders’ equity. It measures how much profit a bank is generating per dollar of shareholders’ equity.

As you can see, ROA and ROE are both profitability ratios. However, they measure profitability in different ways. ROA measures profitability based on a bank’s assets, while ROE measures profitability based on a bank’s shareholders’ equity.

In general, a higher ROA and ROE is considered to be better. However, it is important to compare ROA and ROE to other banks in the same industry to get a more accurate picture of a bank’s profitability.

It is also important to note that ROA and ROE can be manipulated by banks. For example, a bank can increase its ROA by selling off low-profit assets. Similarly, a bank can increase its ROE by issuing new shares of stock.

As a result, it is important to look at other financial metrics, such as a bank’s loan quality, capital ratios, and management team, when evaluating a bank for purchase.

In general, a bank with a high ROA and ROE is considered to be a good investment. This means that the bank is earning a lot of money on its assets and equity, which can lead to higher profits. However, it is important to consider all of the factors mentioned above before making a decision about whether or not to buy a bank.

Calculating the Purchase Price of a US Bank:

When calculating a purchase or offer price, an acquirer will look at a combination of the above metrics, the strategic value of the acquisition (e.g., does it provide access to a new market or customer segment?), and potential cost synergies (savings) after the acquisition.

It’s also common to engage in a discounted cash flow (DCF) analysis to estimate the present value of the bank’s expected future cash flows.

However, in practical scenarios, there are often non-financial factors at play as well. The cultural fit between banks, potential regulatory concerns, and the strategic landscape can all influence the final purchase price.

To get the most current premiums US banks are selling for, and to get a precise valuation for a specific bank, you’d typically need to consult industry reports, banking analysts, and potentially engage in a detailed financial analysis with the help of professionals in the banking M&A sector.

It is important to note that each of the ratios above  is just one factor to consider when buying a bank. Other factors, such as the bank’s location, market share, customer base, and management team, are also important. By considering all of these factors, you can get a more accurate valuation of a bank and make an informed decision about whether to purchase it.

Why Prices are High for US Banks

The banking industry in the United States, with its rich history and ever-evolving dynamics, has witnessed countless mergers and acquisitions (M&A). One consistent theme over the years has been the fiercely competitive process surrounding the sale of banks, especially when large national banks set their sights on smaller regional players as a means of growth. Let’s dive into the intricacies of this landscape.

The Attraction of Small Regional Banks

  • Expanding Footprint: For national banks, acquiring small regional banks provides an immediate presence in markets where they might have little to no penetration. This not only broadens their customer base but also gives them access to local expertise.
  • Operational Efficiencies: When a large bank takes over a smaller one, there are often significant operational efficiencies to be gained, ranging from technology integrations to streamlined processes.
  • Diversification: Regional banks often possess loan portfolios that are reflective of their local economies. National banks can benefit from this diversification, buffering against economic downturns that might impact one region but not another.
  • Cultural Incorporation: Buying a regional bank provides national banks an opportunity to incorporate local banking practices and cultures that may be more in tune with regional customers’ needs.

Why is the Process so Competitive?

  • Limited Opportunities for Growth: In a mature market like the U.S., organic growth can be slow and challenging. Acquiring a regional bank offers a quicker route to increase assets, deposits, and loan portfolios.
  • Regulatory Challenges: While the U.S. has a plethora of banks, regulatory barriers can make opening new branches or entering certain markets challenging. Acquiring an already established regional bank can sometimes be an easier route.
  • Strategic Importance: As mentioned earlier, the strategic advantage gained from acquiring a regional bank can be significant. This makes these banks hot commodities, with multiple national banks often vying for the same target.
  • Low-Interest Environment: In periods of prolonged low interest rates, banks face challenges in generating returns. M&A activities, especially acquiring regional banks, can help boost profitability in such environments.
  • Technological Advancements: Smaller regional banks, despite their size, might have invested heavily in technology, making them attractive targets for larger banks seeking to upgrade their digital infrastructure without starting from scratch.

The sale of banks, especially regional banks, is not a straightforward process in the United States. It’s a strategic chess game, with moves and countermoves driven by financial, regulatory, and market dynamics. As the banking landscape continues to change, driven by technology, changing consumer behaviors, and global economic factors, the competitiveness around bank sales, especially for those precious regional entities, will undoubtedly remain intense. Large national banks view these acquisitions as crucial steps in their growth strategies, making the U.S. banking M&A scene a space to watch closely.

Timeline and Process to Set Up a Bank Holding Company

Setting up a Bank Holding Company (BHC) in the United States with both U.S. and foreign shareholders involves a series of regulatory steps. The process is overseen primarily by the Federal Reserve, and the inclusion of foreign shareholders introduces additional complexities due to concerns related to foreign control, financial transparency, and potential national security implications.

Process of Setting Up a Bank Holding Company

  1. Determination of Qualification: Before initiating the formal process, you should determine whether the entity you plan to set up qualifies as a BHC. According to the Bank Holding Company Act, a BHC is any company that directly or indirectly owns, controls, or holds the power to vote 25% or more of any class of voting securities of a bank.
  2. Application to the Federal Reserve: To establish a BHC, you need to file the appropriate application (typically Form Y-3) with the Federal Reserve.
  3. Review by the Federal Reserve: The Federal Reserve will review the application for various factors, including the financial condition, managerial resources, future prospects of the company and banks involved, the convenience and needs of the community, and competitive factors.
  4. Additional Scrutiny for Foreign Shareholders: Foreign shareholders, particularly those with a significant stake, might be subjected to additional scrutiny. The Federal Reserve will consider the financial health of the foreign entity, its home country’s regulatory regime, and any potential risks associated with foreign control.
  5. Interagency Coordination: Given the involvement of foreign shareholders, other agencies, like the Committee on Foreign Investment in the United States (CFIUS), might review the setup for any potential national security implications.
  6. Public Comment Period: There’s typically a public comment period where members of the community or other stakeholders can express their views about the proposed BHC.
  7. Approval or Denial: Once the review is complete, the Federal Reserve will either approve or deny the application. If approved, the BHC can commence operations under the stipulated guidelines.

Timeline

  1. Preparation (1-3 months): Assembling all necessary documentation, especially with foreign shareholders involved, can be time-consuming. This includes financial statements, business plans, information about managerial competence, etc.
  2. Application Review (60 days): The Federal Reserve usually aims to act on BHC applications within 60 days after they’re deemed complete.
  3. Additional Time for Foreign Shareholders (Variable): The involvement of foreign shareholders can extend the review process. The timeline can vary based on the shareholder’s country of origin, the clarity of its financial disclosures, and any national security concerns.
  4. Public Comment Period (30 days): This is the standard time for the public to provide feedback, although sometimes it might be extended.
  5. Final Decision (Variable): After the public comment period and once all concerns are addressed, the Federal Reserve will take additional time to render a final decision. This can range from a few weeks to several months, especially if interagency reviews are required.

In total, while a straightforward BHC application might take around 6-8 months, the involvement of foreign shareholders can extend this timeline, making it potentially span anywhere from 8-14 months or longer. It’s crucial to engage legal and financial experts familiar with the intricacies of BHC formation, especially when foreign entities are involved, to navigate the process efficiently.

Timeline and Process to Purchase a Bank in the United States

Purchasing a bank in the United States, even after a Bank Holding Company (BHC) has been approved, is a complex process that requires strategic forethought, due diligence, and a significant financial investment. While the approval of the BHC lays the groundwork for a potential acquisition, the subsequent steps each come with their own timeframes and costs.

Timeframe to Purchase a Bank

  1. Identifying Targets (1-6 months): Once your BHC is approved, the process begins with identifying potential banks that align with your strategic goals. This could be swift if you already have a target in mind or could take several months if you’re starting from scratch.
  2. Preliminary Discussions and Letter of Intent (1-3 months): After identifying a target, preliminary discussions ensue. If both parties show interest, this can lead to the drafting and signing of a non-binding Letter of Intent (LOI).
  3. Due Diligence (2-6 months): This is a critical phase where the acquirer examines the bank’s financial records, operations, legal compliance, and more. The duration depends on the size and complexity of the bank being acquired.
  4. Negotiating the Purchase Agreement (1-3 months): This involves hashing out the terms and conditions of the sale. Depending on the negotiations and complexity, this can take weeks to months.
  5. Regulatory Approvals (3-12 months): After agreeing to terms, the deal requires regulatory approval. Depending on the regulatory body (state or federal) and any potential issues, this can take anywhere from a few months to a year.
  6. Closing the Transaction (1-2 months): Once all approvals are in place, the final step is the official sale, which can take a month or two to finalize.
  7. Overall, after the BHC is approved, purchasing a bank can take anywhere from 8 to 32 months, with the average bank acquisition taking around 9 to 15 months. However, these timeframes can vary based on multiple factors.

Costs Involved in Purchasing a Bank

  1. Advisory Fees: Employing investment bankers or financial advisors to assist in the transaction can be one of the most significant costs. Fees vary but can range from 1% to 3% (or more) of the transaction value.
  2. Due Diligence Costs: This includes fees for accountants, consultants, and other professionals who examine the bank’s books and operations. Costs can range from tens of thousands to millions, depending on the size and complexity of the target bank.
  3. Legal Fees: Hiring lawyers to review the legality of the transaction, draft the purchase agreement, and ensure regulatory compliance can be another major cost. Depending on the deal’s complexity, this can range from $200,000 to over $2 million.
  4. Regulatory Fees: There may be fees associated with the regulatory approval process.
  5. Integration Costs: After the acquisition, there might be costs related to integrating the two entities, including IT system integration, rebranding, staff retraining, etc.
  6. Financing Costs: If the acquisition is financed, there will be associated costs and interest payments.

The actual costs of acquiring a bank will depend on the deal’s size and complexity, but it’s not uncommon for total expenses (excluding the purchase price) to range from 2% to 10% of the transaction value.

While having a BHC approval provides a significant advantage, the process of purchasing a bank remains intricate, time-consuming, and expensive. Proper planning, consultation with experts, and understanding potential timeframes and costs are critical for a successful acquisition.

Conclusion

With a licensed Bank Holding Company (BHC) under your belt, you’re well-poised to delve into the U.S. banking market. This crucial milestone is just the starting point. From identifying suitable bank candidates to rigorous due diligence, from negotiating purchase terms to navigating the regulatory maze, the acquisition journey is a blend of strategy, scrutiny, and patience. While the path may be laden with complexities, especially in the intricate fabric of U.S. financial regulations, it offers a unique opportunity. With the right guidance, diligence, and foresight, you can successfully acquire and integrate a bank, marking a significant footprint in the American financial domain. As with any substantial venture, the rewards are commensurate with the challenges faced. Armed with a BHC and a robust strategy, you’re on the cusp of carving out a banking niche in the world’s most dynamic financial market.
For more information on setting up a Bank Holding Company in the United States, or purchasing an international bank in the US territory of Puerto Rico, please contact me at info@premieroffshore.com. I’ll be happy to assist you with the business plan, financial model, and all aspects of setting up the BHC, identifying a target bank, and closing the transaction with the seller and regulators.

Common Reporting Standards (CRS) and Puerto Rico's Special Status

Common Reporting Standards (CRS) and Puerto Rico’s Special Status

Introduction to Common Reporting Standards (CRS)

The Common Reporting Standard (CRS) is an information standard for the automatic exchange of information (AEOI) regarding bank accounts on a global level, between tax authorities. The aim of the CRS is to combat tax evasion. It was developed by the Organization for Economic Cooperation and Development (OECD) and was first agreed upon in 2014.

Under the CRS, tax authorities in participating countries receive information from their financial institutions and automatically exchange that information with tax authorities in other CRS participating jurisdictions. The data pertains to accounts held by taxpayers, including individuals, businesses, and trusts.

The details collected and exchanged include:

  • Name, address, and tax identification number (TIN) of the account holder.
  • Account number.
  • Account balance or value at the end of the year.
  • Gross amount of interest, dividends, and other income generated.

Puerto Rico’s Exclusion from CRS

Puerto Rico, an unincorporated territory of the United States, is not a separate sovereign jurisdiction for purposes of international treaties and agreements. Instead, it is often covered by the United States in its international agreements. As a result, Puerto Rico itself does not independently sign onto the CRS.

However, the U.S. has not adopted the CRS either. Instead, the U.S. has its own standard for international tax compliance and information sharing, known as the Foreign Account Tax Compliance Act (FATCA). While FATCA has similar objectives to the CRS, it operates differently. FATCA specifically targets non-compliance by U.S. taxpayers using foreign accounts. In essence, it requires foreign financial institutions to report to the U.S. Internal Revenue Service (IRS) about financial accounts held by U.S. taxpayers, or by foreign entities in which U.S. taxpayers hold a substantial ownership interest.

Why International Banks in Puerto Rico Don’t Need to Report under CRS

Given that Puerto Rico falls under the U.S. umbrella for international agreements and that the U.S. has not adopted the CRS, international banks in Puerto Rico aren’t required to report under the CRS. Instead, they are subject to FATCA regulations when it pertains to U.S. persons. However, accounts held by non-U.S. persons are not subject to FATCA or CRS reporting if the bank in Puerto Rico has no other presence in a CRS-participating jurisdiction.

Benefits of Added Privacy and Protection

  • Competitive Advantage: The added layer of privacy can provide an edge for banks in Puerto Rico when attracting international clients, particularly those who are wary of the CRS’s extensive reporting requirements.
  • Less Regulatory Burden: Without the obligation to comply with CRS reporting standards, banks can save on operational costs related to data collection, management, and reporting.
  • Enhanced Client Trust: Certain clients may appreciate the added confidentiality and may perceive banks in Puerto Rico as more protective of their financial information.
  • Diversification: As more countries adopt CRS, individuals and entities seeking diversification of their banking relationships might look to Puerto Rico as an alternative.
  • Attractiveness for Certain Business Structures: Businesses and trusts that have no tax liability in their home country might find Puerto Rico appealing due to the reduced reporting requirements.

In conclusion, while the primary purpose of the CRS is to combat tax evasion, its broad scope has implications for financial privacy. Puerto Rico’s unique status provides a nuanced position in the global financial landscape. International banks operating there, serving non-U.S. persons, can offer a level of confidentiality that is becoming rare in the age of automatic information exchange.

Notes on Asia and CRS

Taiwan was the last country in Asia to adopt CRS. Taiwan signed on to the Common Reporting Standard (CRS). The CRS is an international standard for the automatic exchange of financial account information between tax authorities. It was developed by the Organisation for Economic Co-operation and Development (OECD) in 2014.

Taiwan committed to implementing the CRS in 2017, and it became effective on January 1, 2019. The first exchange of information under the CRS took place in September 2020, with Taiwan exchanging information with Japan and Australia.

Taiwan is also a signatory to the Multilateral Competent Authority Agreement (MCAA), which is a multilateral agreement that facilitates the automatic exchange of information under the CRS. The MCAA has been signed by 109 jurisdictions, including Taiwan.

China has also signed on to the Common Reporting Standard (CRS). The CRS is an international standard for the automatic exchange of financial account information between tax authorities. China signed the CRS in December 2015, and the first automatic exchange of information under the CRS took place in September 2018.

As a signatory to the CRS, China is required to collect certain information from financial institutions about their account holders, including their name, address, tax identification number, and account balance. This information is then exchanged with the tax authorities of other CRS signatory countries on an annual basis.

The CRS is designed to help tax authorities crack down on tax evasion and money laundering. By exchanging information about financial accounts, tax authorities can more easily identify individuals and businesses that are hiding income or assets from the authorities.

The CRS has been widely adopted by countries around the world. As of March 2023, there are 109 CRS signatories, including all European Union countries, China, India, Hong Kong, and Russia.

The United States is the only major economy that has not signed on to CRS. However, the US does have a similar law called the Foreign Account Tax Compliance Act (FATCA). FATCA is more restrictive than the CRS, and it requires financial institutions in all countries to report information about US account holders to the US Treasury Department. FATCA only applies to US persons with accounts outside of the United States. 

  – A US person is a US citizen no matter where he or she lives. It also includes green card holders, legal residents, and anyone spending at least 183 days in the United States. 

As of August 2023, there are 58 countries that have not signed on to the Common Reporting Standards (CRS). These countries are:

Afghanistan, Algeria ,Angola ,Bangladesh, Belarus ,Benin, Bhutan, Bolivia, Burundi, Central African Republic, Comoros, Congo, Cuba, East Timor, Equatorial Guinea, Eritrea, Eswatini, Ethiopia, Fiji, Georgia, Gambia, Guinea-Bissau ,Honduras, Iran, Iraq, Jordan, Kiribati, Kyrgyzstan, Laos, Libya, Malawi, Mali, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, North Korea, Palau, São Tomé and Príncipe, Sierra Leone, Solomon Islands, Somalia, South Sudan, Sri Lanka, Sudan, Suriname, Syria, Tajikistan, Tonga, Turkmenistan, Tuvalu, Uzbekistan, Vatican City State, Venezuela, Vietnam, Yemen, Zambia, and Zimbabwe.

Setting Up an International Bank in the Bahamas

Setting Up an International Bank in the Bahamas

In this post, I’ll look at the requirements to set up an international bank in the Bahamas. This jurisdiction is looking to make a comeback after the FTX mess and needs one or two big time successes as soon as possible in the international banking industry. 

When I talk about an international banking license, or an offshore banking license, I mean a stand-alone bank that offers services to persons and companies outside of the Bahamas. Of course, there are many big banks with licenses in the Bahamas, but these are typically booking centers for tax efficiency and not fully operational banks.

In the following on setting up an international bank in the Bahamas, I’ll first pontificate on the industry in general and then some history of the island. I will end with my thoughts about setting up a bank in the Bahamas, including capital and other considerations. 

Banking Industry in Bahamas

The offshore or international banking industry in The Bahamas is an important part of the country’s financial sector. Here’s an overview of the industry. There are links to the Central Bank’s website below if you would like to do your own research..

The Bahamas has a long history of being a prominent offshore banking hub. Its popularity is partly due to its political stability, strategic location, and favorable regulatory environment. The country has also made efforts to comply with international standards on transparency and information exchange.

The banking sector in The Bahamas is regulated by the Central Bank of The Bahamas. The regulations are designed to conform with international best practices while also encouraging growth in the sector. The Bahamas has worked to align its regulatory practices with international standards, including the requirements set out by the Basel Committee on Banking Supervision and the Financial Action Task Force (FATF).

Banks in The Bahamas can be categorized into two main types:

  • Domestic Banks: These provide banking services to residents and are involved in the domestic economy.
  • International Banks: These mainly serve non-residents and are often referred to as offshore banks. They can be further subdivided into Restricted and Unrestricted Licensees. Restricted banks typically serve a small client base, while unrestricted banks offer full banking services to international clients.

There are dozens of international banks licensed in The Bahamas. It is still relatively small compared to Puerto Rico with 60 international banks operating on the island. The Central Bank of The Bahamas regularly publishes a list of licensed financial institutions on its website, and this would be the best source for the most current information.

The offshore banking industry in The Bahamas has faced challenges in recent years due to increased international scrutiny, demands for transparency, and pressure to comply with international tax and anti-money laundering regulations. However, the country’s commitment to maintaining a reputable and compliant jurisdiction has led to opportunities to attract legitimate business.

The Bahamas remains a significant player in the international banking industry, with a favorable regulatory environment and a strategic location. The industry’s success depends on its ability to balance growth with compliance with international standards and regulations. For the most accurate and up-to-date information, it would be advisable to consult the Central Bank of The Bahamas or other authoritative sources.

History of the Bahamas

The history of The Bahamas is rich and complex, shaped by its indigenous cultures, colonization, slavery, and its development as a modern nation. Here’s an overview of the major periods in Bahamian history:

Pre-Columbian Period

The Bahamas was originally inhabited by the Lucayan, a branch of the Taino people who migrated north from Hispaniola. The Lucayan civilization was present in The Bahamas for centuries before the arrival of Europeans, living primarily through fishing, farming, and trading.

European Discovery and Colonization

Christopher Columbus made his first landfall in the New World on an island in The Bahamas, which he named San Salvador, in 1492. Following his arrival, the Spanish began enslaving the Lucayan people, and within 25 years, the indigenous population had been effectively wiped out.

In 1648, English Puritans known as the Eleutheran Adventurers established the first European settlement in The Bahamas. The islands became a haven for pirates in the late 17th and early 18th centuries, with the infamous pirate Blackbeard once calling Nassau home.

British Rule

The Bahamas became a British Crown colony in 1718, which led to the suppression of piracy. The islands became part of the British Empire’s slave trade, with plantations developing around the cultivation of cotton and other crops. After the American Revolution, many British Loyalists moved to The Bahamas, bringing enslaved Africans with them.

Slavery was abolished throughout the British Empire in 1834, leading to a transition in the Bahamian economy. The Bahamas continued as a British colony, with the economy shifting towards sponging, fishing, and later tourism.

Path to Independence

The movement towards self-government began to gain momentum in the mid-20th century. In 1964, The Bahamas achieved internal self-governance, with Britain retaining control over foreign affairs and defense.

The Progressive Liberal Party (PLP), led by Sir Lynden Pindling, played a significant role in leading the country towards full independence. On July 10, 1973, The Bahamas became an independent nation within the Commonwealth, with Pindling serving as the first Prime Minister.

Modern Era

Since independence, The Bahamas has developed into a prosperous country, largely thanks to its tourism industry, which is one of the main pillars of the economy. The country’s strategic location and favorable tax laws have also made it a significant financial hub.

Challenges in the modern era include managing economic dependencies, environmental sustainability, and addressing issues related to inequality and social development.

Setting Up an International Bank in the Bahamas

Building a new international bank in the Bahamas would be an amazing opportunity. It would require negotiating with the government and regulators on banking, restoring Bahama’s reputation, and building a bank that is “too big to fail.” The montra from regulators at the new players such as BVI and Bermuda is, don’t fail like Bahamas did with FTX. 

Here are my thoughts on banking jurisdictions today: Banking Jurisdictions 

One note on banking licenses: When I refer to an international bank license, I mean a bank that is doing business with persons and companies outside of its licensing jurisdiction. Also, I do not include international licenses that are owned by large banks which operate them as booking centers. Finally, I do not include restricted licenses, otherwise referred to as Class B international or Captive Bank licenses.

  • You can see the list of banks here. The vast majority are not international banks operating from the Bahamas. 

With all of that said, Bahamas needs a new international license to launch that will be a success. They need one that has excellent management, a big time core system, respected compliance programs, and one which is very well capitalized. Short term success from a jurisdictional perspective would then be defined as securing a quality correspondent banking relationship and operating within the Basal III requirements for 2 years. This would go a long way in repairing prior reputational damage.

  – Here is my post on banking core systems: Core Systems 2023

When I say, “too big to fail,” I mean that the Bahama’s need a new bank that will be successful as defined above. If the next new bank fails, the jurisdiction’s reputational damage will be significant. Even though I hype Bermuda, this is the concern on that island… the fact that Jewel Bank has not yet launched and competitors like FV in Puerto Rico and XAPO in Gibraltar are doing very well.  

This also means that, while we’re building the bank, we would need to do CPR in the press for the financial industry in the Bahamas. We need as many articles talking about the launch of the new bank and how Bahamas is making a compliance and regulatory comeback as possible. The purpose for us would be to help our future correspondent bank requests and preemptively answer questions that regulators and bankers will have. 

I note that Bahamas is operating under Basel III and is as close to a European banking standard as you will find in the Caribbean. You can see their operating capital requirements here (primarily Tier 2 capital data). 

The Basel III standards, which were phased in through 2021, include a minimum total capital ratio of 8.0% of risk-weighted assets, a tier 1 capital ratio of 6.0%, and a common equity tier 1 ratio of 4.5%, but this can vary by the type of license. Most of these regulations were updated in 2022.

I expect that Initial paid-in capital will be $10m, even though the applicable law, issued in 2005 and revised in 2013, says $5m. Then I expect the startup budget to be at least $1m. Therefore, your startup capital will be at least $11m to apply for a new international banking license in the Bahamas. 

In general, the requirements to apply for an international banking license in The Bahamas are as follows:

  1. Minimum capital: The minimum capital requirement for an international bank is USD 10 million.
  2. Fit and proper: The Central Bank of The Bahamas will assess the fitness and propriety of the applicant’s directors, senior management, and shareholders.
  3. Business plan: The applicant must submit a business plan that outlines the bank’s proposed business activities, risk management framework, and compliance procedures.
  4. Governance: The applicant must establish a sound corporate governance structure that includes a board of directors, a risk management committee, and an audit committee.
  5. Compliance: The applicant must comply with all applicable laws and regulations, including the Anti-Money Laundering and Counter-Terrorism Financing Act.
  6. The Central Bank of The Bahamas may also require the applicant to meet other requirements, such as having a physical presence in The Bahamas and having a certain number of employees.

For more information on the requirements to apply for an international banking license in The Bahamas, please refer to the following documents on the Central Bank’s website:

  • The Banks and Trust Companies Regulation Act, 2000
  • The Central Bank of The Bahamas Act, 2000
  • General Information and Guidelines for Licence Applications for Banks and/or Trust Companies

Note that you would be applying for a Stand Alone Public License to operate as a Bank under the Bahama’s parlance. 

If the above is of interest, you can contact me at info@premieroffshore.com for more information and a quote to set up a new international bank in the Bahamas. 

St. Kitts Doubles the Cost of its Citizenship by Investment Program: Here's What You Need to Know

St. Kitts Doubles the Cost of its Citizenship by Investment Program: Here’s What You Need to Know

St. Kitts and Nevis Citizenship by Investment Program (CIP), one of the most coveted in the world, has taken a dramatic turn that has caught the attention of global investors. In its most significant shift since inception, the CIP has made urgent and immediate changes.

This pivotal adjustment is part of St. Kitts and Nevis’ commitment to meet the demands set forth by the European Commission while preserving the esteemed status of its citizens. The nation has taken remarkable steps to ensure stringent compliance and greater security.

The minimum investment requirement has seen an astronomical surge with the donation for a single applicant rising from US$125,000 to US$250,000. In tandem, the minimum investment in real estate has increased to US$400,000, positioning the program as one of the most costly citizenship by investment initiatives.

Adding to the list of changes is the introduction of mandatory interviews for all applicants, a move designed to enhance due diligence. Furthermore, citizenship documents must now be collected in person, whether in St. Kitts & Nevis or at a designated diplomatic mission abroad.

At first glance, these changes might be perceived as daunting, possibly leading investors to consider alternative citizenship routes. However, this might be a hasty decision. The St. Kitts passport carries substantial benefits that remain attractive despite the increased investment threshold.

Investors continue to have visa-free access to over 150 countries, including all of the EU, the UK, Ireland, and Russia. The tax environment remains advantageous with no income, wealth, or inheritance taxes. A major draw for families, dependents aged 18-25 in full-time university education, children under the age of 18, and grandparents or parents over the age of 65 can be included in the application. Moreover, once you obtain economic citizenship, it is lifelong and can be passed along to your descendants.

Although a seven-year hold period applies to the real estate investment, this period can be seen as a medium-term investment with the potential to resell and recoup the initial investment. Notably, there is no residence requirement, meaning you can obtain citizenship without setting foot in St. Kitts and Nevis.

This dramatic shift in the St. Kitts and Nevis CIP is a stark reminder of the unpredictability of the global landscape and highlights the need for robust choices and expert guidance.

The process and requirements to apply for citizenship in St. Kitts and Nevis through their Citizenship by Investment Program (CIP) are as follows:

Eligibility

To be eligible, you must:

  • Be at least 18 years old.
  • Have a high personal net worth.
  • Be in good health.
  • Have a clean criminal record, verified through Interpol, the World Check, and other authorities.

Investment Options

You have two options for investments:

  • Sustainable Growth Fund: A single applicant is required to make a non-refundable contribution of US$250,000.
  • Real Estate Investment: Purchase government-approved property valued at least US$400,000, plus payment of government fees. The property must be held for a minimum period of seven years.

The Application Process

The process of applying for citizenship can be summarized in the following steps:

  • Choose an Authorized Agent: The first step in the process is to select an authorized agent who is licensed by the Citizenship-by-Investment Unit (CIU) of St. Kitts and Nevis. The agent will guide you through the process, prepare the necessary documentation, and liaise with the CIU on your behalf.
  • Prepare and Submit Application: Gather all required documents, which must be in English or translated into English, notarized, and accompanied by the appropriate fees. The application must include:
    • Completed official forms.
    • Medical certificate (including an HIV test) for each applicant.
    • A birth certificate and passport copies for each applicant.
    • Police clearance for all applicants aged 16 and over.
    • Proof of payment for due diligence and background check fees.
    • Proof of the investment made or to be made.
  • Due Diligence Check: After submitting your application, the government will perform a rigorous due diligence check. This involves a comprehensive background check of the applicant and their dependents. The check is conducted by an international agency, which verifies all the information provided in the application.
  • Approval in Principle: If the due diligence report is satisfactory, the CIU will issue a letter of “approval in principle.”
  • Investment: Once approved, you will be asked to make the investment in full – either a contribution to the Sustainable Growth Fund or purchase the approved real estate.
  • Citizenship Certificate and Passport: After making the investment, the government will issue the certificate of registration, denoting you as a citizen of St. Kitts and Nevis. Following this, you can apply for a St. Kitts and Nevis passport.

The entire process may take about 3-6 months to complete.

Please note that changes introduced in 2023 now require that all applicants attend a mandatory interview and collect citizenship documents in person, either in St. Kitts & Nevis or at a designated diplomatic mission abroad. This has added another layer of due diligence to the process and increased the timeline and complexity of the application process.

This is a general guide and requirements may vary slightly depending on individual circumstances. Always consult with your authorized agent or legal advisor to ensure that you meet all requirements before beginning the application process. For more information, and to be connected to an expert in the St. Kitts program, please contact us at info@premieroffshore.com

The IRS is Targeting Puerto Rico Act 20, 22 and 60

The IRS is Targeting Puerto Rico Act 20, 22 and 60

The IRS is targeting individuals who have taken advantage of tax incentives under Puerto Rico Act 20, 22 and 60, which exempts from taxation certain business and investment income of recently relocated Puerto Rican residents. The IRS has intensified its focus on individuals who may be erroneously reporting US source income as Puerto Rico source income to evade US taxation.

Act 20 and 22 became Act 60 in Puerto Rico on July 1, 2019. It was part of a larger bill that consolidated several tax incentive programs into a single law, known as the Puerto Rico Incentives Code 60.

Act 20 was originally enacted in 2012, and it offered tax breaks to businesses that exported services from Puerto Rico. Act 60 expanded the scope of Act 20 to include individuals who relocate to Puerto Rico and become bona fide residents. These individuals are now eligible for a variety of tax breaks, including exemptions from federal and local income taxes on certain types of income.

Act 22, also known as the Individual Investors Act, is a Puerto Rican law that provides tax breaks to individuals who relocate to Puerto Rico and become bona fide residents. The law exempts these individuals from Puerto Rico income taxes on all passive income realized or accrued after they become residents. Passive income includes interest, dividends, rental income, and capital gains.

To qualify for Act 22, individuals must meet certain requirements, including:

  • They must be U.S. citizens or lawful permanent residents.
  • They must not have been residents of Puerto Rico for the 10 years preceding their move.
  • They must spend at least 183 days per year in Puerto Rico.
  • They must make a minimum investment of $100,000 in Puerto Rico.
  • Act 22 has been controversial since it was enacted in 2012. Some people argue that the law benefits the wealthy at the expense of the poor, while others believe that it has helped to boost the island’s economy.

Here are some of the benefits of Act 22:

  • 0% tax on interest, dividends, rental income, and capital gains.
  • No property taxes on primary residences.
  • Reduced corporate income tax rates.
  • Reduced capital gains tax rates.
  • No inheritance tax.

The passage of Act 60 was seen as a way to attract businesses and individuals to Puerto Rico, and it has been credited with helping to boost the island’s economy. 

The IRS has also been investigating individuals who have used Puerto Rico’s Act 22 as a tax saving tool for cryptocurrency trading and other activities. In January 2021, the IRS launched a campaign targeting such taxpayers.

The IRS’s focus on Puerto Rico tax incentives is part of a broader effort to crack down on tax evasion and increase revenues. The IRS has also been targeting individuals who have used other US territories, such as the US Virgin Islands, to reduce their US tax bills.

Here are some key takeaways from a recent Bloomberg article. Also, here is a summary from Cointelegraph.

  • The IRS is targeting individuals who have taken advantage of tax incentives under Puerto Rico Act 20, 22 and 60.
  • The IRS is also investigating individuals who have used Puerto Rico as a tax haven for cryptocurrency trading and other activities.
  • The IRS’s focus on Puerto Rico tax incentives is part of a broader effort to crack down on tax evasion.
  • Individuals who are considering taking advantage of tax incentives in Puerto Rico or other US territories should be aware of the potential legal risks associated with non-compliance.
  • It is essential to seek professional advice to ensure compliance with tax laws and regulations.

Individuals who are considering taking advantage of tax incentives in Puerto Rico or other US territories should be aware of the potential legal risks associated with non-compliance. It is essential to seek professional advice to ensure compliance with tax laws and regulations, which so many have failed to do.

Here are some ways that taxpayers might abuse Act 22/60:

  • Claiming to be a resident of Puerto Rico but not fully relocating. This could involve spending less than the required 183 days per year in Puerto Rico, or maintaining a home and other ties to the mainland United States.
  • Claiming they purchased the asset/crypto after they moved to the island when they bought it before they moved. This could involve claiming that a stock or other investment was purchased after the taxpayer moved to Puerto Rico, when it was actually purchased before the move.
  • Setting up shell companies or other entities in Puerto Rico to funnel income through. This could involve creating a company in Puerto Rico that is owned by a taxpayer who is not a resident of Puerto Rico, or using a Puerto Rican trust to hold assets that are not actually located in Puerto Rico.
  • Using Act 22 to avoid paying taxes on income that is not actually passive. This could involve claiming that income from a business is passive when it is actually active, or claiming that income from a sale of property is capital gains when it is actually ordinary income.

The bottom line is that the tax benefits of moving to Puerto Rico are excellent and perfectly legal. But, shockingly, people have found ways to abuse the system. They want to live in the US but not pay US taxes. This is a road to trouble. If you want the tax benefits of Puerto Rico you must commit to living on the island. 

In closing, I am often asked why Puerto Rico is allowed to make its own tax laws which superseded US Federal tax law. Here’s the reason: 

International Bank License Industry Guide 2023

International Bank License Industry Guide 2023

In this 26 page post, I’ll review each of the top international bank license jurisdictions in 2023. There have been many changes to the industry since I last wrote on this topic in 2020. Here’s everything you need to know about the international bank license industry in 2023.

Note that this is an article about international bank licensing and building an offshore bank. That is different from a review of the offshore banking industry, which would be a summary of where you might open an offshore account.

For example, most would argue that Hong Kong and Switzerland are the top offshore banking jurisdictions… the best place for an individual to open an account with a big bank. I’d disagree, but that’s an article for another day.  

However, it would be nearly impossible for someone to set up a new bank in Hong Kong or Switzerland. In this post, I consider those jurisdictions where you can apply for a new international banking license or purchase an existing offshore bank license without a massive amount of red tape and hundreds of millions in capital. 

NOTE: I do write about Switzerland below, but that is for what is called a mini bank license and not a full banking charter. It’s more like a money transmitter license with a few extra service capabilities. 

Table of Contents

  • History of the International Banking Industry
  • International Bank License Defined 
  • Types of Offshore or International Bank Licenses
  • Benefits of Forming an International or Offshore Bank
  • Factors to Consider in Choosing an International Bank License Jurisdiction
  • International Bank License Jurisdictions in 2023
    • Puerto Rico
    • Bermuda
    • British Virgin Islands
    • Gibraltar
    • St. Lucia
    • Dominica
    • Cayman Islands
    • Belize
    • Panama
    • St. Kitts & Nevis
    • Dominican Republic
    • Switzerland
    • Luxembourg
    • Seychelles
    • Vanuatu, Comoros, and Gambia
  • The Future of International Banking
  • Conclusion

While you can scroll down to a particular jurisdiction of interest, I think you’ll benefit by having a read through the first few sections. The international bank license industry is very different from the domestic banking industry. Even the most seasoned banking professional coming from a big bank background will benefit from a review of the small international bank license world. 

History of the International Banking Industry

The offshore banking industry refers to a sector within the global financial services industry that focuses on providing financial services, primarily banking, in jurisdictions outside of where clients are primarily domiciled or conduct their business. This industry is often associated with jurisdictions known as tax havens, which offer favorable tax and secrecy benefits to foreign individuals and businesses.

Key characteristics of the offshore banking industry include:

  • Location: Offshore banks are located outside of the depositor’s home country. Common locations include the Cayman Islands, Switzerland, Luxembourg, and various small island nations in the Caribbean and the Pacific.
  • Privacy: Many offshore banking jurisdictions have laws in place that ensure the confidentiality of the identities of the account holders and the transactions made.
  • Tax Benefits: Offshore banking centers are often characterized by low or zero tax on deposits and income earned. This makes them attractive to individuals and corporations looking to reduce their overall tax liability.
  • Ease of Access to Funds: Offshore banks usually provide easy access to deposits, not only in the whole world but also in multiple currencies.
  • Asset Protection: Offshore banks are often used for asset protection, separating assets from the local economic and political situation.
  • Investment Opportunities: Offshore banks often offer access to politically and economically stable jurisdictions. This can be an advantage for those who reside in areas where there is a risk of political turmoil who might be at risk of having their assets seized or frozen.

However, the offshore banking industry has faced increasing scrutiny and regulation from international bodies over the last few decades, due to its association with tax evasion, money laundering, and illicit activities. Initiatives like the Foreign Account Tax Compliance Act (FATCA) in the US, and the Automatic Exchange of Information (AEOI) at the international level, have aimed to increase transparency and cooperation between jurisdictions to combat these issues. 

And it’s FATCA and AEOI that have driven so many to set up banks in the US territory of Puerto Rico. Because the island of Puerto Rico is a US territory, FATCA does not apply. Because the United States has not signed on to the AEOI, and rather relies on its existing network of treaties, many international persons hold their money in international banks licensed in Puerto Rico. 

International Bank License Defined 

An international bank license is a legal permit granted by a regulatory authority or central bank of a jurisdiction, allowing a banking institution to engage in banking activities with non-residents and carry out business in foreign currencies. International bank licenses are typically granted to banks that operate in offshore banking centers, and these banks are sometimes referred to as offshore banks, although this term can have a broader meaning.

The main difference between an international bank license and a domestic/general banking license lies in the type of clientele they serve and the currencies they handle. Domestic banks primarily serve residents of their jurisdiction and deal mostly in the local currency. They can offer a broad range of services, such as taking deposits, offering loans, and other forms of credit.

In contrast, banks with an international license often operate in a different jurisdiction from their clients, deal with multiple currencies, and offer specialized services tailored towards an international clientele. These services can include cross border payments, wires, remittances, foreign payroll, credit and debit cards, wealth management, specialized corporate services, tax planning, and other forms of financial and investment advice. They typically do not conduct business with residents of the country where they are licensed, or they are limited in how they can do so.

Many countries issue international bank licenses. Some popular jurisdictions known for issuing such licenses include (this is just a summary, the detailed list is below):

  • Cayman Islands: Known as one of the world’s leading offshore financial centers, the Cayman Islands offers two types of offshore banking licenses: Category A and Category B, which have different permissions and restrictions.
  • Switzerland: Historically famous for its private banking services, Switzerland provides licenses for banks that wish to offer services to international clients.
  • Luxembourg: This European country is a hub for private banking, asset management, and investment fund activities.
  • Belize: Belize is known for its relatively easy and cost-effective process of obtaining an international banking license.
  • Isle of Man: This self-governing British Crown dependency offers offshore banking services to international clients.
  • Panama: Panama has a long history of providing offshore banking services, and it issues a General License allowing the bank to conduct both local and international business.
  • Vanuatu: This Pacific island nation offers offshore banking licenses with a quick and cheap setup process… and you get what you pay for.

Each of these jurisdictions has its own specific requirements for obtaining an international bank license, and the benefits vary. These can include low or zero taxation, legal advantages, confidentiality, and access to a stable political and economic environment. However, due to increased international efforts to combat money laundering and tax evasion, the regulations governing offshore banking are changing and becoming more stringent.

Types of Offshore or International Bank Licenses

The term “offshore bank” broadly refers to any bank located outside the country of residence of the depositor. These banks can be categorized based on the services they provide, their clientele, and the legal and regulatory frameworks they operate under. Here are some of the main types of offshore banks:

  • Private Banks: These cater to high net worth individuals, offering personalized financial and banking services. This can include wealth management, tax planning, and estate planning. Private banks are often associated with banking secrecy and privacy, although recent regulatory changes have increased transparency.
  • Retail Banks: These offer similar services to domestic retail banks, such as savings and current accounts, credit cards, and personal loans, but they operate in an offshore jurisdiction.
  • Commercial Banks: Commercial offshore banks provide services to businesses, such as business loans, commercial mortgages, and other credit products. They also offer other services like treasury management, trade finance, and foreign exchange transactions.
  • Investment Banks: Offshore investment banks help businesses and high net worth individuals to raise capital through securities offerings. They also provide advisory services for mergers and acquisitions and facilitate securities trading and asset management.
  • Captive Banks: These are wholly owned by a single corporation or entity and are set up to provide financial services to the parent company and its affiliates. These banks may open accounts and transact only with those listed in their license. They are not permitted to open accounts for the general public.
  • International Business Corporations (IBCs): These are private corporations that offer banking services. They are often used by individuals and businesses for financial planning and investment purposes. They typically apply for a money transmitter license, an EMI permit, or some other non-bank license. 
  • Shell Banks: These are banks without a physical presence in any country. They are often associated with money laundering and other illicit activities, and many jurisdictions have restrictions or prohibitions on dealing with shell banks.

Different jurisdictions have different licensing and regulatory requirements for these types of banks, and they offer different levels of protection, tax efficiency, and confidentiality. Also, the services an international bank can provide are typically limited by the regulatory authority, So, you must be approved for each and every service you wish to offer… and prove you have the appropriate compliance systems to provide that service in a compliant manner. 

Benefits of Forming an International or Offshore Bank

Forming and operating an international or offshore bank can provide several benefits to the operator, including:

  1. Tax Efficiency: Offshore jurisdictions often offer lower tax rates, which can reduce the overall tax burden on profits and capital gains. This is especially true for non-US investors, bank owners, and customers. This is because the US taxes its citizens on their worldwide income where most countries do not tax foreign source profits or gains. 
  2. Diversification: Offshore banking allows institutions to diversify their holdings geographically and by currency. This can provide a hedge against local economic downturns, currency depreciation, and political instability.
  3. Confidentiality: Many offshore jurisdictions offer privacy protections, which can help protect sensitive financial information. However, it’s important to note that these protections have been reduced in recent years due to international efforts to combat tax evasion and money laundering. Puerto Rico does offer privacy because the US has not signed on to most automatic exchange of information agreements. 
  4. Access to International Markets: International banks can provide access to emerging markets and other investment opportunities not available domestically.
  5. Asset Protection: Offshore banking can offer a degree of protection against potential threats such as lawsuits, economic crises, or political instability in the home country.
  6. Regulatory Flexibility: Some offshore jurisdictions may offer more relaxed regulations in certain areas compared to onshore banking centers. For example, a bank in Puerto Rico is not subject to FDIC oversight and thus has more regulatory flexibility than a traditional US bank.

The typical revenue sources for an international or offshore bank can include:

  1. Interest Income: This is the interest earned on loans made to clients and is typically the primary revenue source for any bank.
  2. Fees and Commissions: These can come from a wide variety of services, such as fund management, wealth management, transaction fees, and account maintenance fees.
  3. Foreign Exchange Transactions: Banks can earn revenue from foreign exchange transactions, both from trading currencies on their own account and from facilitating transactions for clients.
  4. Investment Income: This can include revenue from investments in securities, derivatives, and other financial instruments.
  5. Advisory Services: Many international banks offer financial and investment advisory services to their clients, which can provide a significant source of revenue.

It’s important to note that while offshore banking can provide benefits, it also comes with risks, including regulatory, reputational, and operational risks. Furthermore, international efforts to combat tax evasion and money laundering have increased transparency requirements and scrutiny of offshore financial centers, which can impact their attractiveness and operations.

Factors to Consider in Choosing an International Bank License Jurisdiction

Choosing the right jurisdiction for an offshore or international bank involves several important considerations. Here are some of the main factors:

  1. Regulatory Environment: Different jurisdictions have different banking regulations, and it’s important to find one that aligns with your needs and provides a secure, stable environment. This includes considerations of how well regulated the banking sector is, the efficiency of the regulatory bodies, and the jurisdiction’s cooperation with international financial authorities.
  2. US Compliance: If you set up a bank in the US territory of Puerto Rico, or you utilize a correspondent bank in the United States, you must follow all US regulations. Do you want to do business in US dollars and can your clientele pass US scrutiny?
  3. Taxation: One of the key attractions of offshore banking is the potential for tax efficiency. Some jurisdictions offer low or zero tax rates on income, capital gains, and inheritance. However, you must consider the tax implications in your home country and any tax treaties in place.
  4. Privacy Laws: Different jurisdictions offer different levels of privacy protection. Privacy laws will affect the confidentiality of your information and the degree to which it might be shared with international organizations or foreign governments.
  5. Political and Economic Stability: The stability of the jurisdiction is a crucial consideration. A stable political and economic environment ensures the safety of your funds and smooth banking operations.
  6. Reputation: The reputation of the jurisdiction can impact the perception of your bank and its operations. Some offshore jurisdictions are associated with illicit activities, which can lead to reputational risk.
  7. Legal System: The legal system and its efficiency can impact your bank’s operations. This includes how easy it is to enforce contracts, the protection of property rights, and the independence of the judiciary.
  8. Banking Infrastructure: The jurisdiction should have a well-established banking infrastructure. This includes modern banking systems, professional services support (legal, accounting, etc.), and good communication networks.
  9. Ease of Doing Business: Consider how easy or difficult it is to set up and operate a business in the jurisdiction. This includes the process for obtaining a banking license, bureaucratic efficiency, and any restrictions on foreign businesses.
  10. International Agreements: The jurisdiction’s participation in international agreements can affect information sharing and tax obligations. These can include agreements for the exchange of tax information, anti-money laundering (AML) measures, and agreements to implement the Common Reporting Standard (CRS).
  11. Costs: Consider the costs associated with setting up and maintaining the offshore bank. These can include licensing fees, capital requirements, and operational costs.

Before establishing an offshore or international bank, it’s important to understand your target market and your business objectives. I suggest you start with deciding how close you want to be to US regulators. Just remember that avoiding US oversight means that you can’t have a US correspondent bank and can’t do business in US dollars…and of course, you can’t set up your international bank in Puerto Rico.

International Bank License Jurisdictions in 2023

Here is my list of the top international bank license jurisdictions for 2023. The purpose of this section is to convey my thoughts on each of these options and to give you ideas when selecting the best offshore banking country. 

It is not meant as an exhaustive summary of the process to set up a bank in each of these countries. If it were, this article would never end. You can reach me at info@banklicense.pro for specifics and the costs to set up a new bank or purchase an existing bank license in any of these jurisdictions.

Also, this list is not in any particular order. Each bank license jurisdiction has its positives and negatives. So, I am just trying to cover each in turn as they came to me while writing this post. 

Puerto Rico

The US territory of Puerto Rico has dominated the international bank license industry since 2015. While other countries have one to five operating international banks, Puerto Rico has about 60, with many applications pending. 

The reasons for this are simple: 

  1. The relative ease of securing correspondent banking relationships compared to non-US international jurisdictions (like St. Lucia, for example). 
  2. Prior to 2024 (yes, this is a forward looking statement, see below), the lowest capital and filing fees of any quality jurisdiction. 
  3. Because Puerto Rico is a US territory, banks on the island can join the US banking system, hold dollars, and apply for Fedwire through the Federal Reserve. 
  4. US tax laws generally do not apply in a territory. Thus, Puerto Rico can set its own tax rate. The bottom line is that an international bank in Puerto Rico will pay only 4% in tax, with no withholding tax or tax on dividends when distributions are paid out to an offshore holding company. 
  5. Because the United States has not signed on to the European Union’s automatic exchange of information treaties, they do not apply in Puerto Rico. This provides a level of privacy and protection to non-US depositors and shareholders. 
  6. Because FATCA does not apply to international banks in a US territory, the cost of compliance and reporting is reduced. 

For these and other reasons, the international banking industry in Puerto Rico has grown quickly… some would say too quickly. It has forced regulators to crack down on non-compliant banks and push to increase capital requirements. 

This has also caused regulators to limit the number of licenses they issue each year. There are far more applicants than available licenses and only the best applicants will be approved. 

And, as a result, the cost of buying an operating bank or an existing license has increased dramatically. In most cases, a basic operating bank (that’s not in trouble with regulators) will sell for $5 million. Likewise, a license (Permit to Operate) will be valued at $5 million. If the bank is profitable, the value of the book of business will be added to these prices. And, if the bank had Fedwire, the asking price would be $30 million for a bank operating at break-even. 

The $5 million value comes from two components: 

  1. Time to market of 24 months, and 
  2. The guarantee of success. 

A new license application will require at least 12 months before it is reviewed and then 6 months to be approved, assuming all goes well. You will then receive your Permit to Organize and you’ll need 6 to 12 months to build out the business and convert that Permit to Organize into a Permit to Operate. Therefore, the best case scenario for a new license is 24 months time to market.

The above assumes you’re the best of the applicants. When you buy a bank, if you can pass due diligence, and you qualify to own a bank in Puerto Rico, then you will be approved to purchase. When you apply for a new license, you’re competing with other applicants, all of whom are presumably well qualified. When you purchase a bank, you eliminate the competition. 

Therefore, a buyer of a small bank in Puerto Rico will need $5 million for the purchase price plus $5.3 million paid in capital and the CD.  This must be in cash and a Proof of Funds is required. See below how I got to $5.3m in capital below.

Capital Requirements

At the time of this writing, the capital required for an international bank in Puerto Rico is $5 million with a path to reach $10 million in a few years. This is expected to change to a starting requirement of $10 million in January 2023. 

Existing banks will have 5 years to transition to this new capital requirement. If you purchase a bank, you will have this time to increase capital. If you apply for a new license, you must have $10 million of paid-in capital on day one. 

In addition, banks currently require a CD of $300,000. This will likely increase to $2.5m.

Next, the application fee might increase from $5,000 to $1 million (quite a bump). 

Most experts in the field expect some of these increases to pass, but not all. I will update this post when we have certainty in these fees. But, the bottom line is that existing banks will have an advantage over new applicants. 

Another change for international banks in Puerto Rico for 2023 is the requirement of an annual compliance audit and risk assessment. These were previously required every 4 years and are now mandatory every year… a great profit boon for audit firms, no doubt.

I see these changes as major improvements to the international banking laws of Puerto Rico. There have been way too many undercapitalized banks on the island incapable of executing their business model. Higher capital requirements will eliminate the poor performers and improve the overall reputation of the jurisdiction. 

Process to Start  a Bank in Puerto Rico

Here’s a brief on how to start a bank in Puerto Rico in 10 steps:

  1. Apply for a Permit to Organize as an IFE in Puerto Rico. This is the first step in the process and it allows you to establish a legal entity that can operate as a bank in Puerto Rico. Timeframe 12 to 18 months.
  2. Build out your office space in a building approved by regulators. Your office space must be secure and meet the requirements of the Puerto Rico Office of the Commissioner of Financial Institutions.
  3. Hire a minimum of 4 employees, including a qualified compliance officer. You will need to hire a team of experienced professionals in Puerto Rico to help you run your bank. This includes a compliance officer who will be responsible for ensuring that your bank complies with all applicable regulations.
  4. Purchase, implement and test your core banking system. This is the software that will be used to process transactions and manage your bank’s accounts. Timeline 1 to 6 months.
  5. Negotiate a correspondent account. You might apply for a Fedwire account in year 2 or 3 depending on many factors.
  6. Prepare your compliance manuals and training materials. You will need to develop a comprehensive set of compliance manuals and training materials for your employees.
  7. Finalize your website and marketing collateral. You will need to create a website and marketing materials to promote your bank, which regulators must approve of.
  8. Apply for and receive your Swift code. A Swift code is a unique identifier that is used to identify financial institutions in international payments.
  9. Go through an audit and receive your Permit to Operate. Once you have completed all of the necessary steps, you will need to go through an audit by the Puerto Rico Office of the Commissioner of Financial Institutions. If the audit is successful, you will be issued a Permit to Operate.
  10. Take the business live and begin onboarding clients. Once you have your Permit to Operate, you can begin onboarding clients and offering banking services.

The US standard to cover startup expenses from Permit to Organize through to the Permit to Operate is $1 million. Depending on your core system, you might cut this down to $500,000. Systems can run $25,000 to $1.5 million, with many many values in between. So, the core system is also the core of your startup budget. 

This $1 million value is used throughout the United States and written in the laws of various States as a percentage of initial paid in capital. For example, North Carolina requires a startup budget of 10% of initial capital. In the case of a new applicant, minimum paid-in capital is $10 million, which gives us a startup budget of $1 million. See § 53C-3-4(a)(4) which is commonly 10% as of 2023. 

Other Sources

For information on the process to start a bank in Puerto Rico, see Start a Bank in Puerto Rico in 10 Steps (written in 2020).

For more information on the planned capital requirements for international banks in Puerto Rico, see New International Banking Regulations for Puerto Rico in 2024.

For information on the larger international banks in Puerto Rico, see International Banks in Puerto Rico with Fedwire.

For an article on banks in Puerto Rico that have run into trouble, see Puerto Rico Cracks Down on International Banks: A Look at the Recent Closures.

If you are familiar with US domestic bank licenses, this post might help clarify the differences between Puerto Rico and the United States: US Banking License vs. Puerto Rico International Banking License.

Bermuda

I believe that the up and coming offshore bank licensing jurisdiction is Bermuda. If you don’t want to be in the United States, then consider Bermuda. This is the best option for very well capitalized and professional applicants. 

Once Coinbase set up in Bermuda, the island gained quite a bit of cache in the crypto and fintech space. And, with the opening of Jewel, a crypto-friendly bank run from Silicon Valley, the island’s reputation is only going to grow. 

Yes, it’s a bit early to proclaim Bermuda as the next Puerto Rico. There is only one international bank on the island compared to 60 on Puerto Rico. But, the offshore banking industry is changing quickly and looking forward is necessary. 

Forward looking guesses aside, here are the requirements to set up a bank in Bermuda. 

You must obtain a license from the Bermuda Monetary Authority (BMA). The BMA is the financial regulatory authority in Bermuda and is responsible for ensuring that all banks operating in the country are sound and solvent.

The requirements for obtaining an international banking license in Bermuda are as follows:

  • The bank must be incorporated in Bermuda.
  • The bank must have a paid-up capital of at least USD $10 million.
  • The bank must have $1 million to cover startup expenses (so as to not deplete its paid-up capital during the startup phase).
  • The bank must have a sound business plan.
  • The bank must appoint a qualified management team.
  • The bank must comply with all applicable laws and regulations.

For more on this topic, see Bermuda to Become the Top International Bank License in 2024

For information on setting up a crypto exchange in Bermuda, see Bermuda is the Best Jurisdiction for a Crypto Exchange or Digital Asset Business.

And for general country information, see Country Information – Bermuda and BVI.

British Virgin Islands 

Another jurisdiction with great potential is the British Virgin Islands. This country has maintained a stellar reputation for decades and has a solid banking regulator with large players incorporated there, all be it as booking centers and not necessarily as operating international banks. Like Bermuda, BVI is an interesting option for a very well capitalized and high quality applicant. 

Here’s what you need to know about about the British Virgin Islands: 

The international banking industry in the British Virgin Islands (BVI) is limited but distinctive. With the territory’s stable political climate, favorable tax laws, and robust legal framework, the BVI offers an attractive environment for banking operations.

There is currently one bank, VP Bank, that specifically focuses on international business. As a globally active private bank, VP Bank primarily offers services in wealth management. This focus aligns with the territory’s reputation as a hub for global finance and a preferred jurisdiction for international business companies.

Beyond this, the territory also hosts large general banks that mainly function as transaction booking centers. They cater to a broad range of financial services, including retail, corporate, and investment banking. Notably, two of Puerto Rico’s largest banks, Banco Popular and First Bank, hold licenses in the BVI, signifying the jurisdiction’s strategic importance in the Caribbean banking landscape.

While the presence of international banks may be relatively limited in number, the BVI’s sophisticated legal system, pro-business environment, and strategic location continue to draw attention from financial institutions worldwide. Its growing reputation as a center for financial innovation further underscores the potential of BVI’s international banking industry.

Capital Requirements: 

The following is a recitation of the law issued in 1990 and not accurate for a new applicant in 2023. But, because there has not been a new license issued in many years, this is the best place to start. 

The capital requirements for an international bank license in the British Virgin Islands (BVI) vary depending on the type of license. For a Restricted Class I or Restricted Class II Banking Licence, the minimum paid up capital is US$1 million. For a General Banking Licence, the minimum paid up capital is US$2 million.

In addition to the minimum paid up capital, applicants for an international bank license in BVI must also meet the following requirements:

  • Proven banking experience
  • Physical presence in the BVI
  • Meet the “fit and proper” criteria of the BVI Financial Services Commission (FSC)

The FSC will also require applicants to make a deposit or investment of an additional US$500,000. This is similar to the CD required in Puerto Rico. 

Here are some additional resources that you may find helpful:

My expectation is that the capital requirement in the British Virgin Islands will be between $5m and $10 million based on the quality of the applicant and on what Puerto Rico does in 2024. BVI tends to follow Puerto Rico and Bermuda, but might be more aggressive.

Gibraltar

Another jurisdiction making inroads into the offshore banking industry is Gibraltar. With 9 total banks, and the recent addition of Xapo Bank, a very well funded international bank, Gibraltar is poised to become the Puerto Rico of Europe. 

Gibraltar’s banking industry is a dynamic sector that caters to both domestic and international clients. It enjoys a robust regulatory environment under the Gibraltar Financial Services Commission (GFSC), which is committed to meeting international standards of financial regulation and supervision.

The banking sector in Gibraltar includes a mix of domestic banks serving local individuals and businesses, and international banks providing a range of services to global clients. Many of these banks are subsidiaries or branches of reputable banks from Europe, particularly the UK, reflecting Gibraltar’s historical and regulatory ties to the UK.

Gibraltar has adopted European Union banking directives and maintains a high standard of banking regulation. In addition, it has also adopted strict anti-money laundering measures and requires banks to maintain robust risk management systems, making it a respected banking jurisdiction.

Despite being a small jurisdiction, Gibraltar has positioned itself as an international finance center, offering services in banking, insurance, investment fund management, and fintech. The jurisdiction’s strong regulatory framework, strategic location at the gateway of the Mediterranean, and growing focus on financial innovation, particularly in the area of blockchain and cryptocurrency, continue to attract international banks and financial institutions.

Like Bermuda, Gibraltar is only open to the best capitalized, best run, and most compliant banking operators. Unlike Puerto Rico, this jurisdiction never went through a phase of allowing low budget banks to open… which is why Puerto Rico is busy cleaning up previous messes and why several Puerto Rico banks have closed or been sold in recent years. 

The starting capital of a new bank is €5,000,000. However, you must also account for the European Regulations, which can push this amount up quickly. More specifically, a bank’s Minimum initial and ongoing capital requirement is the higher of €5,000,000 or the capital calculations set out in the Financial Services (Capital Requirements Directive IV) Regulations (CRD IV). If you want to get into the minutia, you can find links here: CRD IV AND CRR.

St. Lucia 

For a pure offshore license on a budget, the only option is St. Lucia. This offshore bank license jurisdiction has a quality reputation and a bank licensed here will be able to get a lower level correspondent partner. 

Below are the capital requirements. My recommendation for an application in St. Lucia is $2.5 million of paid-in capital and a $500,000 startup budget. This is based on experience while the information below is based on the minimum requirements of the law. See the government website.  

To set up a bank in St. Lucia, you must first obtain a license from the Financial Services Regulatory Authority (FSRA). The FSRA is the financial regulatory authority in St. Lucia and is responsible for ensuring that all banks operating in the country are sound and solvent.

The requirements for obtaining a banking license in St. Lucia are as follows:

  • The bank must be incorporated in St. Lucia.
  • The bank must have a paid-up capital of at least USD $1 million for a Class A license or USD $250,000 for a Class B license.
  • The bank must have a sound business plan.
  • The bank must appoint a qualified management team.
  • The bank must comply with all applicable laws and regulations.

Capital requirements

In addition to the license requirements, banks in St. Lucia are also subject to capital requirements. The capital requirements are designed to ensure that banks have sufficient funds to withstand financial shocks and to continue operating in the event of a crisis.

The capital requirements for banks in St. Lucia are as follows:

  • Tier 1 capital must be at least 4% of risk-weighted assets.
  • Total capital must be at least 6% of risk-weighted assets.

The FSRA may impose additional capital requirements on banks that are considered to be at a higher risk of financial distress.

NOTE: St. Lucia has not issued a new license in a few years. The most likely path is to apply for a new license and pass due diligence. Then you will be allowed to purchase an existing bank if the government won’t issue a new license. 

You can download my PDF on International Bank Licenses from St. Lucia here.

Dominica 

For years, Dominica was near the top of any list of offshore bank license jurisdictions. This island has always been the low cost leader with a capital requirement of only $1 million. I’ve written many articles over the years extolling the virtues of Dominica and comparing it to its neighbor, St. Lucia. 

However, as of 2023, Dominica is useless as an international bank license jurisdiction. It has become a joke in the industry and the island to avoid at all costs. 

Why? What’s happened to the offshore bank license industry in Dominica? Corruption, corruption and more corruption. As of 2023, Dominica is a scam banking jurisdiction. Here’s what you can expect if you apply for a bank license in Dominica: 

You’ll spend a great deal of time and money to prepare a license package for Dominica. Then you’ll file it and wait for a response. Eventually, you will meet with regulators and other agencies. 

They will ask for money to move your application along, promising you a license. Then you will go to the next agency and get the same treatment. Time and time again, you’ll be blocked until money is paid with no end in sight. 

Needing to make a political donation, or even pay a bribe, might be the cost of doing business. But, in Dominica, they will keep this up until you simply go away. The government doesn’t want to issue any new licenses, but they do want money. So, they keep leading you on until the cash runs out. 

Those of us in the industry know that Dominica has become a scam. And this is a great way for you, the individual or company seeking an international bank license, to figure out who to hire to set up your bank. If they are actively promoting Dominica, or recommending Dominica, then they are likely useless. 

If they’re paying Google PPC to promote offshore bank licenses from Dominica, run far away from that company. If they tell you Dominica is great and all you need is $1 million in capital, know that they are a waste of time. 

One last note: Even if you could get to the end of the pay line, which you can’t, a bank licensed with $1 million in capital you won’t be able to get a correspondent partner. I suggest you need $1 million in startup costs plus $5 to $10 million minimum paid-in capital to get anywhere in the industry.  

For more information on an international bank license from Dominica, see Dominica Banking License (I wrote this in 2019 and it’s outdated. I have linked to it here for historical reference only).

Cayman Islands

The Cayman Islands invented the international bank licensing industry. They were the first and the best for many years. Then, in 2010, they lost their edge as the United States and others began to push back on privacy and protection. 

The Cayman Islands has been in steady decline since FATCA (2010) and the rising costs of doing business on the islands. The costs of operating on Cayman have always been very high. But, as more and more regulations come in, these costs spiraled out of control. 

Plus, regulators were so busy keeping the United States happy that they were not supporting their local businesses. Just when costs and risks were at their height, regulators demanded more and more audits. 

These increased costs and uncertainty put many of the international banks on the Cayman Islands out of business. And, those that are hanging on, are having a hard time making a profit. 

If you have a need for a license from Cayman, it is possible to apply. There’s been one license granted in the last few years. Also, comments on the amount of capital required is speculative because the most recent international banking law was issued in 2008 (see CMA website).

Just be ready for the fees payable in Cayman. Your license application filing fee will be $250,000 to $600,000 depending on various factors. Then your annual fee can be as high as $1 million. For more, see CMA Fees

Considering the above, it’s easy to see why so many are moving to Puerto Rico. It is very rare for a new applicant, or a buyer, to want to set up in the Cayman Islands in 2023. For more on this topic, see The Decline of the Cayman Islands Offshore Banking Empire.

Belize

The international banking industry in Belize is a significant part of the country’s financial services sector. Belize is known for its attractive legislative framework for international banking, which offers financial privacy, tax benefits, and relatively low entry and operating costs. Belize’s international banking sector mainly serves non-residents, with activities including personal and corporate banking, asset management, and other financial services.

Belize operates a two-tier banking system, consisting of domestic banks, which primarily serve residents, and international banks, which cater mainly to non-residents. The Central Bank of Belize regulates both types of banks, with international banks governed by the International Banking Act.

In terms of regulatory requirements, international banks in Belize are subject to capital adequacy requirements, stringent anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, and periodic audits to ensure compliance with these and other standards. The minimum required capital under the law for an Unrestricted “A” Class international banking license is USD 3 million, while a Restricted “B” Class license requires USD 1 million. As with most countries, these numbers are outdated and have been modified by regulators in practice. 

It’s worth stating once again that the international banking landscape globally, including in Belize, has been changing in response to increasing international pressure for greater transparency and stricter regulation. As a result, the banking industry in Belize has seen a shift towards stronger regulatory oversight and higher compliance standards. It appears that a new applicant will need $5 to $10 million in capital as many move to follow the lead from Bermuda. 

There are currently three international banks licensed in Belize, down from six a few years ago. These are Caye International Bank, Belize Bank International, and Heritage International. For more information, see the Central Bank’s website

NOTE: Caye International Bank is consistently ranked among the best offshore banks and international banks of the world. For more, see: Caye International Bank, which has been in business since 1996. Here’s an article with their thoughts on the future

While it’s been many years since a new license was issued in Belize, it’s rumored that the current government is open to an application from a quality and well capitalized group. Belize would be an interesting option for a new international bank license applicant.

Panama

Panama was a leading jurisdiction for international banks in the early 2000s but has lost most of its luster since the Panama papers and since bending to US pressure. It is still a solid option for a banking group looking for an international banking license to operate a transaction booking center or for other reasons. 

That is to say, only a bank licensed in a quality or top tier jurisdiction may apply for an international license from Panama. If you don’t already have a banking license, then you can’t open an international bank in Panama. 

The requirements to apply for an international banking license in Panama, given the condition that only banks from reputable jurisdictions may apply, are summarized below:

  1. Application and Business Plan: The applicant must submit an application to the Superintendency of Banks in Panama (Superintendencia de Bancos de Panamá) with detailed information about the bank and its operations. The application must include a comprehensive business plan outlining the nature and scale of the planned banking activities.
  2. Existing Banking License: The applicant must hold an active banking license from a reputable (top tier) jurisdiction. This license should be in good standing and valid in its country of issuance.
  3. Financial Statements: The applicant must provide audited financial statements for the last three years from the existing bank. These should include a record of the bank’s performance and demonstrate its financial strength.
  4. Capital Requirements: The bank must demonstrate a minimum capital adequacy based on Panama’s banking laws. At the time of the last update, this amount was $10 million for an International Banking License.
  5. Good Standing Certificates: Certificates of Good Standing or their equivalent must be provided from the regulatory bodies in the jurisdiction where the bank is currently licensed.
  6. Management and Directors: Information about the management and directors, including their qualifications, experiences, and reputation, must be provided.
  7. Anti-Money Laundering Measures: The bank must demonstrate that it has robust anti-money laundering (AML) and combating the financing of terrorism (CFT) measures in place.
  8. Legal Documentation: Various legal documents must be provided, including the bank’s articles of incorporation and bylaws.
  9. Physical Presence: The bank should establish a physical presence in Panama, including local staff and offices.
  10. Approval: Finally, the Superintendency of Banks in Panama will review the application and, if it meets all the requirements and standards, the banking license will be approved.

This is a high-level summary, and the specific requirements may vary and evolve. If you are currently operating a domestic bank, we can assist you to set up an international bank licensed in Panama. 

St. Kitts & Nevis

Saint Kitts and Nevis, located in the Caribbean, is known for its robust offshore financial services sector. The twin-island nation has established itself as an attractive destination for international banking, mainly due to its strong regulatory environment, political stability, and attractive fiscal conditions.

The international banking industry in St. Kitts and Nevis is regulated by the Financial Services Regulatory Commission (FSRC). The FSRC ensures that international banks adhere to a set of standards and regulations in line with global best practices, including compliance with anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements.

There are only two international banks operating in the jurisdiction:

  • St. Kitts-Nevis-Anguilla National Bank Limited (operated from St. Kitts)
  • Bank of Nevis International Limited (BONI operated from Nevis)

It has been many years since a new license was granted on St. Kitts and Nevis. BONI was created when Bank of Nevis sold its license to do international business. So, now there is BONI and BON as unrelated banks.

Like Belize, it would be interesting to apply for an international license, especially from Nevis. I’ve met with regulators and government officials who have expressed interest in seeing a filing from a quality applicant. 

Dominican Republic

The opportunity in the Dominican Republic is to purchase a general bank license and get permission from regulators to offer international business. You must focus on domestic business, but you may also be allowed to have a sizable international banking component.

It is likely that a domestic license in the Dominican Republic will cost $20 to $30 million. With this in mind, here is a summary of the banking industry in the Dominican Republic. 

The banking industry in the Dominican Republic is an essential part of the nation’s economy, facilitating economic growth, promoting financial stability, and providing vital financial services to individuals and businesses.

The banking sector in the Dominican Republic is regulated by the Superintendency of Banks (Superintendencia de Bancos) under the Monetary and Financial Law. The regulatory framework aligns with international best practices and standards, ensuring the safety and soundness of the banking system.

The banking system in the Dominican Republic is composed of multiple domestic and international banks, offering a broad range of services, including retail banking, corporate banking, investment banking, asset management, and other financial services. The sector is characterized by a few large banks having a significant market share, followed by several medium and small-sized institutions.

One of the most prominent banks in the country is the Banco Popular Dominicano, which, along with Banco de Reservas and Banco BHD León, controls a substantial part of the banking market.

The Central Bank of the Dominican Republic (Banco Central de la República Dominicana) also plays a critical role in maintaining financial stability, controlling inflation, and implementing monetary policy.

The Dominican Republic has made significant strides in recent years to strengthen its banking industry’s regulatory framework, enhance transparency, and bolster anti-money laundering (AML) and combating the financing of terrorism (CFT) measures.

The Dominican Republic’s banking industry offers a few key types of banking licenses. These are regulated by the Monetary and Financial Law and supervised by the Superintendency of Banks (Superintendencia de Bancos). Here are some of the main types:

  1. Commercial Banks: These banks can engage in a broad range of activities, including taking deposits, providing loans, and offering other services such as wire transfers, payment processing, and foreign exchange. This license is generally referred to as the “multiple” license as it allows all manner of banking business. 
  2. Savings and Loans Associations: These institutions primarily focus on accepting deposits and providing loans to their members, often offering favorable rates and terms compared to commercial banks.
  3. Mortgage Banks: These banks specialize in providing mortgage loans for the purchase, renovation, or construction of real estate.
  4. Development Banks: These are often government-backed institutions that provide financing for specific sectors or projects aimed at economic development, such as agriculture, manufacturing, or infrastructure.
  5. Credit Unions or Cooperatives: These member-owned institutions offer a range of banking services to their members, often in rural or underserved areas.

The specific requirements, regulations, and restrictions for each type of banking license vary and are stipulated in the Dominican Republic’s financial laws and regulations. It’s worth noting that all these institutions are required to comply with capital adequacy requirements, anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, and other regulatory standards.

Banco Multiple License

A “Banco Múltiple” or Multiple Bank in the Dominican Republic is a type of commercial bank that can offer a wide range of banking services in the Dominican Republic and abroad. The term “multiple” refers to the bank’s ability to provide various financial services, including but not limited to taking deposits, providing loans, offering credit cards, facilitating wire transfers, foreign exchange, and other related services.

This type of license is regulated by the Monetary and Financial Law and supervised by the Superintendency of Banks (Superintendencia de Bancos).

Here are the general and capital requirements for a banco multiple in the Dominican Republic:

  • Requirements:
    • The bank must be incorporated in the Dominican Republic.
    • The bank must have a paid-up capital of at least USD $10 million.
    • The bank must have a sound business plan.
    • The bank must appoint a qualified management team.
    • The bank must comply with all applicable laws and regulations.
  • Capital requirements:
    • Tier 1 capital must be at least 10% of risk-weighted assets.
    • Total capital must be at least 12% of risk-weighted assets.

The capital requirements for banks in the Dominican Republic are set by the Superintendencia de Bancos de la República Dominicana (SBP), the financial regulatory authority in the Dominican Republic. The SBP has the power to adjust the capital requirements as needed to ensure that banks in the Dominican Republic are adequately capitalized.

In addition to the capital requirements, banks in the Dominican Republic are also subject to other regulatory requirements, such as liquidity requirements and risk management requirements.

As stated above, I estimate the purchase price of a banco multiple license in the Dominican Republic to be between $20 and $30 million. For more on the Dominican Republic, see: A Review of the Political History of the Dominican Republic.

Switzerland

Note that the following refers to the mini banking license or Fintech financial license available from Switzerland. While this is far from a full banking license, it does have its unique place in the industry. 

It’s also possible to use an aged Swiss Trust to operate a financial services business from Switzerland. For more on this, see: Aged Swiss Trust for Global Financial Services Company. Again, this is not a banking license, but a good start in a top tier jurisdiction. 

The Fintech or mini bank license allows institutions to accept public deposits up to a total value of CHF 100 million, provided these are not invested and no interest is paid on them. This opens up a regulated space for innovative financial companies, such as those operating in the digital and blockchain spaces, to operate without the full requirements of a traditional banking license.

The main features of the license are as follows:

Requirements:

  • The applicant must have its registered office and conduct its business activities in Switzerland.
  • The persons responsible for managing the fintech business must provide assurance of good reputation and guarantee proper business conduct.
  • Business activities are governed by appropriate risk management and a solid internal control system (including compliance).

Capital Requirements:

  • The required minimum capital is either 3% of the accepted public funds, but at least CHF 300,000.

Restrictions:

  • The institution may accept public funds up to CHF 100 million.
  • The accepted public funds may not be invested, and no interest may be paid on them. That is to say, you can’t pay interest to your depositors.

Please note that this is a simplified summary of the regulations and further requirements apply. I have included this here to give you an idea of what’s possible in Switzerland if you wanted to have a fintech in a top jurisdiction to support a bank license from a lesser country. 

For more on this, see Switzerland is quickly becoming a Powerhouse in the Fintech Industry (written in 2019).

Luxembourg

Luxembourg, as one of the top financial centers in the European Union and indeed the world, has a highly developed banking industry that includes a significant number of international banks. It’s home to many global banks, private banks, and specialized financial institutions from all over the world.

The country’s strategic location at the heart of Europe, its multilingual and international workforce, and its strong regulatory environment have made it an attractive destination for international banking activities. In particular, Luxembourg is known for its expertise in areas such as wealth management, fund administration, and other cross-border financial services.

The banking sector in Luxembourg is regulated by the Commission de Surveillance du Secteur Financier (CSSF), which ensures compliance with local and European regulations. The requirements to obtain a banking license in Luxembourg are quite rigorous and include providing detailed information about the bank’s structure, activities, governance, and capital. As per EU requirements, the minimum initial capital requirement for a credit institution (including banks) is EUR 5 million plus the add-ons required by the specific jurisdiction you are operating from (see below).

In addition to these general requirements, banks must also comply with ongoing regulatory requirements, including capital adequacy, liquidity, risk management, anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations, as well as other prudential and conduct of business rules.

It’s worth noting that Luxembourg is fully aligned with international efforts to increase transparency in financial services, and it has taken significant steps in recent years to improve its compliance with international standards.

The capital requirements to start a bank in Luxembourg are as follows:

  • Subscribed and fully paid-up share capital: The minimum subscribed and fully paid-up share capital for a credit institution in Luxembourg is €8.7 million.
  • Additional capital buffers: Credit institutions in Luxembourg may also be required to maintain additional capital buffers, such as the Global Systemically Important Institutions (G-SII) buffer and the Other Systemically Important Institutions (O-SII) buffer.

The capital requirements for banks in Luxembourg are set by the Commission de Surveillance du Secteur Financier (CSSF), the financial regulatory authority in Luxembourg. The CSSF has the power to adjust the capital requirements as needed to ensure that banks in Luxembourg are adequately capitalized.

In addition to the capital requirements, banks in Luxembourg are also subject to other regulatory requirements, such as liquidity requirements and risk management requirements.

Here are some of the factors that the CSSF will consider when determining the capital requirements for a new bank:

  • The size and complexity of the proposed bank’s operations.
  • The risks associated with the proposed bank’s activities.
  • The bank’s management team and its experience in the banking industry.
  • The bank’s financial strength and its ability to withstand financial shocks.

Seychelles

Seychelles is an archipelago nation located in the Indian Ocean off the eastern coast of Africa. Known for its stunning beaches, rich biodiversity, and vibrant culture, Seychelles has a relatively small, but increasingly diverse economy. Traditionally, the Seychellois economy has been dependent on tourism and fisheries, but over the last few decades, it has been expanding into the sectors of offshore business, banking, and financial services.

The banking industry in Seychelles, while not as large or as well-known as those in some other offshore centers, plays a significant role in the country’s economy. It comprises a mix of domestic banks serving the local economy and international banks catering to global clients. However, it’s worth noting that Seychelles is often regarded as a “banking jurisdiction of last resort.”

This is mainly because, in comparison to top-tier jurisdictions, Seychelles has less stringent regulatory requirements for obtaining an international bank license. Hence, entities that may struggle to secure a license elsewhere might find Seychelles a more feasible option. Similarly, if a bank aims to cater to clients who might struggle to access banking services elsewhere, such as those from countries with high levels of economic or political risk (like Russia), Seychelles could be an option.

EDITOR’S NOTE: Whenever you hear “less stringent regulatory requirements,” you can translate that to, good luck getting a correspondent banking partner.

There are currently 7 banks licensed in Seychelles. They are Absa Bank (Seychelles) Ltd, Mauritius Commercial Bank (Seychelles) Ltd., Bank of Baroda, Seychelles International Mercantile Banking Corporation (SIMBC) trading under the name “Nouvobanq,” Seychelles Commercial Bank (formerly Seychelles Savings Bank), Al Salam Bank Seychelles Limited, and Bank of Ceylon. Of these, two are operating as international banks and one is a booking center for a bank from India. 

Note that the following is speculative because the last update to Seychelles banking license law was in 2004. Click here for the banking statute. The last update to fees was in 2010. Of these, one is operating  an international bank and one as a booking center for a bank in India. 

The requirements to obtain a bank license in Seychelles are relatively straightforward. Applicants should have a minimum paid-up capital of US$5 million (the law requires $2 million)), and they must meet certain corporate governance and risk management standards.

The capital requirements for banks in Seychelles are also relatively low. Commercial banks are required to maintain a minimum capital adequacy ratio of 10%, and investment banks are required to maintain a minimum capital adequacy ratio of 12%.

Here are some additional details about the Seychelles banking industry:

  • The Central Bank of Seychelles (CBS) is the country’s banking regulator.
  • The CBS has been working to strengthen the Seychelles’ anti-money laundering and terrorist financing controls in recent years to get off various black and gray lists.
  • The Seychelles is a member of the Financial Action Task Force (FATF), an international body that sets standards for combating money laundering and terrorist financing.
  • The Seychelles has been ranked as a “high-risk jurisdiction” by the FATF in the past, but it has made significant progress in improving its AML/CFT controls.

For an excellent article on the Seychelles banking industry, check out the Nomad Capitalist website. 

Vanuatu, Comoros, and Gambia – a Warning

I include Vanuatu, Comeros, and Gambia on this list because I am asked about them frequently. But, they are here as a warning… definitely not as a recommendation for an international bank license jurisdiction. 

Vanuatu is an island nation located in the South Pacific Ocean. Known for its stunning natural beauty, the country consists of an archipelago of around 83 small islands, some of which have active volcanoes. Vanuatu’s economy is largely based on small-scale agriculture, which provides a living for most of the rural population. The country also has a growing tourism industry thanks to its tropical climate, beautiful landscapes, and rich cultural heritage. Offshore banking and financial services have become important sectors, with Vanuatu providing favorable tax conditions and banking privacy. However, it is worth noting that recent international efforts towards financial transparency have affected the functioning of this sector. Today, it is an option to incorporate an offshore company, but not to operate an international bank. 

Gambia, on the other hand, is the smallest country on mainland Africa, enveloped by Senegal except for its western coastline along the Atlantic Ocean. The Gambia River runs through the center of the country, which is characterized by diverse ecosystems around the central river and abundant wildlife in its numerous nature reserves and parks. The Gambian economy is dominated by farming, fishing, and tourism. In recent years, the government has invested in improving infrastructure and the legislative framework to promote investment and commercial activities. Though smaller compared to global offshore financial centers, The Gambia does have a growing banking sector that caters to local clients.

Then there is Comoros. Comoros is a small island nation located in the Indian Ocean, off the eastern coast of Africa. It is situated between northern Madagascar and northern Mozambique and consists of three main islands, namely Grande Comore, Mohéli, and Anjouan. There’s also a fourth island, Mayotte, which is claimed by Comoros but is still administered by France.

Comoros is one of the smallest and poorest countries in the world, with a population of around 850,000. The economy is largely based on subsistence agriculture, fishing, and remittances from overseas. Despite its economic challenges, the country is known for its biodiversity, including many endemic species.

These three countries, along with a few others, are the scourge of the international bank license industry. Yes, you’ll pay some money to a promoter and will receive a banking license. But, because there is no regulatory body of substance in these jurisdictions, and their reputations are poor, that license is useless. 

  • This is one of the reasons Puerto Rico is the market leader. They have the local regulator, OCIF, and then the US Federal Reserve of New York. Plus, banks in Puerto Rico follow US Federal Standards. Jurisdictions without a strong regulator, or no regulator as in the case of these three jurisdictions, put out a license that won’t be respected by potential correspondent partners. 

If you want a colorful piece of paper for $50,000 then buy a bank license from Vanuatu, Comoros, or Gambia. But, if you want to be able to build a bank capable of operating on the international stage, look elsewhere. 

The issue with Gambia, Comoros, and Vanuatu is that you won’t be able to get a correspondent banking partner with this license. No one will accept a bank license in these jurisdictions, so the license is useless. 

These countries take advantage of those who have dreams of owning a bank but have nowhere near the required capital. They sell you a license that they know you won’t be able to use, which is why these are the worst scammers of the offshore bank license industry.

The bottom line is that setting up an international bank in 2023 is an expensive, complex, and capital intensive endeavor. Only very well funded groups will succeed. If you don’t have the capital to get into a quality jurisdiction, start somewhere else… such as an EMI license in the UK, an Aged Swiss Trust, a Mexican SOFOM, etc. There are many options of legitimate non-bank setups that will allow you to build the business and eventually convert to a full banking charter. 

Here are a few other clear signs that the provider is a scam or a waste of time: 

  1. If the website says, “ready-made licenses for sale,” run the other way. There are almost never ready made licenses in the banking industry (unlike in the offshore company formation business). 
  2. Promises a quick turn around, that’s impossible in 2023. All transfers of ownership require regulatory approval.
  3. Tells you that no due diligence is required or you don’t need to prove the source of funds. This is never true and is a sure sign of a scam.
  4. If they’re promoting Dominica, they either don’t know what they are doing, they are out of date, or they’re taking a cut of the forthcoming bribes. 
  5. Anyone promoting Vanuatu, Comeros or Gambia is most likely a scammer. You’ll never be able to make use of these licenses. 
  6. Basically, if it’s easy to buy a bank, that means that the license is useless because there is no substantive regulator in that jurisdiction.
  7. If the provider offers many different services on their website, it means that they’re a marketing firm and (hopefully) will refer you to someone that knows what they’re doing… at twice the price had you found the subject matter expert on your own. Offshore bank licensing is very specialized and only someone that works in the field full time can keep up. 
  8. If someone promises to get you a bank license for the minimum capital promised in the law, such as $550,000 in Puerto Rico, know that this is probably not true and they don’t know what they are doing. Most laws are outdated and regulators have significantly increased the capital requirement. 
  9. If anyone tells you they have the “right connections” to get a banking license in a jurisdiction that typically doesn’t issue licenses, expect a scam and a never ending list of people asking for bribes until you go away (Dominica). They keep you on the hook with hope until you stop paying. 

For more on this topic, see Scams in the Offshore Bank License Market

I’ld also like to mention that much of the information on the internet is out of date. It’s very important to keep up with changes and work with someone who is regularly in contact with regulators. For a post on this topic, see The Internet and ChatGBT are Wrong About International Bank Licenses in Puerto Rico.

The Future of International Banking

Looking forward, it’s reasonable to assume that the international bank license industry in 2024 and beyond will continue to evolve along the following lines:

  • Regulation: Banks and financial institutions worldwide would likely be facing even stricter regulation and oversight. Regulatory bodies have been increasing their scrutiny on money laundering, terrorist financing, and other illicit financial activities. Transparency, regulatory compliance, and robust risk management would likely continue to be major focus areas.
  • Technology and Digital Banking: The ongoing digital revolution in banking services would likely continue to evolve. More and more banks are expected to offer digital banking services, such as mobile apps, online banking platforms, and digital payment solutions. This trend could impact the licensing process as regulators adapt to oversee these new technologies and services.
  • Competition and Consolidation: Due to increased competition, especially from fintech and big tech companies, traditional banks might look for strategies to stay competitive, including consolidating resources, merging with other institutions, or acquiring fintech companies.
  • Customer-Centric Services: Banks are expected to continue enhancing their focus on customer-centric services. This includes personalized banking products and services, improved customer service channels, and leveraging data analytics to understand customer behavior and preferences.
  • Sustainable and Socially Responsible Banking: With growing awareness of social and environmental issues, banks are expected to pay more attention to sustainability and social responsibility. This includes ethical investment, financing green initiatives, and supporting community development.
  • Cybersecurity: With an increased digital footprint, banks would likely have to invest more in cybersecurity measures to protect customer data and prevent cyber attacks. Regulatory bodies around the world are also paying more attention to cybersecurity, which may affect the requirements for obtaining and maintaining a banking license.
  • Artificial Intelligence (AI) and Automation: AI and automation technologies have the potential to dramatically transform banking operations, from customer service (e.g., chatbots) to risk management and fraud detection. Banks that can effectively leverage these technologies might gain a significant competitive advantage.
  • Open Banking: Open banking, facilitated by APIs (Application Programming Interfaces), allows third-party developers to build applications and services around a financial institution. This trend, already strong in regions like Europe with PSD2 regulation, could increase competition and drive innovation in the banking industry.
  • Blockchain and Cryptocurrencies: The rise of blockchain technology and cryptocurrencies could continue to have significant implications for the banking industry, potentially affecting everything from payment transactions to contract enforcement. This is a popular theme in Puerto Rico.
  • Remote Workforce Management: The COVID-19 pandemic forced many businesses, including banks, to adopt remote working practices. Post pandemic, managing a remote workforce has become a standard part of operations for many banks, with implications for recruitment, management, and IT infrastructure.
    • This is especially relevant to international banking, where you might have a few employees in your country of license and a much larger group in your home country/target market. 
  • Financial Inclusion: Banks may continue to seek ways to provide services to underbanked or unbanked populations. This includes not only providing access to basic financial services but also extending credit and providing tools for wealth management to these populations.

I also expect Puerto Rico to continue to dominate the industry. However, I also expect many of the early license holders to be forced out because they can’t keep up with the capital requirements. As they sell or close, larger players will enter the market which the early adopters proved to have potential. Look for Puerto Rico to mature quickly in the next 2 or 3 years.  

Conclusion

I hope you’ve found this article on international bank licenses to be helpful. For more information, please contact me at info@banklicense.com. I will be happy to review your options and assist you to apply for a new license or acquire an existing bank in the appropriate jurisdiction. 

In most cases, this process will start by preparing your business plan and financial model. For information on drafting a business plan for an international bank, see Business Plan for an Offshore Bank License. I wrote this with Puerto Rico in mind, but the contents and concepts are the same throughout the industry.

Why Americans Should Consider Moving Their Cryptocurrency Offshore

The IRS Targets Crypto Investors – Why Americans Should Consider Moving Their Cryptocurrency Offshore

In a recent legal development, a federal court has ordered the cryptocurrency exchange, Kraken, to turn over account and transaction information to the Internal Revenue Service (IRS). This move by the IRS is intended to uncover whether any of Kraken’s users underreported their taxes, highlighting an increasingly intrusive regulatory environment for cryptocurrency holders in the United States​1​.

The IRS petitioned the court in the Northern District of California to issue this order, following Kraken’s settlement of charges related to a violation of securities law. The tax agency alleged that it issued a summons to Kraken in 2021, which the exchange failed to comply with, sparking the IRS’s interest in investigating the tax liabilities of users who transacted in crypto from 2016 to 2020​1​.

Under the court’s order, Kraken is required to provide the IRS with comprehensive data about users who transacted more than $20,000 in a calendar year. This data includes the user’s name, birthdate, taxpayer identification number, address, phone number, email address, and more. Additionally, Kraken must provide blockchain addresses and transaction hashes that are part of the transaction data, and it may also produce raw data for the IRS​1​.

While this order might appear to be a necessary step in ensuring tax compliance, it has raised concerns about the extent of privacy cryptocurrency users can expect. Despite the court’s denial of several IRS requests, such as receiving employment information and source of wealth from Kraken, this decision underscores the broad power the government can exert over cryptocurrency exchanges and their customers in the name of tax enforcement​1​.

In light of these developments, American cryptocurrency holders should consider moving their assets into cold storage or onto an international exchange. Cold storage, a method of holding cryptocurrency offline, would allow holders to maintain their privacy and control over their crypto assets. International exchanges, particularly those in jurisdictions with more favorable cryptocurrency regulations, offer an alternative to U.S.-based exchanges like Kraken. While these options come with their own considerations, such as the need for robust security measures in the case of cold storage or the implications of international tax law, they represent potential paths for those seeking to maintain greater privacy and control over their cryptocurrency investments.

In conclusion, while tax compliance is unquestionably important, the recent court order involving Kraken serves as a reminder of the potential privacy trade-offs involved in using domestic cryptocurrency exchanges. By considering alternatives like cold storage or international exchanges, American cryptocurrency holders can take steps to protect their privacy and control over their assets in an increasingly regulated U.S. crypto landscape.

Puerto Rico is the only International Tax Plan for US Citizens

Puerto Rico is the Only International Tax Plan for US Citizens

The IRS is targeting offshore tax plans, especially those in Malta. This is due to concerns that these plans are being used to avoid paying U.S. taxes. The IRS has been cracking down on offshore tax evasion in recent years, and this is likely to continue.

The IRS’s crackdown on offshore tax plans will have a negative consequence for those who have used these plans. These individuals may be subject to penalties and interest, and they may have to pay back taxes that they should have paid in the first place.

One of the only safe international tax plans for a U.S. citizen can be found in the U.S. territory of Puerto Rico. Under the Puerto Rico Act 60, U.S. citizens who move to Puerto Rico and become bona fide residents are exempt from federal income tax on their Puerto Rican source income. This includes income from employment, self-employment, and investments.

However, it is important to note that the Puerto Rico Act 60 is not a get-out-of-jail-free card. U.S. citizens who move to Puerto Rico and take advantage of the Act 60 tax benefits must still file U.S. federal income tax returns. They must also report all of their worldwide income on their U.S. tax returns, even if it is not subject to U.S. tax.

If you are considering moving to Puerto Rico to take advantage of the Act 60 tax benefits, you should speak with a tax advisor to make sure that you understand the rules and that you are complying with all applicable laws.

Act 60, also known as the Puerto Rico Tax Incentives Code, is a law that offers tax benefits to U.S. citizens who move to Puerto Rico and become bona fide residents. Some of the benefits of Act 60 include:

  • Exemption from federal income tax on Puerto Rican source income. This includes income from employment, self-employment, and investments.
  • Exemption from federal capital gains tax on gains realized on assets that are located in Puerto Rico.
  • Reduced corporate tax rate of 4%.
  • Exemption from municipal taxes.
  • Exemption from property taxes on certain types of property.

The requirements for eligibility under Act 60 include:

  • Becoming a bona fide resident of Puerto Rico. This means that you must spend at least 183 days in Puerto Rico during the taxable year.
  • Not being a resident of Puerto Rico at any time between January 17, 2006 and January 17, 2012.
  • **Not having been a resident of Puerto Rico for any part of the three taxable years immediately preceding the taxable year for which you are claiming benefits under Act 60.

If you are considering moving to Puerto Rico to take advantage of Act 60, you should speak with a tax advisor to make sure that you understand the rules and that you are complying with all applicable laws.

Here are some additional things to keep in mind about Act 60:

  • The benefits of Act 60 are not automatic. You must file a special tax election with the Puerto Rico Department of Treasury in order to claim the benefits.
  • The benefits of Act 60 are subject to change. The Puerto Rico government has the right to amend or repeal Act 60 at any time.
  • Act 60 does not apply to all U.S. citizens. There are certain categories of U.S. citizens who are not eligible for the benefits of Act 60, such as government employees and members of the military.

In summary, the IRS is targeting offshore tax plans, especially those in Malta. This will have a negative consequence for those who have used these plans. One of the only safe international tax plans for a U.S. citizen can be found in the U.S. territory of Puerto Rico. 

However, it is important to note that the Puerto Rico Act 60 is not a get-out-of-jail-free card. U.S. citizens who move to Puerto Rico and take advantage of the Act 60 tax benefits must still file U.S. federal income tax returns. They must also report all of their worldwide income on their U.S. tax returns, even if it is not subject to U.S. tax.

If you are interested in learning more about Act 60, please contact us at info@premieroffshore.com. We’ll be happy to assist you to set up your business in Puerto Rico.

It’s Time to Move Your Crypto Business out of the United States

It’s Time to Move Your Crypto Business out of the United States

Setting up a cryptocurrency exchange or an Exchange-Traded Fund (ETF) in the United States can be challenging due to the regulatory environment. The U.S. Securities and Exchange Commission (SEC) has been reluctant to approve Bitcoin ETFs and has called recent applications inadequate. 

They believe that these applications have not been specific enough about how they will manage a “surveillance-sharing agreement,” which is meant to deter fraud and manipulation by ensuring the fund issuer is monitoring market trading activity, clearing activity, and customer identity. The SEC has stated that all Bitcoin ETF applications have fallen short in this regard. Additionally, the SEC has concerns about the price of Bitcoin being open to manipulation, which is one of the main reasons they have been hesitant to approve a spot Bitcoin ETF​.

Bermuda, on the other hand, has been striving since 2018 to be a FinTech hub for regulated digital asset businesses. The island has established and clear regulatory frameworks for investment funds and digital asset businesses, making it an attractive location to set up a digital asset or blockchain fund. Some of the benefits of Bermuda include a world-class financial center, innovative and flexible structures with a robust legal and regulatory compliance framework, quality and expertise of service providers, ease of doing business, and a stable political climate​.

Bermuda offers a variety of fund structures, including private funds, professional class A and B funds, and standard funds. Depending on the investment strategy and investor type, different structures may be more optimal. Importantly, all funds are required to seek permission from the Bermuda Monetary Authority (BMA), and directors and service providers need to be ‘fit and proper’. There’s no requirement for directors to be registered with the BMA. If the equity interests of the fund are to be tokenized, the BMA would still consider the fund to be offering equity interests, requiring BMA registration​​.

Service providers that your fund may need to engage include a registered office provider, an administrator and custodian, an auditor, independent directors, and individuals to handle FATCA and Anti-Money Laundering and Anti-Terrorist Financing Requirements. Bermuda has legislation in place to accommodate these needs​.

Bermuda was a pioneer in the digital asset sector and implemented its digital asset legislation in 2018, which established the foundation for a comprehensive legislative and regulatory framework designed to support growth in the financial technology (Fintech) Sector. The Digital Asset Business Act 2018 (“DABA”) and the Digital Asset Issuance Act 2019 (“DAIA”) regulate ‘digital asset business’ activities conducted in or from within Bermuda. However, funds pursuing a digital asset and/or blockchain-focused strategy would not be subject to DABA or DAIA unless such an investment fund conducts a public sale of its tokenized equity interests​​.

Employee Requirements

There is a requirement to have employees in Bermuda if you operate a digital asset business or crypto business in Bermuda. The Bermuda Monetary Authority (BMA) requires all licensed digital asset businesses to have a senior representative who is resident in Bermuda. The senior representative must be knowledgeable in digital asset business and related Bermuda laws and regulations. They must also be able to report to the BMA on the activities of the licensed business.

In addition to the senior representative, the BMA also requires licensed digital asset businesses to have a minimum of two other employees who are resident in Bermuda. These employees must be responsible for the day-to-day operations of the licensed business.

The BMA’s requirement for employees in Bermuda is designed to ensure that licensed digital asset businesses have a physical presence in the country and that they are subject to the BMA’s supervision. This helps to protect investors and ensure that licensed digital asset businesses are operating in a compliant manner.

There are some exceptions to the BMA’s requirement for employees in Bermuda. For example, the BMA may allow a licensed digital asset business to have a senior representative who is resident outside of Bermuda if the business can demonstrate that it has adequate controls in place to ensure compliance with Bermuda’s laws and regulations.

Capital Requirements

The capital requirements for setting up a digital asset business or cryptocurrency exchange in Bermuda vary depending on the type of business. However, the Bermuda Monetary Authority (BMA) typically requires businesses to have a minimum of $100,000 in paid-up capital.

The following are the capital requirements for different types of digital asset businesses in Bermuda:

  • Digital Asset Custodian: $100,000
  • Virtual Currency Exchange: $100,000
  • Digital Asset Dealer: $100,000
  • Digital Asset Platform Operator: $100,000
  • Digital Asset Market Maker: $100,000

The BMA may require additional capital for businesses that are considered to be higher risk. For example, the BMA may require a business that is involved in margin trading to have a higher level of capital.

The BMA also requires businesses to maintain a certain level of capital throughout their operations. This means that businesses must maintain a minimum level of capital in their accounts and must be able to demonstrate that they have the ability to meet their financial obligations.

The capital requirements for digital asset businesses in Bermuda are designed to ensure that businesses have the financial resources to operate in a compliant manner and to protect investors. If you are considering setting up a digital asset business or cryptocurrency exchange in Bermuda, you should contact the BMA to discuss your specific requirements.

Conclusion 

Please contact me at info@premieroffshore.com for more information on setting up a cryptocurrency exchange or digital asset business. Keep in mind that only the best applicants will receive a license as Bermuda fights to ensure it doesn’t become the next Bahamas. 

How to Set Up a Crypto Exchange in Bermuda

Bermuda has quickly emerged as a leading jurisdiction for digital asset businesses and cryptocurrency exchanges. The island has a number of advantages that make it an attractive destination for these businesses, including:

  • A comprehensive regulatory framework: Bermuda has a comprehensive regulatory framework for digital assets, which is designed to promote innovation while also protecting investors and consumers. The Bermuda Monetary Authority (BMA) is the primary regulator of digital asset businesses in Bermuda.
  • A stable political and economic environment: Bermuda has a stable political and economic environment, which provides businesses with the certainty they need to operate successfully.
  • A skilled workforce: Bermuda has a skilled workforce with experience in the financial services industry. This makes it easier for digital asset businesses to find qualified employees.
  • A favorable tax regime: Bermuda has a favorable tax regime for digital asset businesses. This can help businesses to reduce their tax liability.
  • A supportive government: The Bermuda government is supportive of the digital asset industry. The government has taken steps to promote the growth of the industry, such as establishing a regulatory sandbox for digital asset businesses.

These advantages have made Bermuda an attractive destination for a number of leading digital asset businesses and cryptocurrency exchanges. In recent months, Coinbase, the world’s largest cryptocurrency exchange, has moved its international headquarters to Bermuda. Jewel, a crypto-friendly bank, is also headquartered in Bermuda.

If you are considering setting up a digital asset business or cryptocurrency exchange, Bermuda is a jurisdiction that you should seriously consider. The island has a number of advantages that can make it the best place to do business.

Why Setup a Crypto Exchange in Bermuda

Here are some specific reasons why Bermuda is a good jurisdiction for digital asset businesses and cryptocurrency exchanges:

  • The BMA is a forward-thinking regulator: The BMA has been proactive in developing a regulatory framework for digital assets. The BMA’s Digital Asset Business Act 2018 is one of the most comprehensive and progressive digital asset regulations in the world.
  • Bermuda has a strong track record in financial services: Bermuda is a well-established international financial center with a long history of providing financial services. This gives digital asset businesses and cryptocurrency exchanges access to a mature and sophisticated financial market.
  • Bermuda is a stable and secure jurisdiction: Bermuda is a stable and secure jurisdiction with a strong rule of law. This provides digital asset businesses and cryptocurrency exchanges with the confidence they need to operate successfully.
  • Bermuda has a skilled workforce: Bermuda has a skilled workforce with experience in the financial services industry. This makes it easier for digital asset businesses and cryptocurrency exchanges to find qualified employees.
  • Bermuda has a favorable tax regime: Bermuda has a favorable tax regime for digital asset businesses and cryptocurrency exchanges. This can help businesses to reduce their tax liability.

Overall, Bermuda is a good jurisdiction for digital asset businesses and cryptocurrency exchanges. The island has a number of advantages that can make it the best place to do business.

Existing Digital Asset Businesses in Bermuda

As of March 2023, there are 23 licensed digital asset businesses in Bermuda. These businesses offer a variety of services, including:

  • Digital asset trading
  • Digital asset custody
  • Digital asset issuance
  • Digital asset advisory services

The majority of these businesses are located in Hamilton, the capital of Bermuda. However, there are also a number of businesses located in other parts of the island. I also note that many were set up prior to the tightening of regulations. These days, you need more capital, more compliance systems, better management, and a top quality business plan to be approved.

Here are some of the digital asset businesses that are licensed in Bermuda:

  • Coinbase
  • Coinfloor
  • EQONEX
  • Genesis Global Trading
  • iFinex (Bitfinex)
  • LedgerPrime
  • Omniex
  • Paxos
  • SFOX
  • Tether

Requirements to Build a Crypto Exchange in Bermuda

The Bermuda Monetary Authority (BMA) is the primary regulator of digital asset businesses in Bermuda. The BMA has a number of requirements that digital asset businesses must meet in order to be licensed. These requirements include:

  • Having a sound business plan
  • Having adequate risk management procedures in place
  • Providing clear and accurate information to customers
  • Maintaining adequate records

The BMA has been actively promoting Bermuda as a jurisdiction for digital asset businesses. The BMA has a number of initiatives in place to support the growth of the digital asset industry in Bermuda. These initiatives include:

  • A regulatory sandbox for digital asset businesses
  • A mentorship program for digital asset businesses
  • A training program for digital asset professionals

The BMA is committed to creating a regulatory environment that is conducive to the growth of the digital asset industry in Bermuda. The BMA believes that Bermuda has the potential to become a leading jurisdiction for digital asset businesses.

Capital Requirements and Costs to Open a Crypto Exchange in Bermuda

Here are the capital requirements and filing fees for setting up a crypto exchange or digital asset business in Bermuda:

  • Capital requirements: The capital requirements for a digital asset business license in Bermuda vary depending on the type of license. For the Test license, the minimum capital requirement is $50,000. For the Modified license, the minimum capital requirement is $100,000. For the Full license, the minimum capital requirement is $250,000.
  • Filing fees: The filing fees for a digital asset business license in Bermuda also vary depending on the type of license. For the Test license, the filing fee is $1,000. For the Modified license, the filing fee is:
    • $15,000 if estimated client receipts are less than $500,000
    • $30,000 if estimated client receipts are between $500,000 and $1 million
    • $45,000 if estimated client receipts are greater than $1 million
  • Estimated client receipts: The estimated client receipts are the gross revenue earned in the year preceding the year of assessment arising from digital asset business services provided or product sales to clients by a licensed undertaking.

For example, if you are applying for a Full (F) License and your estimated client receipts are $1 million, the filing fee would be $200,000.

The filing fee is payable upon submission of the application. The BMA will not review your application until the filing fee has been paid.

In addition to the capital requirements and filing fees, there are other costs associated with setting up a crypto exchange or digital asset business in Bermuda. These costs include:

  • Legal fees (typically $250,000)
  • Background Reports on all Shareholders (typically $5,000 to $10,000 per person)
  • Accounting fees and audit fees (preparing your personal or corporate financial statements and converting them to GAAP, if applicable)
  • Office, employees, and other G&A startup expenses.

The total cost of setting up a crypto exchange or digital asset business in Bermuda will vary depending on the size and complexity of the business. However, the capital requirements, legal fees, background reports, and filing fees are the most significant costs.

Conclusion
I hope you’ve found this post on building a crypto exchange in Bermuda to be helpful. If you would like more information, including a detailed quote, please contact me at info@premieroffshore.com. I will be happy to assist you to build your digital asset business in Bermuda.

Operational International Bank for Sale in Puerto Rico

Operational International Bank for Sale in Puerto Rico

In a remarkable financial event, an operational international bank situated in the American territory of Puerto Rico is currently on the market for a moderate asking price of $5 million. Though the bank is presently unprofitable, the sale presents an exceptional turnkey opportunity for interested investors who are keen to make their mark in the banking industry.

This financial institution comes fully equipped with a highly competent staff of six, which includes a high-quality CEO with extensive experience in the industry. Other assets include an efficient core system, a SWIFT code for smooth international transactions, and a correspondent bank for effecting financial transactions on behalf of individuals or institutions.

The potential for profitability is high, contingent on a prospective buyer’s ability to bring in substantial deposits, upgrade the correspondent bank, integrate debit card services, and join the U.S Federal Reserve system by obtaining Fedwire and Automated Clearing House (ACH) access.

Though the bank currently falls short of profitability, its overall readiness to operate signifies a considerable investment opportunity. The turnkey bank provides an established operational base from which a potential buyer can expand and adjust the institution to their strategic preferences.

A crucial growth strategy would be attracting and retaining a robust customer base by encouraging substantial deposits. This strategy can be achieved through offering attractive rates, excellent customer service, and competitive banking products.

Upgrading the correspondent bank will be essential in improving the bank’s international transaction capabilities. A robust correspondent banking relationship can aid in offering diverse financial services, boosting customer satisfaction and, in turn, profitability.

An additional key consideration will be the implementation of debit card services. In our increasingly digital age, consumers value the convenience and flexibility provided by debit cards. Offering such services would not only cater to existing customer expectations but also potentially attract a broader customer base.

Lastly, the future owner should consider joining the U.S Federal Reserve system and applying for Fedwire and ACH access. This would allow the bank to directly send or receive funds via the Fedwire Funds Service, and it would facilitate the transfer of funds through the ACH network. The integration of these systems could significantly enhance the bank’s overall efficiency and reliability, making it a more appealing choice for potential customers and thereby increasing the likelihood of profitability.

Benefits of Puerto Rico 

In the world of international banking, Puerto Rico holds a unique position due to its hybrid status as a U.S. territory with significant fiscal autonomy. The territory offers a host of benefits that make it an attractive jurisdiction for international banking endeavors, inviting potential investors to explore opportunities. This article will unpack some of the advantages of owning an international bank in Puerto Rico and shed light on why this territory is an increasingly attractive banking hub.

  1. Favorable Tax Regime: Puerto Rico boasts a remarkable 4% corporate tax rate for international banks, thanks to its unique tax laws. This low tax rate provides a significant financial incentive and competitive advantage for banks, as it enhances profitability and provides more capital for reinvestment and growth.
  2. Access to the U.S. Banking System: International banks in Puerto Rico have the unique ability to integrate into the U.S. banking system due to the territory’s status within the U.S. This opens up opportunities to participate in a robust and reliable financial network, facilitating transactions and enhancing operational efficiency.
  3. Ease of Establishing Correspondent Banking Relationships: When compared to international banks in jurisdictions with lesser reputations, banks in Puerto Rico enjoy relative ease in establishing relationships with correspondent banks. These relationships are crucial in the global banking sector, allowing banks to access financial services beyond their immediate geographic reach.
  4. Joining Fedwire and ACH: International banks in Puerto Rico have the opportunity to join the Federal Reserve’s Fedwire and Automated Clearing House (ACH) systems. Membership in these networks enhances a bank’s payment and funds transfer capabilities, enabling them to provide a broader range of services to customers and increasing their competitiveness.

Beyond these clear-cut advantages, other benefits arise from Puerto Rico’s unique status and environment:

  1. Bilingual Workforce: Puerto Rico boasts a bilingual workforce fluent in both English and Spanish. This dual language proficiency can attract a diverse clientele, promoting the bank’s growth and reach in the increasingly globalized world of finance.
  2. Robust Regulatory Environment: Although lighter than on the mainland, Puerto Rico’s banking sector is still subject to rigorous oversight from U.S. banking authorities, which helps maintain high standards of transparency and reliability. This reputation can help to attract clients and partners who prioritize security and compliance.
  3. Geographic Proximity to the Mainland U.S. and Latin America: Puerto Rico’s strategic location provides easy access to both the U.S. and Latin American markets, which can be advantageous for banks aiming to expand their business and build a diverse client base.

In summary, the benefits of owning an international bank in Puerto Rico are plentiful. The territory’s combination of a favorable tax environment, access to the U.S. banking system, relative ease of establishing correspondent banking relationships, and other unique advantages make it a compelling choice for investors looking to establish or expand their footprint in the international banking industry.

The sale of this operational international bank in Puerto Rico provides an extraordinary opportunity for investors seeking to penetrate the banking industry. Despite the bank’s current lack of profitability, the potential for revenue generation through strategic enhancements is significant. Prospective buyers can utilize the turnkey setup to mold the bank into a profitable financial institution, leveraging the existing infrastructure and adding key enhancements to take full advantage of the opportunities this sale offers.

For more information on the operating international bank available in Puerto Rico, please contact me at info@premieroffshore.com.

Bermuda to Become a Top Tier International Bank License Jurisdiction

Bermuda to Become a Top Tier International Bank License Jurisdiction

Bermuda is poised to become the top international bank license in 2024. The island has a number of advantages that make it an attractive destination for banks, including a stable political and economic environment, a sophisticated financial services industry, and a well-developed regulatory framework.

Bermuda is poised to become the top international bank license in 2024. The island has a number of advantages that make it an attractive destination for banks, including a stable political and economic environment, a sophisticated financial services industry, and a well-developed regulatory framework.

Jewel Bank

In 2023, Jewel Bank became the first digital bank to be granted a license in Bermuda. Jewel Bank is a digital-first bank that offers a variety of banking services, including checking and savings accounts, loans, and investments. Jewel Bank’s focus on digital banking makes it well-positioned to serve the needs of customers in the 21st century.

CoinDesk

In 2024, CoinDesk, a leading news and information website for the cryptocurrency industry, announced that it would be moving its international operations to Bermuda. CoinDesk’s decision to move to Bermuda is a sign of the island’s growing reputation as a hub for the cryptocurrency industry.

Additional Benefits of Banking in Bermuda

In addition to the advantages mentioned above, Bermuda also offers a number of other benefits for banks, including:

  • Low taxes: Bermuda has a low tax rate for businesses, which can save banks money.
  • Flexible regulations: Bermuda’s regulations are flexible, which gives banks more freedom to operate.
  • Strong reputation: Bermuda has a strong reputation for financial services, which can help banks attract customers and investors.

Overall, Bermuda is a good choice for international banks that are looking for a stable, secure, and cost-effective location to operate.

Political and Economic Stability

Bermuda is a British overseas territory with a stable political and economic environment. The island has a long history of financial services regulation and is a member of the Financial Action Task Force (FATF), an international organization that sets standards for combating money laundering and terrorist financing.

Sophisticated Financial Services Industry

Bermuda has a sophisticated financial services industry that includes banks, insurance companies, and investment funds. The island is home to a number of international financial institutions, including the Bermuda Monetary Authority (BMA), the insurance regulator, and the Bermuda Stock Exchange (BSX), the securities exchange.

Well-Developed Regulatory Framework

Bermuda has a well-developed regulatory framework that is designed to protect consumers and to prevent financial crime. The BMA is responsible for regulating banks and other financial institutions in Bermuda. The BMA is a member of the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO), two international organizations that set standards for financial regulation.

The Process to Setup an International Bank in Bermuda

The process of setting up a bank in Bermuda is as follows:

  1. Obtain a license from the Bermuda Monetary Authority (BMA). The BMA is the financial services regulator in Bermuda. To obtain a license, the applicant must meet certain requirements, such as having a minimum capital of $10 million and having a sound business plan.
  2. Establish a physical presence in Bermuda. This may involve renting or buying office space and hiring staff.
  3. Commence operations. Once the bank has obtained a license and established a physical presence, it can commence operations.

Capital Requirements

The minimum capital requirement for a bank in Bermuda is $10 million. This capital is used to protect depositors and to cover any losses that the bank may incur.

Additional Requirements

In addition to the minimum capital requirement, there are a number of other requirements that banks must meet in order to operate in Bermuda. These requirements include:

  • Complying with anti-money laundering and terrorist financing regulations.
  • Providing customer due diligence.
  • Reporting suspicious activity.
  • Maintaining adequate reserves.
  • Having a sound risk management system.

Conclusion

Bermuda is poised to become the top international bank license in 2024. The island has a number of advantages that make it an attractive destination for banks, including a stable political and economic environment, a sophisticated financial services industry, and a well-developed regulatory framework.

Here are some additional reasons why Bermuda is a good choice for an international bank license:

  • Low taxes: Bermuda has a low tax rate for businesses, which can save banks money.
  • Flexible regulations: Bermuda’s regulations are flexible, which gives banks more freedom to operate.
  • Strong reputation: Bermuda has a strong reputation for financial services, which can help banks attract customers and investors.

By choosing to obtain a bank license in Bermuda, banks can gain access to a number of advantages that can help them succeed in the global financial market. For a quote to set up an international bank in Bermuda, please contact us at info@premieroffshore.com 

New International Banking Regulations for Puerto Rico in 2024

New International Banking Regulations for Puerto Rico in 2024

The Puerto Rico Office of the Commissioner of Financial Institutions (OCIFI) is expected to implement new international banking regulations in 2024. The regulations are designed to improve financial transparency and to prevent money laundering.

Some of the key provisions of the new regulations include:

  • Enhanced customer due diligence: Banks will be required to conduct more extensive customer due diligence, including collecting information on the source of funds and the purpose of the account.
  • Enhanced reporting requirements: Banks will be required to report more information on transactions, including the amount of the transaction, the type of transaction, and the parties involved.
  • Increased oversight: The OCIFI will be given more authority to oversee banks and to investigate potential violations of the regulations.

These new regulations are expected to have a significant impact on the international banking industry in Puerto Rico. Banks will need to invest in new systems and processes to comply with the regulations. The regulations are also expected to make it more difficult for criminals to launder money through Puerto Rican banks.

The new regulations are a positive development for the international banking industry in Puerto Rico. They will help to improve financial transparency and to prevent money laundering. This will make the financial system more secure and will help to protect consumers.

In addition to the regulations mentioned above, there are a number of other factors that are expected to impact the international banking industry in Puerto Rico in 2024. These include:

  • The ongoing economic recovery in Puerto Rico.
  • The increasing importance of digital banking.
  • The need for banks to comply with new regulations from the United States government.

These factors are expected to create new opportunities for banks in Puerto Rico, but they will also require banks to invest in new technologies and processes. Banks that are able to adapt to these changes will be well-positioned to succeed in the future.

Here are some additional details about the new regulations:

  • Enhanced customer due diligence: Banks will be required to collect information on the source of funds and the purpose of the account. This information will be used to assess the risk of money laundering or terrorist financing.
  • Enhanced reporting requirements: Banks will be required to report more information on transactions. This information will be used to track money flows and to identify suspicious activity.
  • Increased oversight: The OCIFI will be given more authority to oversee banks and to investigate potential violations of the regulations. This will help to ensure that banks are complying with the regulations and that they are not being used for illegal activities.

The new regulations are a significant step forward for the international banking industry in Puerto Rico. They will help to make the financial system more secure and will help to protect consumers.

If you are interested in setting up a bank in Puerto Rico, please contact us at info@premieroffshore.com 

Setting up a Swiss Crypto Exchange or Fintech Business

Setting up a Swiss Crypto Exchange or Fintech Business

In this post, I’ll look at setting up a Swiss Crypto Exchange or fintech business using a fintech license or as a Qualified Intermediary. It is also possible to operate as a full bank in this capacity, but this is beyond the scope of this article. 

Introduction

Operating a cryptocurrency exchange in Switzerland involves dealing with financial transactions and requires a thorough understanding of the Swiss regulatory environment.

Here are some considerations about licensing:

  1. Banking License: If your exchange operates in a way that it accepts public deposits (which may occur if you hold customers’ fiat currencies or cryptocurrencies), you might need a banking license from the Swiss Financial Market Supervisory Authority (FINMA). However, obtaining a full banking license can be a lengthy and expensive process.
  2. FinTech License: To cater to the needs of the growing fintech industry, including cryptocurrency businesses, FINMA introduced a new regulatory category in 2019 called the “FinTech” license, or “banking license light”. This license allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them.
  3. Securities Dealer License: If your exchange is dealing with security tokens, it might need a securities dealer license.
  4. AML Regulations: Independent of the license type, any cryptocurrency exchange operating in Switzerland is required to comply with the Anti-Money Laundering (AML) Act. They must either join a self-regulatory organization (SRO) for AML purposes or be directly supervised by FINMA.

However, the specific licenses required can vary depending on the exact nature of your business, including the types of assets you’re dealing with (cryptocurrencies, security tokens, etc.), the services you offer, and the way your business operates. Furthermore, Switzerland has a highly decentralized political system, and there may be additional cantonal requirements to consider.

Setting up a Crypto Exchange in Switzerland

Here are the general steps you’d need to follow to open a cryptocurrency exchange in Switzerland. These steps may change over time as legislation evolves, so always consult with a local legal expert for the most up-to-date information.

1. Set Up a Swiss Company: In general, a crypto exchange must be registered as a Swiss company, which typically takes the form of a public limited company (AG) or a limited liability company (GmbH). The company must have a registered office in Switzerland. See Aged Swiss Trust below.

2. Membership in a Self-Regulatory Organization (SRO): Switzerland operates a dual system of financial market regulation, composed of federal regulation by the Swiss Financial Market Supervisory Authority (FINMA) and self-regulation by SROs. Depending on the type of financial service offered, crypto businesses must either become members of an SRO or be directly supervised by FINMA.

3. Apply for Necessary Licenses: If the exchange intends to accept public deposits, it will usually need a banking license. Additionally, if the exchange also operates as a securities dealer, it will need a securities dealer’s license. These licenses are granted by FINMA. Crypto exchange businesses might also be subject to the Swiss Anti-Money Laundering (AML) Act, which would require a FINMA license under the AML Act.

Switzerland has introduced a new licensing category called the “FinTech” license, or “banking license light”. This new regulatory category allows institutions to accept public deposits of up to CHF 100 million, provided they do not invest these deposits and do not pay any interest on them. These new FinTech licenses are less expensive and less complicated to obtain than a full banking license.

The requirements for the FinTech license are:

  • Having the necessary organization, qualified staff, and appropriate infrastructure.
  • Complying with the Anti-Money Laundering Act.
  • Keeping customer deposits fully segregated from the business’s operating capital.
  • Ensuring a minimum capital of 3% of the accepted public funds, but no less than CHF 300,000.
  • Compliance with Local Laws: Compliance with local laws and regulations is essential, especially regarding money laundering and securities regulations. Companies may also need to comply with other rules related to taxation, data protection, and consumer protection.

4. Secure Necessary Funding: Operating a crypto exchange can be capital-intensive. Aside from regulatory capital requirements, businesses will need enough funding to build their platform, employ staff, and cover operational costs.

5. Build Relationships with Banks: Crypto exchanges typically need relationships with banks to handle customer deposits and withdrawals. In Switzerland, finding a bank that will work with a crypto business can sometimes be a challenge.

6. Build and Test Your Platform: Before launching, you’ll need to build and thoroughly test your exchange platform. This typically involves software development and cybersecurity considerations.

7. Launch and Market Your Exchange: Once all legal and technical requirements have been met, you can launch your exchange. Ongoing marketing will likely be necessary to attract users to your platform.

Qualified Financial Intermediaries

As per the Anti-Money Laundering Act (AMLA) of Switzerland, a Qualified Financial Intermediary (QFI) is a financial intermediary that either is directly supervised by the Swiss Financial Market Supervisory Authority (FINMA), or is a member of a self-regulatory organization (SRO) recognized by FINMA for the purpose of money laundering supervision.

The term “financial intermediaries” is broadly defined and can include not only banks, insurance institutions, and securities dealers, but also entities such as asset managers, collective investment schemes, and even certain types of fintech companies. These intermediaries need to comply with the Swiss AMLA.

As per Paragraph 2, Section 3 of the AMLA, a financial intermediary is obliged to join a self-regulatory organization (SRO) or to submit to direct supervision by FINMA.

In practical terms, financial intermediaries supervised under AMLA have to comply with duties such as:

  1. Due diligence obligations: They are obliged to verify the identity of their contracting party and, where necessary, establish the identity of the beneficial owner.
  2. Record-keeping: They have to keep records that fully reflect all transactions in such a way that third parties can understand them within a reasonable period of time.
  3. Clarification obligations: In the case of business relationships or transactions which appear unusual or in the case of suspicions of money laundering, a financial intermediary must clarify the economic background and the purpose of these transactions or relationships and document the results.

The licenses are used to enable financial intermediaries to conduct their business within the legal framework of Switzerland. Once a company is classified as a QFI, it is authorized to perform activities like accepting and holding deposits, lending, securities dealing, asset management, and more, depending on the specifics of the license. However, the company is obliged to comply with AMLA and other relevant regulations.

Using an Aged Swiss Trust for a Crypto Exchange or Fintech Business

Establishing a cryptocurrency exchange or a fintech business under an aged Swiss trust or “shelf corporation” can have several advantages:

  1. Established History: An aged corporation is a company that has been around for a while, which can make it appear more credible to customers, business partners, and banks. This is particularly beneficial in the fintech and crypto space, where trust is crucial.
  2. Business Relationships: Existing corporations may already have established relationships with banks, suppliers, and other business partners. These relationships can be leveraged when launching new services, like a crypto exchange.
  3. Speed of Setup: Aged corporations are already registered and have fulfilled all necessary legal requirements, so they can be faster to set up compared to starting a new company from scratch. This can help your business get to market more quickly.
  4. Easier Access to Credit and Investment: Some banks and investors see older corporations as less risky, which can make it easier to obtain credit or attract investment.
  5. Regulatory Approval: Regulatory bodies may view older corporations more favorably, which could potentially facilitate the process of obtaining necessary licenses.
  6. Corporate Image: As you mentioned, the age of a company can help improve the business’s image with customers and with business partners, systems providers, and correspondent banking partners. It can provide a sense of stability and reliability.

However, it’s important to keep in mind that there are also potential drawbacks to using an aged corporation. For example, you may inherit liabilities from the previous operation of the company, or there may be additional due diligence required to ensure the company’s previous operations were in good standing. Additionally, an aged corporation may be more expensive to purchase than setting up a new corporation.

Moreover, regardless of the age of the company, compliance with local regulations, including obtaining the necessary licenses and ensuring adherence to anti-money laundering (AML) regulations, is still required.

Conclusion

In conclusion, setting up a cryptocurrency exchange in Switzerland can be a complex process that requires thorough preparation and a deep understanding of the regulatory landscape. However, with the right approach and guidance, it’s possible to navigate this process and establish a successful business.

It’s strongly recommended to seek advice from legal experts and professionals who are familiar with Swiss fintech regulations and the process of setting up a business in Switzerland. This way, you can ensure that your business is fully compliant with all relevant laws and regulations, and set up for success in the long term.

For more information on acquiring an aged Swiss Trust and building an exchange or fintech in Switzerland, please contact us at info@premieroffshore.com 

Selling Bitcoin for Cash in Canada

Selling Bitcoin for Cash in Canada

In this post, I will look at selling Bitcoin for cash in Canada. The bottom line is that it’s legal to sell Bitcoin for cash in Canada so long as you watch out for cash buyers with illegal businesses looking to launder their drug proceeds (for example). We don’t want to get involved with any buyer that could be a target of law enforcement.

Introduction: 

There is no law in Canada that specifically prohibits the sale of Bitcoin for cash. However, there are some laws that could apply to this activity. For example, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) require businesses that deal in cash to report suspicious transactions to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). This means that if you sell a large amount of Bitcoin for cash, you may be required to report the transaction to FINTRAC.

Cash Transactions Over the Limit

In addition to the PCMLTFA, there are also some provincial and territorial laws that restrict cash transactions. For example, in Ontario, cash transactions over $10,000 are required to be reported to the Ministry of Finance. In British Columbia, cash transactions over $5,000 are required to be reported to the Financial Institutions Commission of British Columbia.

What to Do If You Are Selling Bitcoin for Cash

If you are selling Bitcoin for cash, it is important to be aware of the laws that apply to this activity. You should also be prepared to report any suspicious transactions to FINTRAC. If you are unsure about the laws that apply to your situation, you should consult with an attorney.

Here are some tips for staying compliant with the law when selling Bitcoin for cash:

  • Keep good records of all cash transactions. This includes the date, time, amount, and identity of the person who sold you the Bitcoin.
  • Report any suspicious transactions to FINTRAC. This includes transactions that are large, unusual, or appear to be related to criminal activity.
  • Be aware of the provincial and territorial laws that restrict cash transactions.
  • Consult with an attorney if you have any questions about the laws that apply to your situation.

By following these tips, you can help to ensure that you are staying compliant with the law when selling Bitcoin for cash.

Review:

As the world becomes more digitally inclined, Bitcoin and other cryptocurrencies have grown in popularity and usage. This shift has resulted in governments worldwide, including Canada, taking steps to regulate this emerging financial landscape. In this article, we will explore the legal nuances around selling Bitcoin for cash and the implications of cash transactions that exceed established limits in Canada.

Regulations Around Selling Bitcoin for Cash

Selling Bitcoin for cash is legal in Canada. However, certain regulations govern this process to ensure transparency, prevent fraud, and curb money laundering. Bitcoin is generally considered a commodity by the Canadian government and is thus subject to the barter transaction rules under the Income Tax Act.

Those involved in Bitcoin transactions are also subject to regulations stipulated by the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). As part of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA), businesses dealing with cryptocurrencies, including Bitcoin, must register with FINTRAC. This registration requires the implementation of certain protocols, such as verifying the identities of those involved in transactions, maintaining detailed transaction records, and reporting any suspicious transactions to the authorities.

Cash Transaction Limits

Cash transaction limits are another crucial factor in the legal landscape surrounding Bitcoin sales for cash. In Canada, any business that receives $10,000 or more in cash in a single transaction, or two or more transactions that total $10,000 or more within a 24-hour period, is legally obligated to report such transactions to FINTRAC. This rule applies to both Bitcoin-cash exchanges and traditional cash transactions.

These businesses must also keep detailed records of cash transactions exceeding this threshold. The information usually includes the identities of those involved, details of the transaction, and any suspicious activities. Non-compliance with these requirements can lead to severe penalties, including hefty fines and criminal charges.

Implications and Considerations

While the regulatory framework in Canada allows for Bitcoin transactions and sales, it is crucial to understand that this landscape can be complex. The government has clear guidelines to prevent illicit activities such as money laundering and fraud. For individuals or businesses involved in selling Bitcoin for cash, it is advisable to keep abreast of the latest developments in the law and maintain transparency in all dealings.

Additionally, as Bitcoin transactions fall under the umbrella of barter transactions, they are subject to taxation. Thus, all Bitcoin transactions should be duly reported in income tax filings.

It’s important to note that legal regulations and guidelines may have changed beyond this information, last updated in September 2021. Therefore, it’s recommended to seek professional financial or legal advice for the most accurate and current information.

In conclusion, the sale of Bitcoin for cash in Canada is generally permissible, provided that all transactions adhere to the country’s legal and financial regulations. Complying with these rules helps maintain a transparent and robust financial system that can leverage the potential of cryptocurrencies like Bitcoin while mitigating associated risks.

Best Top Tier Banking Licenses

Best Top Tier Banking Licenses

I usually write about mid-tier or lower-tier international banking licenses. In the middle of the market, we have the US territory of Puerto Rico with Bermuda coming up fast.  In this post, I’ll look at the top-tier banking jurisdictions. 

If you enjoy the following article, you might also like to review the differences between Puerto Rico international banking license and a US banking license. See US Banking License vs. Puerto Rico International Banking License and Process to Apply for a US Banking License

Introduction to the Best Top Tier Banking Licenses

There are many factors to consider when choosing the best jurisdiction to set up a new international bank. Some of the most important factors include:

  • Regulatory environment: The regulatory environment in the jurisdiction should be stable and predictable. The bank should also be subject to the same regulations as other banks in the jurisdiction.
  • Taxation: The tax laws in the jurisdiction should be favorable to banks. The bank should also be able to take advantage of any tax breaks or incentives that are available.
  • Infrastructure: The jurisdiction should have a strong financial infrastructure. This includes a well-developed banking system, a reliable telecommunications network, and a stable political environment.
  • Cost of doing business: The cost of doing business in the jurisdiction should be reasonable. This includes the cost of setting up the bank, the cost of operating the bank, and the cost of complying with regulations.

Some of the best jurisdictions to set up a new international bank include:

  • United Kingdom: The UK has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in the UK is also reasonable.
  • United States: The US has a large and sophisticated financial market. The US also has a strong regulatory environment and favorable tax laws. However, the cost of doing business in the US can be high.
  • Singapore: Singapore has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Singapore is also reasonable.
  • Hong Kong: Hong Kong has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. The cost of doing business in Hong Kong is also reasonable.
  • Switzerland: Switzerland has a stable regulatory environment, favorable tax laws, and a strong financial infrastructure. However, the cost of doing business in Switzerland can be high.

Ultimately, the best jurisdiction to set up a new international bank will depend on the specific needs of the bank. The bank should carefully consider all of the factors listed above before making a decision.

In addition to the factors listed above, there are a few other things to consider when choosing a jurisdiction to set up a new international bank. These include:

  • The bank’s target market: The bank should choose a jurisdiction that is attractive to its target market. For example, if the bank is targeting high-net-worth individuals, it may want to set up in a jurisdiction with a favorable tax regime.
  • The bank’s business model: The bank’s business model will also affect its choice of jurisdiction. For example, if the bank is planning to offer a wide range of financial products and services, it may want to set up in a jurisdiction with a well-developed financial infrastructure.
  • The bank’s risk appetite: The bank’s risk appetite will also affect its choice of jurisdiction. For example, if the bank is willing to take on more risk, it may want to set up in a jurisdiction with a less regulated financial system.

By carefully considering all of the factors listed above, banks can choose the best jurisdiction to set up a new international bank.

Detailed Review

When setting up a new international bank, choosing the right jurisdiction can be a daunting task. The decision involves a complex balance of regulatory environments, political stability, economic strength, tax benefits, and market opportunities. This article will explore some of the most favorable jurisdictions for establishing an international bank, based on these criteria.

1. Switzerland

Switzerland has long been known as a global banking center due to its robust financial regulations, political stability, and strong privacy laws. These factors make it an attractive jurisdiction for setting up a new international bank. Swiss banking regulations are stringent, ensuring a high level of trust and integrity within the banking system. Despite recent changes towards more transparency, Switzerland still provides a high level of confidentiality for its banking clients.

Switzerland is known for having a highly-regulated banking system, with strict capital requirements that must be met before a bank can begin operations. To start a bank in Switzerland, an applicant is required to follow the regulations laid out by the Swiss Financial Market Supervisory Authority (FINMA).

One important aspect of this regulatory framework is capital adequacy, which refers to the amount of capital a bank must hold in order to conduct business without encountering financial difficulties. Swiss banks are required to maintain a minimum capital ratio of 8% of risk-weighted assets, which is one of the highest ratios in the world. This means that a bank must have at least CHF 20 million (approx. USD $22,300,000 million) in capital to start operating in Switzerland.

The required amount of capital can vary depending on the size and complexity of the bank, as well as the types of products and services it offers. Some banks may also be subject to additional capital requirements if they engage in riskier activities, such as investing in securities or engaging in foreign currency transactions. In addition, a bank’s capital requirements may be adjusted over time based on changes in its risk profile or other market conditions. Overall, the high capital requirements in Switzerland reflect the country’s commitment to maintaining a stable and secure banking system.

2. Singapore

Singapore’s strategic location, coupled with its well-regulated banking industry, makes it a compelling choice for banking institutions. The country’s political stability, coupled with a strong and resilient economy, makes it an attractive destination for new banking ventures. Singapore’s banking sector is characterized by a strong regulatory framework, which has helped it maintain its reputation as a safe and secure place for banking activities.

3. Luxembourg

Luxembourg has emerged as a significant player in the international banking scene, thanks to its strong regulatory regime and attractive tax laws. The country has a favorable business environment, characterized by political stability, a strong economy, and a strategic location in the heart of Europe. Luxembourg is particularly attractive for banking institutions that are interested in investment banking and wealth management.

4. Hong Kong

Hong Kong’s strong financial services sector, strategic location, and robust regulatory regime make it another top choice for establishing a new international bank. The region serves as a gateway to the lucrative Chinese market and other Asian economies, providing vast market opportunities.

5. Cayman Islands

The Cayman Islands are known for their favorable tax regime, with no direct taxation on banking institutions. They offer a stable political environment and a strong legal framework based on English common law. The jurisdiction has a robust regulatory framework for its banking sector, ensuring financial stability and integrity. The Cayman Islands are a particularly popular choice for banks looking to cater to international clients and offshore businesses.

The Process of Applying for a Top-Tier Banking License 

Please note that this is a generalized guide and the specific requirements and processes can vary significantly based on the jurisdiction and regulatory authority. Please contact us for a quote and additional information at info@premieroffshore.com. .

Applying for a banking license is a complex and rigorous process, requiring detailed planning, preparation, and documentation. This article will outline the general steps involved in obtaining a banking license, with emphasis on the need for a detailed business plan and financial model, proof of funds, and background reports for all investors, officers, and directors. Please note that the process can vary based on jurisdiction and specific regulations of the banking authority in question.

1. Preparing a Detailed Business Plan and Financial Model

A comprehensive business plan is a fundamental part of the banking license application. This document should outline the strategic direction of the bank, the types of services to be offered, the target market, and the proposed operational structure. Key aspects to include are:

  • Mission and Vision: Define the purpose of the bank and its future aspirations.
  • Products and Services: Detail the specific banking products and services the institution plans to offer.
  • Market Analysis: Provide a thorough analysis of the target market and competitive landscape.
  • Operational Plan: Describe how the bank will function operationally, including the technology and infrastructure to be used.
  • Management and Organizational Structure: Detail the proposed organizational hierarchy, roles, and responsibilities.

A robust financial model accompanies the business plan. This model should forecast the bank’s financial performance for at least the next three to five years, taking into account various scenarios and risk factors. It typically includes projected income statements, balance sheets, cash flow statements, and key financial ratios.

2. Proof of Funds

Applicants must demonstrate that they have sufficient capital to establish and operate the bank. This involves providing proof of funds, typically in the form of bank statements or other verifiable documents. The minimum capital requirement varies depending on the jurisdiction and type of banking license.

3. Background Checks

Regulatory authorities require comprehensive background checks for all investors, officers, and directors involved in the proposed bank. These checks aim to ensure that the individuals have a clean record, are of good character, and have the necessary qualifications and experience. The checks typically involve:

  • Criminal Background Checks: To ensure the individuals have no criminal history.
  • Credit Checks: To verify the financial integrity of the individuals.
  • Qualifications and Experience Checks: To confirm that the individuals have the necessary skills, qualifications, and experience to effectively manage a banking institution.

4. Application Submission 

Once the business plan, financial model, proof of funds, and background checks are complete, the banking license application can be compiled and submitted to the relevant regulatory authority. The application will also need to include other documents, such as incorporation documents, internal policies, and procedures.

5. Review and Approval

Following submission, the regulatory authority will review the application, which could involve further inquiries or requests for additional information. If the authority is satisfied with the application, they will grant the banking license. This process can take several months to over a year, depending on the jurisdiction and the complexity of the application.

Obtaining a banking license is a rigorous process, requiring meticulous preparation and due diligence. It’s essential to seek expert advice and assistance throughout the process to ensure that all requirements are met and the application is as robust as possible. While the process may be time-consuming and challenging, it’s a crucial step toward establishing a successful banking institution.

Conclusion

The choice of jurisdiction for setting up a new international bank depends heavily on the specific needs and strategy of the banking institution. Other factors such as the target market, the nature of banking services to be offered, and the bank’s risk tolerance also play a role. The jurisdictions mentioned above offer a blend of regulatory stability, market opportunities, and favorable business environments, making them top choices for establishing a new international bank.

I hope the following has been helpful. For a detailed quote and information specific to a particular jurisdiction, please contact us at info@premieroffshore.com 

mexican SOFOM

Setting up a SOFOM in Mexico to Operate a Fintech, Financial Services, or Crypto Business

A Mexican SOFOM, or Sociedad Financiera de Objeto Múltiple, is a type of financial institution that can provide a variety of financial services, including money transmission, cryptocurrency, loans, leases, and factoring. SOFOMs can be either regulated or unregulated, with regulated SOFOMs being subject to more oversight by the Mexican government.

Fintech, financial services, and crypto companies in Mexico are increasingly using SOFOMs to provide their customers with a wider range of financial services. For example, fintech companies may use SOFOMs to provide loans to small businesses, while financial services companies may use SOFOMs to offer investment products to their customers. Crypto companies may also use SOFOMs to provide services such as cryptocurrency trading and custody.

SOFOMs offer a number of advantages for fintech, financial services, and crypto companies in Mexico. First, SOFOMs can provide these companies with access to a wider range of financial products and services. Second, SOFOMs can help these companies to reach a wider customer base. Third, SOFOMs can help these companies to comply with Mexican financial regulations.

As the fintech, financial services, and crypto sectors in Mexico continue to grow, SOFOMs are likely to play an increasingly important role in these industries. SOFOMs offer a number of advantages for these companies, and they can help these companies to provide their customers with a wider range of financial services.

The Most Efficient Structure for a Financial Services, Fintech or Crypto Business in Mexico is a SOFOM

A Sociedad Financiera de Objeto Múltiple (SOFOM) is a type of financial institution in Mexico that is authorized to provide a wide range of financial services, including loans, leases, and factoring. SOFOMs are regulated by the Comisión Nacional Bancaria y de Valores (CNBV), the Mexican banking and securities commission.

There are two types of SOFOMs: regulated and unregulated. Regulated SOFOMs are subject to more stringent regulatory requirements than unregulated SOFOMs. However, regulated SOFOMs also have access to a wider range of financial services and products.

A SOFOM is the most efficient structure for a number of reasons. First, SOFOMs are authorized to provide a wide range of financial services, which allows businesses to offer a more comprehensive suite of products to their customers. Second, SOFOMs are regulated by the CNBV, which provides businesses with a high level of financial stability and security. Third, SOFOMs have access to a wide range of financial resources, which allows businesses to grow and expand their operations.

If you are considering starting a financial services business in Mexico, a SOFOM is the most efficient structure to consider. SOFOMs offer a wide range of benefits, including access to a wide range of financial services, products, and resources.

Here are some additional benefits of incorporating as a SOFOM in Mexico:

  • Flexibility: SOFOMs have a great deal of flexibility in terms of the types of financial services they can offer. This allows businesses to tailor their offerings to the specific needs of their customers.
  • Scalability: SOFOMs are well-suited for businesses that are looking to grow and expand. They offer a wide range of financial resources that can help businesses to finance their growth.
  • Reputation: SOFOMs are regulated by the CNBV, which gives them a high level of financial stability and security. This is important for businesses that want to build a strong reputation with their customers.

Here are some specific examples of how SOFOMs are being used by fintech, financial services, and crypto companies in Mexico:

  • Fintech company Konfío uses SOFOMs to provide loans to small businesses.
  • Financial services company Banorte uses SOFOMs to offer investment products to its customers.
  • Crypto company Bitso uses SOFOMs to provide cryptocurrency trading and custody services.

These are just a few examples of how SOFOMs are being used by fintech, financial services, and crypto companies in Mexico. As these industries continue to grow, SOFOMs are likely to play an increasingly important role in providing financial services to Mexicans.

Here are the steps on how to set up a SOFOM in Mexico:

  1. Obtain a corporate charter. The first step is to obtain a corporate charter from the Secretaría de Economía (Secretariat of Economy). The corporate charter will set forth the basic structure of your company, including its name, purpose, and capitalization.
  2. Register with the National Banking and Securities Commission (CNBV). Once you have obtained your corporate charter, you must register with the CNBV. The CNBV is the Mexican government agency responsible for regulating the financial sector. The registration process with the CNBV can be complex, so it is advisable to seek professional assistance.
  3. Obtain a license to operate as a SOFOM. Once you have registered with the CNBV, you must obtain a license to operate as a SOFOM. The license application process is also complex, so it is advisable to seek professional assistance.
  4. Establish a physical presence in Mexico. To operate as a SOFOM in Mexico, you must establish a physical presence in the country. This means that you must have an office or other location where you can conduct business.
  5. Obtain the necessary permits and licenses. In addition to the license to operate as a SOFOM, you may also need to obtain other permits and licenses from local authorities. The specific requirements will vary depending on the location of your business.
  6. Hire qualified staff. To operate a successful SOFOM, you will need to hire qualified staff. This includes employees with experience in the financial sector, as well as employees with experience in the Mexican market.
  7. Develop a marketing plan. Once you have established your business, you will need to develop a marketing plan to attract customers. This plan should include strategies for reaching potential customers, as well as strategies for building relationships with customers.

Here are some additional requirements for setting up a SOFOM in Mexico:

  • A business plan that outlines the company’s goals, strategies, and financial projections.
  • A financial model that details the company’s sources of funding and projected cash flows.
  • Background information on the shareholders, including their financial and professional qualifications.
  • A copy of the shareholders’ agreement.
  • A copy of the company’s bylaws.

We can provide local directors if that is your need, but they are not required. Local directors can be helpful in navigating the Mexican legal and regulatory environment. They can also help to build relationships with local businesses and government officials.

If you are considering setting up a SOFOM in Mexico, we encourage you to contact us for more information. We can help you to assess your needs and develop a plan to achieve your goals. You can reach me directly at info@premieroffshore.com