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. 

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.

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 

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