The world of offshore banking is a diverse and complex landscape of licensing, compliance, correspondents, and regulation. Bottom line is that the barriers to entry have increased significantly in the last 4 years.
To get started building a new offshore bank, corporate capital will be at least $1 million, and more likely $5 million. Once you take reserves and capital ratios into account, the capital required to start an offshore bank today is significant.
- Note that there are exceptions to the rule. Captive banks require minimal capital but may not market to the general public (see below).
- Countries like Comoros are new to the offshore banking world and offer licenses with minimal capital requirements. However, the same accounting and ratios apply and negotiating a correspondent account for an underfunded bank will be a challenge.
Still want to form an offshore bank? Here’s how to get started…
The offshore bank formation process begins with the selection of the best jurisdiction(s). Next we search for an existing license. If one is available, we will negotiate the purchase on your behalf. If not, we will begin the application process for a new license.
While we will review 25 jurisdictions in the analysis stage, the most common are (in alphabetical order, not by preference):
- St. Kitts & Nevis
- St. Vincent & the Grenadines
- Vanuatu (Republic of)
As I said above, the corporate capital required to form a small offshore bank is $1 million to $5 million. Some jurisdictions, such as Panama, are much higher.
When I refer to the amount of capital required, I mean the amount of cash on deposit that will be required before the license is granted. Capital required will vary by country, your intended business model, and many other factors.
The corporate capital I recommend during the analysis stage may vary from what the law states as the minimum required. For example, Belize’s banking statute lists minimum capital of $3 million for an international license. Based on my experience, I believe a new licensee will require $5 million… that the central bank will only approve a new license with $5 million in capital regardless of what the statute says. On the other hand, Dominica’s statute says $1 million, which is usually the amount needed.
And certain jurisdictions focus on specific types of banking business. For example, Cayman Islands might be the preferred local for an investment / private bank, while Belize might be the best for a FACTA compliant deposit taking bank.
Another issue to consider is that countries treat offshore and general licenses differently. For example, Panama will allow a new market entrant to open a full service (Class A) bank. However, only a company with an existing license from a major jurisdiction will be granted an international license (Class B) in this country.
Some countries, such as Dominica, have only one class of license. And others offer three levels: general, international, and captive.
- A captive offshore bank license will require less capital than an international license and is typically used by related companies or multinationals for internal lending. A captive may only do business with persons or companies listed in the license and pre-approved by the central bank.
- An offshore or international bank license allows the bank to do all manner of banking and investment business. The only limitation is that you can’t accept clients from the issuing country. So, if you form an offshore bank in Panama you can’t have Panamanian clients. Panama corporations and foundations owned by foreigners are fine.
- A general bank license allows you to offer both international and domestic banking services. Because a country is more protective of its own, the requirements for a general license are higher than a captive or offshore bank license.
Then there is the regulatory scheme to consider. A bank from Dominica is regulated both in Dominica and by the Eastern Caribbean Central Bank. The country issues the license and the ECB governs its operation. Others, such as Cayman and Vanuatu, operate independently… are regulated only by their respective government agencies.
Finally, time to market might be a consideration. If a new license is available, you might be up and running in a few weeks or months. Depending on the country and business model, a new license can take anywhere from 6 to 26 months.
If you would like to retain Premier to assist you to acquire a bank license, or to form a new bank in an offshore jurisdiction, we offer two tracts.
1) if you already have a banking license (you wish to form an offshore subsidiary of a parent bank) and you have determined the best jurisdiction for your subsidiary, we can provide you quote for the formation.
2) If you don’t have a license from another jurisdiction, we charge a consulting fee to work through the analysis and planning stage – selecting the best jurisdiction, building the board of directors, capital reserve analysis, etc. Once the groundwork is complete, I will provide you an opinion letter and action plan to move the project forward in the most efficient and effective manner possible.
If this is of interest, please send us an email to email@example.com.
For more information, please review my articles on offshore bank licensing and operation. I’ve been working in offshore banking for over a decade, so there are a few older posts floating around the web. My 2015 articles on the topic are: