How to setup an offshore bank

Thu 16th Mar, 2023

The practice of outsourcing operations overseas in offshores is an alternative to the strictly regulated financial markets of emerging economies. If you would like to open an offshore bank, you have to carefully prepare for this step. Below we discuss core factors you have to consider before implementing your business plan.

Advantages of getting an offshore banking license

Subject to your long-term business goals, an offshore license is a workable mechanism for the following purposes:

  • simple access to the monetary market,
  • substantial client base with access to retail deposits,
  • advantage over startups, EMIs, or small banks,
  • bigger profit margin obtained by private ownership,
  • tax advantages,
  • protection from unauthorized inquiries into business operations.

Types of banking licenses

The key categories of offshore banking encompass class-A and class-B banks. A-class banks are traditional full-service financial vehicles. They carry out multiple monetary activities, lend money, and accept deposits. Class-B banks, however, operate on behalf of their founders and clients as specified by their licensing terms.

The institution you aim to open will determine what kind of permits you have to acquire. The B-class license is needed if your company will oversee the internal monetary activities of your other firms. But for working with the broader public, you need a class-A license. These two groups' capital obligations differ from each other, as you'll see below.

Capital requirements

An A-class bank must have a physical office with staff, hardware thorough anti-money-laundering and KYC mechanisms, independent auditors, and a board responsible for protecting shareholders' interests, establishing policies for management, and oversight of the corporation, etc. The capital should be at least $5-10 mln subject to jurisdiction.

The capital obligations for a B-class bank are somewhat lower ($500,000 to $1,000,000). Once the institution has been examined by the regulatory agency, the standards are less stringent.

Procedures for starting your offshore bank

The entire procedure may be divided into 3 stages. Let's consider them in detail:

In the first pre-submission stage it is mandatory to:

  • establish the legal entity in an offshore country,
  • develop AML and KYC procedures under local laws and global norms,
  • appoint staff and form the bank's board of directors,
  • decide on the physical office, meet with the central bank of the country, and promote the package of documents during the approval stage.

In the post-approval stage it is mandatory to:

  • set up correspondent relations,
  • establish local/international treasuries and accounts as necessary,
  • provide storage facilities for customer money.

In the post-opening stage it is mandatory to:

  • hire a team of employees,
  • set third-party contractors and correspondent bank relations,
  • attend regular board meetings and audits,
  • marketing.

The basic parameters regarding acquiring an offshore license vary for different jurisdictions. However, the common obligations include meeting the capital conditions, the number of experienced shareholders, an address, and other terms according to the local legal provisions. In some jurisdictions, there is an opportunity to buy a banking license and speed up the transition process.

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