BECOME A BANK
There are many reasons why financial entrepreneurs and financial companies pursue the highest of all financial licenses: the banking license.
Although increasingly desirable, becoming a bank is not an easy feat. Here at Financial Licensing Advisors (FLA), we understand financial businesses’ struggle to be in compliance with applicable regulatory requirements and the necessities of day-to-day operation.
Being the undisputed leader in banking licensing services worldwide has allowed us to gain experience and a comprehensive understanding of our clients’ everyday challenges.
Because of the sheer number of enquires related to becoming a bank, we have decided to publish this comprehensive article, in which we use our experience and knowledge to provide information about becoming the ultimate financial institution: a bank.
“Financial Licensing Advisors is the international leader in bank licensing services. We have been creating, designing, and pre-operating financial structures for years. We are the world’s only leader that will address all your financial licensing needs”
Before moving on, please see the available options and solutions that you can use to become a bank.
LICENSE A BANK DASHBOARD
The number-one reason is growth. Usually, entities from all industries get to a point where being their own bank makes more sense than using someone else’s infrastructure. On the other hand, some financial institutions reach their licensing limitations and find themselves rejecting important business propositions simply because they are not licensed to join a business operation.
Whatever the case, Financial Licensing Advisors is here to help. We are the world leader in financial licensing services. We will review and tailor a specific solution for you based on your needs. Shortly, you will be en route to converting your company into a fully licensed and compliant bank.
Becoming a licensed bank will allow you to grow in many ways. Larger companies in major industries unrelated to finance choose to become banks for various reasons. Above all, being a bank is a highly profitable business.
All clients reaching out to Financial Licensing Advisors will probably have other ideas about how they can benefit from obtaining a banking license, Non-financial-related service companies will have clearly identified the benefits of becoming a bank, while those in the financial sector will, at some point in their lifecycles, find it necessary or desirable to be licensed as a bank.
We deal with clients not related to the financial sector and within all industries, including retail, construction, real estate, aeronautics, marine and export/import industries, as well as financial entities such as forex brokers, wealth managers, investment family offices or private funds, introducing bokers, M&A firms, licensed financial advisors, money service businesses and brokers, payment processors, and equity funds. All of them have a legitimate reason to become a bank and have carefully studied their options. If you are here, it’s likely because you already know how advantageous having a bank will be to your business.
Banks come in all shapes and sizes. The correct bank will depend on your own understanding of why becoming a bank is the next sensible step in your business plan.
Clients usually come to us with a very structured and clear view of what they need in terms of licensing. However, we often see clients that think they need a specific solution when, in reality, they need another.
This is because of the inherent complexities involved in licensing financial institutions. The interaction between various regulatory frameworks plays a complex role in determining how a structure should be set up. In a typical case, clients want us to license them domestically for a specific activity though an international component is involved as part of the equation. In some of those cases, what clients really need is to be licensed offshore, with a specific provision that will allow them to be registered locally as an international entity with domestic compliance with applicable regulations. Of course, each business case is different. Above all, reviewing each individual client’s goals and applicable limitations is key.
Having an advisor that can help you understand the complexities of both the regulatory environment and the limitations domestically and internationally is key. Without this, you will not be able to grow and any regulatory mistake you make could cost you extensively.
If you are delivering services locally, you need a local bank. However, if you are more globally oriented, it makes sense to have an international or even offshore bank.
If you need more information about these services, you may want to review any of the following options.
Based on the jurisdiction where you plan to deploy operations, you will be required to do specific things. Some of them may sound extreme and others even impossible.
The truth is that financial regulators often prefer that no new banks join the market
The reason is that adding a new player to the banking system could potentially produce risks. New banks are sometimes more exposed than their well-established older counterparts. Moreover, dealing with a new party could prove difficult, as even in a heavily regulated environment, all tasks are tailored to each specific licensee, thus costing the regulator time and resources.
Financial authorities are usually very familiar with what their banks do, their current financial status, their limitations, potential problems, and, most important, the ability of their directors to sort things out. When a new player comes into view, regulators are not certain about these aspects. They need to determine whether the new banker knows how to solve domestic-specific challenges. Issuing a new license is a difficult call for them, as no one wants another potential failure added to the chain.
Your regulator(s) will know you well, and you will surely develop good communication at all levels. A good regulator will know everything there is to know about the bank. There is a reason for that and it’s due to the inherent risks that financial institutions bring to the domestic market. A regulator’s main objective is to provide stability, as specific systemic risks left unchecked would surely create chaos.
Moreover, in most jurisdictions the financial regulators are subject to scrutiny from their government and, more important, the press. This creates mounting pressure to achieve their goals.
The requirements to become a bank vary broadly in each jurisdiction. However, you should expect the following three everywhere.
1. Capitalization; prospective bankers should have capital to spare.
2. Extensive banking experience; members of the prospective bank should have an extensive banking background.
3. Business plan; a clear view as to how the bank will achieve its objectives.
The reason we are able to get clients licensed is that we find a problem within the local economy and we provide a solution for it.
In some cases, you will need to review various opportunities within the domestic financial system that the regulator would like to fix or fine tune. When a third party offers to fix it in a way that is proactive for both the economy and the players involved, it usually makes sense to add that player into the system.
Therefore, the regulator will be proactively seeking to have the client join the market, as it will provide relief for specific aspects of the economy.
Understanding the local market requires time and research. A proactive study should present you with the main challenges that the local banking industry is experiencing. This creates business and licensing opportunities for your prospective bank.
For more information about becoming a bank, read any of the following sections.
When licensing a new bank, prospective bankers should pay attention to geopolitical considerations and the current financial regulatory environment. This must be weighed before one submits an application, as getting a banking license is more often a political undertaking than a legal procedure. Although the law remains unchanged, the desirability of adding players to the financial system does change. To avoid potential delays with your master business plan, you must understand the political scenario before moving forward with an application.
For this, we often explore possible alternatives to avoid disruption of the business plan. However, to remain compliant with applicable regulations domestically and internationally, you should carefully consider the impact of any application or approach. We highly recommend that clients allow us to review each specific situation to oversee when and how the procedure is followed.
An alternative with which we are always confronted is buying an existing bank or starting a bank from scratch.
The answer is often money and time.
Purchasing a bank offers various advantages over starting a new bank. It’s a much easier process. However, if you have time available and your business plan does not require immediate growth, perhaps moving forward with a banking license application makes more sense.
As explained earlier, the financial regulator will not want to add more banks into its domestic banking system. New banks run the risk of becoming potential problems in their sectors, and each new bank application has the potential for failure.
As discussed earlier, the political aspects play an important role in licensing. In some cases, when you purchase a bank, you are potentially lowering the risk of default for that particular entity. This will, in turn, potentially represent one fewer problem that the regulator has to deal with. Thus, the authorities like it when someone buys a bank instead of licensing a new one.
Smaller considerations should also be made. For instance, hiring or setting up an office is something the prospective buyer must do when licensing a new bank. It’s a process that involves a lot of time, as very often a Financial Licensing Advisors specialist will need to travel to that jurisdiction solely for that purposes. Those expenses will quickly add up and affect the general licensing budget—and, most importantly, drain valuable time. When you buy a bank, you buy the company as is, with the infrastructure and all the related services it has. Instead of deploying a human resources manager to select employees or shop for office space, the office needed to start the business is already there with its own employees, whom the regulator approved.
Furthermore, buying a bank offers all sorts of benefits such as software and other add-ons that will otherwise cost you if you decide to license yours from the ground up. Buying a bank, although more expensive, is a much better alternative. You will likely want to review our comprehensive list of banks and other licensed financial institutions available for sale. Financial Licensing Advisors does not sell bank-type vehicles but, rather, fully licensed and supervised banks.
Moreover, the banks we sell typically undergo a general due diligence check. All institutions listed are subject to change at any time, including any shares available to the public. Banks available on this list have preexisting agreements between themselves and Financial Licensing Advisors. We typically try to perform due diligence on both the entities and their owners to ensure the accuracy and truthfulness of the information that these banks provide.
Download the current list of banks for Sale
Please note that the information provided on the list of banks available for sale is not an offer to sell or purchase, nor is it a solicitation of an offer to sell or purchase an interest in any entity represented.
By downloading the list of banks available for sale, you acknowledge that the content is for general informational purposes only and does not constitute an offer to sell or buy any securities. Nor is it a promise to undertake or solicit business, and it may not be relied upon in connection with any offer or sale of securities. For a complete disclaimer, please see the last page of the document.
If you are interested in learning more, we suggest that you read the following document, which contains information about the topic banks for sale.
As stated earlier, the downside of buying is obviously the cost. You will likely spend much more when buying a bank than when licensing one from the ground up. When making a decision, this is the most important consideration. In our opinion, for this type of industry, it is the most valuable asset. Again, this should be reviewed on an individual case-by-case basis but you will likely have reasons to become a bank instead of purchasing one.
The first step in organizing a new bank and preparing it for licensing is to build a strong business and strategic plan. As described earlier, the plan must consider the seamless integration of the proposed business into the domestic market. It should include everything related to its financial planning and an in depth explanation of the management resources and abilities, as well as the implications and possible impacts within the domestic economy.
A strong business plan should be carefully drafted and include detailed financial projections and all appropriate policies and procedures—everything from human resources to AML and KYC.
A policy forms the basis of successful regulatory applications for a bank license and is an essential document for the operation of the bank. It guides the various day-to-day activities of the bank with specific provisions seek to increase productivity and avoid risks for all parties involved.
The individuals behind a financial business are key to that business’s success. In banking, a license is more often issued because of the parties involved than because of the business plan.
Experience in the banking industry and the way in which the management team has dealt with a variety of scenarios will be carefully reviewed by the regulator. Having the right people is the key to success within banking. When dealing with third-party money, you want to have the best human resources possible.
The qualifications and experience of the management team or the various boards of directors are among the most important factors when one submits an application. The individuals behind any potential license will be extensively evaluated, so special attention should be paid to this area to avoid pitfalls.
To be approved for a new license, all members of the senior management team must have extensive experience in banking. This should come with a verifiable history of relevant success in the industry and, most importantly, the bank’s proposed strategy and business plan.
The board of directors and the management team should include individuals with successful careers in banking or the financial sector. Occasionally, other fields are desirable depending on the specific business plan submitted. All the directors should have impeccable backgrounds and extensive training in the disciplines required for the board to meet its responsibilities.
The directive board and management team have an important role. Financial regulators and potential investors will look into the experience of the directors when weighing an investment.
Becoming a bank is easy if you cover all the above steps and understand the political arena in the jurisdiction where you are applying. Financial Licensing Advisors has extensive experience in licensing new banks and will provide all the help necessary to become a bank.
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