REQUIREMENTS TO START A BANK

 

Starting a bank is a complex and time-consuming undertaking. It often involves various specialists and agents dealing with various authorities that work together to achieve a specific goal: licensing.

Most of our clients enquire about the requirements for starting a bank. Those requirements are based on specific laws and regulations and on the applicable regulatory framework where the bank will be located.

This is a brief guide to what is required to start a bank in most jurisdictions.

 

The following components will be the baseline for your bank setup:

How to Start a Bank

1) Your Business Plan.

2) Capitalization.

3) Key Individuals (Including a Board of Directors and Management Team)

4) IT Systems (Compliance, Reporting, Backend, and Frontend)

5) Your Correspondent and Banking Relations

Although each jurisdiction is different and requirements will often change depending on the region where you are licensing, the five items above should be known before one applies for a bank license.

You can obtain an understanding of the specific requirements for starting a bank by complying with any applicable regulations where you are licensing. We recommend to clients that after they choose a jurisdiction to review, they read the applicable law in that jurisdiction.

Starting a bank with Financial Licensing Advisors is a simple process, as we offer a complete solution for everything that financial authorities will require from you, including licensing, staff management, business plan design, operation, supervision, establishment of locations, intermediary account setup and integration, reporting, auditing, core banking services, and myriad outsourcing solutions for your bank.

We routinely license and start new banks—both international and local—in most major banking jurisdictions. We do not structure bank-type vehicles but, rather, fully licensed and supervised banks.

We can provide you with all the relevant services you will need to set up and license a bank in a simple and efficient manner. Financial Licensing Advisors (FLA) is the undisputed leader in banking licensing.


If you need more information about these services, you may want to review any of the following options.

 

Requirements to Start a Bank:

The first step is often the submission of the application for a new banking license after a local company is formed. Financial Licensing Advisors will handle all the relevant startup and registration procedures, thereby speeding up this process.

Aside from the initial costs for the setup and our services, requirements vary greatly depending on the prospective jurisdiction. Here are the most common requirements for starting a bank:

License a Start Bank
  • A minimum of two partners and a solid management team with an impeccable track record and without a history of bankruptcy, money laundering, fraud, or related issues.

  • Senior directive staff with extensive banking experience and general experience in the financial sector. Over 10 years of experience is required (20+ desired)*.

  • Appointment of a compliance officer and a risk management officer, among other key individuals.

  • Setup of a local office in the jurisdictions where you are applying.

  • Directive staff with relevant experience (typically have an MBA or similar qualification from an international renowned institution).

  • All directors and shareholders will be required by law to submit to a full background check and audit conducted by an external auditing firm.

  • An initial business plan submitted with the application.

  • Initial paid-up capital requirement 1

  • Extensive experience among all first- and second-level managers and directors.

  • Reporting backend banking software implementation.
  • 1. Depending on the jurisdiction, bankers and shareholders will be required to be liquid at the time of the application. Paid-up capital requirements vary greatly depending on the applicable regulations. (As of this year, requirements were from €950,000 to €28.5M in the Caribbean region.) All beneficial owners will be audited and screened by the financial regulator before the regulator approves the submission.

    Sometimes, you will require specialized staff to be compliant with specific regulatory provisions in the jurisdiction where you are applying. In such cases, Financial Licensing Advisors can assist you by providing qualified staff or directors locally who will satisfy those specific requirements.

     

    PREREQUISITES FOR OBTAINING A BANKING LICENSE

     

    The requirements to obtain a banking license will vary based on the regulatory framework for financial entities in the jurisdiction where you plan to deploy operations.

    Prospective bankers should expect the following three main items to be the most important prerequisites:

  • 1. Proper Capitalization

  • 2. Curricular Banking Background

  • 3. Extensive Business Plan

  • Having money in liquid form is a prerequisite that must be demonstrated when one is licensing a bank. How much will depend on the jurisdiction and the size of the deployment you are planning. Capitalization is the availability of capital in the form of cash to both guarantee the operation of the bank and to have appropriate margins of error when deploying your business plan.

    Prospective bankers will often find that their licenses are denied. This will give them trouble during their next evaluations with the same authority. In this regard, anyone that wants to obtain a banking license should clearly understand that they need capital to move forward with any type of application.

    We often hear from prospective bankers that have extensive and complex plans to circumvent the capital requirements imposed by the regulators of the central banks. We have seen creative ways to meet the capitalization prerequisite without real liquid capital backing it up. Prospective bankers must understand that to act as a bank, by definition, they need capital in liquid form. There are no real alternatives to being liquid. Without capital, you cannot license the bank. Most importantly, submitting an application without the proper knowledge or without capital will likely result in further restrictions on future applications.

    Extensive banking experience or a background in the banking industry is often another prime prerequisite as well as one of the main pillars for both the licensing and operation of the bank.

    When presenting an application, this—in combination with the business plan—becomes one of the most important items used to evaluate the viability of the license. The question of who is running or directing a financial business and how they plan to do so is often seen as the key to the success or failure of any new bank. In banking, the role of the individuals within the management structure is much more carefully scrutinized by the regulators, as they presume that having the wrong people on board could create a risk of failure or, worse, fraud.

    When licensing a bank, the board or the group that has the obligation of reviewing the application within the regulator will evaluate the underlying experience of everyone involved in that prospective license.

    This evaluation will include the history and experiences of previous directive involvement within the banking industry. The board will determine whether you have experienced economic crises or challenges in the past.

    The regulator will carefully review the curricular history of applicants. Therefore, in the licensing process, having the right people is a key factor, as the regulator wants you to have the best human resources possible.

    The qualifications and experience of the management team and any other key positions should be reviewed and planned carefully. The manner in which the various boards of directors are organized will be also scrutinized. When submitting an application, one of the most important factors is to judiciously consider the interactions between members of the board and the proposed management team.

    Individuals applying for a bank license must have the right qualifications to get approved. To avoid pitfalls, during the preparation of your license application and business plan, you should pay special attention to the corporate government. For your bank to be licensed, each member of the senior management team must be prepared to have an interview with the regulator and to show that he/she has extensive experience in banking. The regulator is often more interested in finding out whether the people behind the wheel are qualified in real-life scenarios and not just on paper. All submissions will be verified. Most importantly, regulators will carefully evaluate the individuals involved and their subsequent interaction on the bank’s proposed business plan.

    A business plan is one of the three main prerequisites to obtaining a banking license. Preparing a bank for licensing requires a carefully crafted business strategy based on the target markets and the specifics of your own general plan.

    Any license application requires a carefully drafted strategic business plan. All plans must consider the seamless integration of the proposed business into the domestic market and should be detailed in nature. They should also include everything related to the operation, financial planning, and procedures of the prospective bank, as well as its management resources and abilities for assessment.

    Generally, an appendix or annex should be included, describing any implications and possible impacts that the deployment of the bank would have within the domestic economy.

    A well-thought-out business plan is key to gaining authorization, as the regulator will carefully analyze it. The plan should be well-drafted and include actions and specifically detailed financial projections for your type of business. The plan should also include all of the bank’s policies and procedures—everything from human resources to compliance.

    Application requirements for forming a bank

    A specialist must review the application before it is submitted. Although requirements vary depending on the regulator, in general the application for a bank license should contain the following:

  • 1. Declaration of current income structure and net worth for all partners and/or holding corporations.
  • 2. Payment of any prescribed fees and submission of such payment before the application is submitted.
  • 3. Determination of the amount of share capital of the proposed company, including the par value of each share.
  • 4. Proof of funds and evidence of capital.
  • 5. Capital declaration (this is a notarized declaration by the shareholder of the proposed bank confirming the availability of assets and the shareholders propose to capitalize the bank.)
  • 6. Particulars of all relevant shareholders and directly related individuals
  • 7. Complete curricular and academic history of all involved.
  • 8. Police background check or certificate on all relevant parties.
  • Usually, after a careful review of the application, it is presented to the regulator and a copy is sent to the entity performing the audit or background check on the relevant individuals. It is very important to note that a specialist should review the application before it is submitted. Remember that requirements will vary depending on the regulator and the current regulatory conditions in that jurisdiction.

    How long does it take to create an offshore bank?

    It varies depending on the jurisdiction. The whole process could take anywhere from six months to three years depending on the complexity and jurisdictions involved.

    The time it takes to process the submitted paperwork also depends on relevant local events and the regulator’s current workload. In some jurisdictions, you will be required to obtain an initial temporary permit to operate. We ask clients to understand that a temporary license is not a license to operate but, rather, to register with specific parties. This is very relevant when comparing licensing proposals.

    Prospective bankers should be careful when weighing licensing services. Often, we have heard from clients that have been issued “provisional” licenses with no real operational value. A temporary or provisional license doesn’t allow you to conduct recurrent banking business. It’s functional only for setting up the bank. After the initial incorporation process, the licensee must apply for a full unrestricted license and cannot onboard clients before that final license is issued.

    Throughout our years as a banking licensing advisor, we’ve encountered a lot of misleading information about banking licenses and the creative alternatives that the market provides. The international banking community is not open to new players within the sector, and there are no shortcuts when licensing a bank. The process requires strict compliance with applicable regulations, and is expensive and time-consuming. You must have the adequate capital as prescribed in the applicable regulations. Without capitalization, applying for a bank license has no useful objective.

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    If you need to talk to a specialist, please contact us. We would be happy to review your situation and provide specifics on your banking licensing needs. . Email us at info@bankinglicensing.com or contact us with additional questions.

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