Dunstan Magro participates in the IR Global Guide – A Jurisdictional Guide to Opening a Foreign Bank Account

Dunstan Magro

Managing Partner, WDM International

Foreward by Andrew Chilvers

For companies and individuals looking to move into new jurisdictions for business opportunities, setting up a bank account is a crucial part of the process. But this is never as straightforward as it seems.

In all countries, banks are obliged to crack down on fraud and any potential financial scullduggery. As a result, they tend to be very risk averse. Regardless of where a business establishes an office in the world, local banks will generally have the newly arrived expatriates jumping through various hoops, pulling their hair out in frustration.

The new arrival will need the relevant paperwork, including personal identity papers, a personal and business address, personal references and other numerous documents. And that’s just the beginning.

Every jurisdiction has its own banks and banking rules, which are often complex and bureaucratic. Consequently, seeking advice from local legal and financial experts before setting up a bank account is imperative if a company is it get the right account for its particular business objectives. This is why it’s so important to use local advisers who are experts in the jurisdiction to provide information about the local banking rules.

What is the general risk appetite of banks in your jurisdiction and how does that affect setting up a new business bank account?

Over the years, Malta has developed one of Europe’s healthiest and most profitable banking sectors. The Maltese banking sector, which follows a conservative and traditional banking model, is well capitalised and the asset quality of most Maltese banks is very sound. Banking legislation in Malta is based on EU legislation and is compliant with the Basel Core Principles. The supervision of the island’s largest banks falls under the remit of the European Central Bank, whilst the Malta Financial Services Authority is in charge of the supervision of all the other institutions.

Risk management in banking throughout the world has been transformed over the past decade. Moreover, money laundering and terrorist financing have become significant risks for banks which can ultimately affect their viability, and the reputation of their country’s financial system. The global banking regulatory framework has changed and with it the banks’ risk appetite. Malta is no exception to this, with these developments dictating to Maltese banks their business strategies in the face of a more rigorous and intrusive supervisory approaches, coupled with more meticulous standards of anti-money laundering rules.

Maltese banks are free to set their own risk appetite and chase opportunities presented by Malta’s leading role in blockchain and crypto technology, and in the medical cannabis sector. Yet the risk aversion of correspondent banks that see the Maltese market as too small to process payments related to activity such as gaming transactions, which may be considered as too risky, has impacted more heavily on Malta and other smaller jurisdictions. This, coupled with the drive by banking regulators to force a reduction of the risks inherent to the industry such as conduct, compliance, reputational and IT risks, has led banks in Malta to implement a de-risking exercise.

The risk appetite of Maltese banks, which is an articulation of the risks that banks are willing to assume in the conduct of their business, has been revised in consultation with supervisory authorities and has become more restricted. As a consequence, certain risks that banks used to assume as part of their business now generally lie outside the revised risk appetite. The opening and maintaining of bank accounts for companies and private clients alike is therefore accordingly governed.

How accommodating are banks in your jurisdiction for opening a business and personal bank account?

As explained in my response to the previous questions, the opening of a business or personal account will be hugely impacted by the risk appetite of banks and financial institutions. The opening of a bank account will depend on onboarding procedures of the bank or financial institution, which would typically revolve around who wants to open the bank account, the nature of the client business and type of transactions that will be supported by the account. The time frame to open a bank account might vary from a few days to a few months, depending on the challenges faced during the client onboarding stage.

It is custom that prior to kickstarting the actual onboarding process, the client would be asked to fill in a preliminary check form. Upon the positive evaluation of such a preliminary check form, the formal onboarding process will begin by the bank or financial institution. The client will be accepted only upon the successful completion of the onboarding process.

When a private client approaches a bank or financial institution to open an account, typically they will:

• request a personal identification such as an ID Card or passport;

• verify your address. To do this, the bank or financial institution may also ask you to provide a recent utility bill;

• verify that you are legally eligible (e.g. age of applicant) to open an account;

• keep record of your occupation;

• request a character reference – this is usually necessary to open a current account;

When a business client approaches a bank or financial institution to open an account, besides asking for the above information with respect to the ultimate beneficial owner(s), they will also typically request:

• a business or company profile;

• business or company registration certificate;

• financial statements or financial projections where necessary;

• information to determine the source of funds the source of wealth.

In some cases the client may be requested to pay an onboarding fee and to provide additional information to comply with the bank’s or financial institution’s due diligence process.

Should you join an internationally reputable or established bank rather than a local bank?

The reputation of the bank together with the jurisdictional reputation of where the bank is situated will always be key in deciding which bank to partner with. Despite this, the nature of the banking service required by the client will also play an important part when choosing a bank.

Different types of banks serve different purposes and clients will choose the bank which would best serve their needs. Reputable, established international banks are usually used to take advantage of tax incentives offered by a particular jurisdiction, for better asset protection purposes and possibly for greater financial privacy provided within the permitted remit and obligations at law. On the other hand, domestic banks would be used by a customer because the latter would require a bank which has enhanced local knowledge of the typical business needs required by him. Domestic banks might also be chosen because they provide that level of personal relationship required and aspired by local clients when requesting credit facilities or expertise in connecting people and businesses together.

In today’s world, any serious bank would acknowledge that client onboarding is a major focal point for them. Such banks would therefore streamline their onboarding process and offer a customised client service whilst grappling with evolving market dynamics, stiff competition, regulatory scrutiny and operational overheads. The setting up of a bank account has become more complex and time consuming both for international banks and for domestic banks. Having a bank account with a reputable bank from a reputable jurisdiction, irrespective of whether the bank is an international or local bank, almost equates to a certificate of excellence for the client who would have successfully fulfilled the bank’s onboarding requirements.


Links