• International Banking Considerations

    By Citius Trust Limited


    Do you also get the feeling that international banking, as you used to know it, is now dead and buried? Not only it seems that banks don't really want you as a client anymore but also the ones you are banking with don't seem to like your cash anymore!

    We have to acknowledge that it is not easy to run a bank today. People blame banks for the recent credit crunch, they read about the sizes of bonuses paid and of course the numerous scandals that have surfaced. The reputation could not be lower, which of course results in extreme actions to avert bad publicity and 'fix' situations. And as if this was not enough, the banks have to perform well in stress tests, maintain a strong credit rating, reduce non-performing loans, reserve for hefty penalties, present strong ratios (capital, liquidity, leverage, etc) and increase their profitability.

    It is fair to say that banks are under a lot of pressure and of course this is, unavoidably, passed on to their clients.

    Why is it difficult to get a bank account?

    • New risk and compliance policies - in an attempt to prevent any wrongdoings and hence heavy penalties, banks are introducing new risk and compliance policies to address the changing environment. This results in lower appetite for 'risky' business, exiting from different countries, aversion to Politically Exposed People, etc.
    • You reside in the wrong country - banks maintain a risk matrix by which they rank all countries. If you happen to live in a country that is ranked high risk, you are more likely to be rejected.
    • No business activity in the region - more and more central banks are expecting the banks they oversee to onboard clients with actual activities in the region they are based.
    • No presence in the country – shell companies are under scrutiny and banks are expected to understand where the effective management and control is being performed.
    • You have too little money - smaller accounts cost the same as large accounts but only generate little.

    Why would a bank say a big NO today to your parked funds?

    • High(er) capital requirements result in high(er) cost of capital.
    • Low(er) interest rates (sometimes negative) result in low(er) (sometimes negative) earnings.
    • High(er) leverage ratios resulting in low(er) lending (therefore low(er) earnings).
    • High(er) bank deposit levies resulting in high(er) costs.

    What are the minimum requirements for Private Banking?

    • Most reputable private banks are looking for USD1m before considering a client.
    • Under current low interest rate environment, banks make little or no money from cash-only accounts, hence investing part of the cash is usually a prerequisite to getting an account.
    • The part of the cash a private bank expects to invest can be sizeable, sometimes starting from 50%.
    • If the money is held in a structure, the bank will need to perform due diligence (KYC) on all layers of the structure, all the way to the Ultimate Beneficial Owner (UBO).
    • Banks don't like, and they would usually turn down an application for an account for, companies with bearer shares.
    • Private banks can accommodate some transactional needs, e.g. payments, but to enable this they would require the UBO to have invested money (around USD2m) with the private bank.

    What are the minimum requirements for Corporate Banking?

    • Most reputable and international corporate banks are looking for minimum USD100m turnover to provide clients with corporate accounts.
    • Nowadays, lending tends to only be available to existing clients and after the relationship has grown for some time.
    • For new clients (or recently on-boarded clients) the bank would require full cash collateral to make credit available, known as back-to-back lending.
    • Bank account in Singapore or Hong Kong are difficult to obtain. This is because both jurisdictions require business activity in the region (just a company registered there will not suffice) and a meeting in person with the UBO.
    • Business activity in the country/region is also a reason people finding it difficult to get an account with Scandinavian banks or banks in the Netherlands.
    • Corporate structures with offshore companies and difficult to understand nominee structures tend to create trouble.

    How to approach bank account opening?

    When you land a rejection for account opening from a bank, does it mean the bank does not want to work with you or have you just never made it to be fully on-boarded? Understanding the details of the process a bank follows when it considers your application for a bank account is key to success. Or, at least if you are rejected, you know you have been rejected for some reason and not because you were, say, dealing with the wrong person.

    Below we consider the possible rejection stages during the account opening process. Understanding these stages gives invaluable information on how these can be overcome and an account landed.

    Stage 1 - Your Relationship Manager

    When approaching the bank, usually the first point of contact is a Relationship Manager (also known as the Banker). There are just too many Relationship Managers working at different types of banks (investment, private, retail, etc), looking after different lines of business (private, financial institutions, corporates, etc), size of clients and countries. Talking to the right Relationship Manager in the right part of the bank is the fundamental first step.

    When talking to the right individual there is alignment of interest, you want an account and they want revenues. This is, however, not enough. You need to be transparent when presenting the case and make the Relationship Manager feel comfortable with any risks. Make it easy for them to estimate the revenue potential. At the end of the day bankers, like the rest of us, work towards remuneration maximisation.

    Solution - Talk to the right person, working in the right bank and the correct department. Make sure you show them the money so they can translate it into bonus!

    Stage 2 - The Compliance Officer

    Although you never get to speak to them directly, a key individual in the process is the compliance officer. They need to feel comfortable with the ultimate beneficial owner, type of business, transactions (nature, countries of dealings), cross-border policies and source of wealth. Source of wealth is a big issue these days and has taken on ever greater importance. Banks are looking at both current and historical source of wealth and they look for evidence to support the wealth creation over the years.

    Solution - It is vital to address each and every show-stopper before this results in a No. Be transparent and talk first about the possible risks and offer reasonable risk mitigation. At the end of the day, nobody knows your case better than you do. Don't let them feel you are hiding by not telling them that you are a Politically Exposed Person (PEP) or you had a court case 6 years back. Tell them this first and explain why they should not worry about it today. Empower your Relationship Manager to have those difficult discussions with the Compliance Officer on your behalf.

    Stage 3 - The Head of the Business

    Hopefully the case that the Relationship Manager put together and the Compliance Officer signed, makes sense for the business, presents a good risk-reward balance and by signing it, the Head of the Business does not endanger their position.

    Solution - Hopefully your hard work on Stage 1 and Stage 2 would result in obtaining the signature of the Head of the Business.

    Stage 4 - Committees

    High risk accounts will go through some committees. Here you need to empower your Relationship Manager to face extended due diligence questions. Make sure you provide them with supporting documents and assist them to address any new risks identified during the committee meeting. Remember, when addressing a risk, think like a bank would do.

    Solution - Following the committee meeting, numerous questions pop-up. A lot of them can be surprising and make you wonder how on earth they have found about certain things. Be prepared to address all new risks identified and be patient, the due diligence process undertaken can vary across banks and a good Relationship Manager should manage your expectations in this regard. Help your Relationship Manager to help you get an account.

    Stage 5 - The On-boarding Process

    This is the stage at which you can get an account number. If you don't manage to get an account and you are rejected, at least you know that you have gone through all stages.

    Solution - If having gone through the full on-boarding process you have received a rejection, it is time to speak to the next bank. Remember, there is a bank out there for each and every client.

    How about getting some help?

    Understanding the process a bank follows for getting you an account gives you invaluable intelligence on how to approach the application process. Employing the right consultants in this process will do wonders for you.

    There are just too many reasons why you should consider employing consultants to assist you with bank account opening. Let's look into some of them:

    • As mentioned above, they have full understanding of the process and can address show-stoppers before they appear.
    • They have access to the right contacts. Going through info@bank.com usually results in nothing.
    • The matter is often presentational. Two people trying to open the same account at the same bank can have different outcome.
    • You can leverage their relationship with the bank. Alone you might be a small client. Through a consultant you are part of a larger revenue potential (made up of many clients).
    • They can explicitly show the carrot to the bank, by helping them quantify how much they will make from the account. By telling the bank the number of inward and outward payments that are expected to go through the account, you show them the dollars. Same goes for FX conversion needs, investment requirements, large cash deposits, credit needs, etc.
    Related Topics:
    Back to Articles Back to Citius Trust Limited
  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Citius Trust Limited

Citius Trust is an independent boutique services firm, which provides bespoke solutions to clients. Our aim is to deliver top quality end-to-end solutions for our clients, optimize costs, streamline operations and processes and drive value. Our directors take the lead role in managing our relationships with our clients, they are always available and provide ad hoc advice. We offer world-class intellectual capital through a transparent, tailored and client friendly approach.

View profile

Follow Us

Greek citizen setting up in Cyprus - The checklist! We get a lot of queries from our Greek clients and associates on how Greek citizens can become Cyprus tax residents and what the process of obtaining a tax residency certificate is. As such, we have prepared the below checklist to assist everyone interested in this.

Read more
Specialist writers View All
Copyright © 2012 - 2019 Offtax Ltd. All rights reserved. Compare Countries News & Articles About Join Us Directory Contact Us