Setting Up an Offshore Licensed Bank


Who has never dreamt of being a private banker ? On such thin premises a whole market has erupted and some atolls had emerged as financial centre. This market received a boost with the possibility to market financial products via the Internet. This medium pushed the geographical irrelevance to the verge of breaking all banking regulations. Onshore countries were however quick to enact legislation that dealt with financial services through internet (see UK FSA rules).

Offshore licensed banking is now associated with money laundering issues and some noticeable scams. Some offshore licensed banks have collapsed leaving depositors few chances to recover their assets.

Against such a grim background is there a case to advocate for setting up an offshore bank. We believe so as long as the bank operates in a safe and sound manner and have proper internal audit and control infrastructure to support effective compliance with international laws and regulations.

Here we must issue a warning to our readers, this paper is dealing with offshore licensed banks. We are not studying cases of large banking networks operating a branch from an offshore jurisdiction such as UBS, Royal Bank of Scotland and the like. An offshore licensed bank is a company authorizes to perform banking activity purely outside of the jurisdiction where it has been granted its license.

Typically when setting up an offshore bank, one has the choice between 2 to three types of licenses, depending on the country and the Finance Act. The most sought would be a class A (or any similar denomination) license that enables banking activity in both offshore and onshore jurisdictions (subject to regulatory approval in the other jurisdictions). The second best would be a class B (or any similar denomination) that authorizes only banking activity outside the jurisdiction granting the license (which supposes that the bank is authorized in other jurisdictions). The third which is of limited importance is a license that permits banking activity within a designated group of persons and/or companies.

The class B license is the one widely marketed as for USD 35,000 anyone can virtually become a private banker ,from a tiny offshore jurisdiction. The license requires a minimum capital between USD 100,000 to USD 500,000 and the acts generally impose some restrictions as to persons (they must be fit and properÖ) and the way business is conducted. However the absence of correct supervision has lead to some...

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