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Non-Bank Financial Companies - Offshore Alternatives

The days when offshore jurisdictions issued bank licenses with minimum requirements are long gone. Now there are strict capitalization and due diligence and relevant experience requirements and the need for a physical office and employees in the jurisdiction offering the licence.

However, there are a number of alternative structures to a bank that can offer services such as deposit taking, payment processing, investing, brokerage and forex trading, and some options still do not require a physical office platform in the jurisdiction of formation.

Some of the most popular options for financial licences include Vanuatu, Belize and Cyprus for securities / forex broker/dealer services.  For payment services and e-money licences Georgia, Vanuatu, New Zealand, Czech Republic and Panama.

Panama Financial Services Company

Once what was the most popular and least expensive offshore financial services company option out there. This is an unregulated licenced option suitable for:

  • electronic payment processing
  • e-wallet / e-currency services

It earns its status from the Ministry of Commerce which issues the equivalent of a local business licence and tax registration document. It requires a local virtual office as a physical place of business which the local municipality inspector will visit to assess the (modest) local monthly tax dues. However, it is more difficult these days to open a bank account anywhere as most banks require a regulated licence issued by a recognised supervisory agency.

A better option these days for a money services business based in Panama would be a proper regulated licence which requires $50,000 paid-in capital, a small local physical office and a minimum of two employees - specifically a "cashier" and a suitably qualified bookkeeper who would act as the local office manager. The licence is relatively easy and quick to obtain but can be easily withdrawn if only a few days late in submitting the required monthly report.  For the same cost there are a couple of popular contenders that do not require any physical office or paid in capital:

REPUBLIC OF GEORGIA

This is a payment services and e-money licence which is granted by the Central Bank of Georgia within 30 to 45 days once a company has been formed.  There is no paid in capital requirement and the running costs are low.  Moreover, such companies enjoy a tax-free status on foreign derived income and the local banking options are high quality and quick and easy to open. Also Georgia has never been on any offshore blacklist which makes opening a bank account in other jurisdictions a lot easier. It was also not required to join the OECD's Common Reporting Standard initiative. This country has attracted a number of well known payment and e-money service providers and the lack of bureaucratic red-tape is a big draw. Personal presence will be required to open a local bank account. The red-tape is mercifully low and a very low cost virtual office presence to meet the minimum statutory requirements can be operated on a turn key basis by our local law firm in Tlibisi.

VANUATU

This is another option for e-money and payment services as well as for forex / securities and investment related business as well. This is the Vanuatu Securities Dealer Licence and there is a very wide definition of what is considered a "security" there which covers almost any type of financial service outside of a being a licenced bank or insurance company. There is no paid in capital beyond the approx $2,000 government up front fee and there are no requirements to maintain a physical office in the jurisdiction. Bank accounts can be opened in Vanuatu fairly easy but will take more work elsewhere.  Assistance can be offered in this area. 

CZECH REPUBLIC

The best option for an EU based e-money or small payment institution licence with passporting rights into any EU jurisdiction. The requirements and red tape are far less onerous than the UK's FCA equivalents.

New Zealand Offshore Financial Company

Also more commonly known now as a Registered Financial Services Providers (FSP for short), these can offer banking, investment and brokerage services to both private individuals and corporations worldwide, with no limitations on the number of customers, amounts on deposit or number of currencies.

New Zealand, having repealed its banking law in 1995, did not replace it with anything new and therefore the normal barriers to entry that exist in other countries simply are not there.

Once upon a time these companies could simply operate as offshore companies with no special legal status, other than the freedom to offer such services but today the only viable option is to register onto New Zealand’s Financial Services Provider Registry.  Although there is still no paid-in capital requirement for spot forex broker/dealing, custodial services, payment processing and e-money services, it does require a long review process by the New Zealand Financial Markets Authority.  This process can easily take 9 months or more and so our recommendation now is to obtain the cheapest and fastest licence option offshore (currently Vanuatu) and then go through a process of "passporting" the licence into New Zealand through a special structure set up.  This will make the review process go much faster and also provide you with a back up licence option as well as the ability to offer securities related business which otherwise requires special licencing in New Zealand.

New Zealand requires a local physical office operation and a local director / manager. But this is still the lowest cost option by far to establish a financial services operation in an advanced English speaking country at the top of almost all lists in regards to lack of corruption, respectability and lifestyle options.

Vintage Swiss Trust Company

This is an interesting non-regulated alternative to a bank (or, "self-regulated", as the Swiss like to state) and can perform many similar services, so long as it does not refer to itself as a bank.

Through a conversion process, an ordinary aged dormant Swiss shell company that once was in business is transformed into a credible looking trust and financial services company. The main selling points are age (up to 80 years!) and Switzerland.

The fact that, under Swiss law, there is no actual legal definition of a trust company, and that the original company may have been in a completely unrelated business does not detract from how such a company may be skillfully used, capitalizing on the aura that a Swiss financial entity can still project.

They can be molded into a “flagship” type of corporate entity and, along with Swiss administration and banking, can attract all sorts of business opportunities that might be much harder to come by.

Of course none of this comes cheap and, apart from the paid-in capital requirement (CHF 50,000 or 100,000 depending on age), the acquisition cost can be anywhere from US$50,000 to $250,000 with the “ideal” age being pre-1985 due to certain advantages that can be grandfathered in, under older corporate laws.

Local Swiss director and administration required. No special licencing is required for managing accounts of up to 20 third parties, but licencing readily available for higher account volumes.

Offshore Brokerage License

An International Brokerage and Clearing House License, which allows the license holder to engage in activities such as:

  • brokering, issuing and underwriting of securities
  • asset management
  • transaction clearing
  • fund management
  • payment processing
  • currency trading
  • financial advisory

There are many options out there for this, some being quite expensive with local qualified director and office requirements.

BELIZE

Belize requires a $100,000 paid in capital amount for a full securities or forex trading licence but still has no local office or local director requirement. However, licence approval can take 6 months or more similar to most other jurisdictions such as BVI, Mauritius or Cyprus. Vanuatu is the only exception to this. Belize also offers a lower cost financial advisory licence which only requires a $25,000 paid in capital amount.

VANUATU

As mentioned above in the section on payment and e-money services, this full spectrum financial licence which does not require any physical presence, local director or paid in capital can be obtained within 30 to 45 days after submission of all required documents.  It is the only financial licence available anywhere that we are aware of that allows one to offer anything from securities and dealing and advisory services along with investment funds and issuing and underwriting your own securities offerings as well as payment and e-money services.

CYPRUS

This is still the lowest cost entry point in Europe for an EU based securities or forex dealer licence with paid-in capital requirement only slightly higher than Belize.  For sure it requires a local office and local director but compared to most other European jurisdictions the barriers to entry are far less onerous.

BVI Closed-End Hedge Fund

A closed-ended fund is unregulated and not covered by the Mutual Funds Act in BVI and are often used as Hedge Funds, Private Equity Investment Companies, etc. The closed-end fund structure consists of a business company limited by shares.

A closed-end fund is different from an open-ended fund (mutual fund) in that investment units are redeemable at the discretion of the fund manager or in accordance with the terms agreed upon with the investors of the fund, rather than redeemable on demand, as in the case of a Mutual Fund.

This means there only can be a fixed number of investment units for sale as with a Limited Partnership. Closed end funds are not subject to the license and supervisory requirements of the FSC.

You may not use the word “Fund” or “Hedge Fund” in the name. Main advantage of this option is a lower entry cost and unregulated status as compared to the typical mutual fund licence options available in BVI, as well as many other offshore jurisdictions. No local physical office or director required.

Mutual Fund (Open-Ended Licence)

Of interest to most of our clients is the lightly regulated Private Fund options, which do not require a third party administrator, as do the Public and Professional funds.

Private Mutual Funds are always limited by the number of investor clients that can be inducted. The normal maximum is 50, with a minimum required investment of $100,000.

However, other newer legislation is leading the way, with St. Lucia offering excellent value, with a 100 maximum clients with a minimum required investment of $50,000.

BVI and the Caymans are more well-known (but expensive) set ups, especially with regards to the annual registered agent charges, which are based on a percentage of the assets under management.

In the lesser-known fund jurisdictions, such as St. Lucia, we are able to negotiate very reasonable fixed fee arrangements that are not percentage based. No local physical office or local directors usually required.

Swedish Credit Union

This was once a very popular option that we used to offer, but has been severely emasculated due to a zealous partnership between the Swedish FI and their tax agency.

There are simply too many restrictions, not only on membership, but also in regards to types of services that can be offered, as well as the maximum member deposit size (not to mention the aforementioned agencies waiting to de-register the entity for almost any perceived infraction).

Although you will still see some formation offers for these on the internet, we strongly suggest you take our word for it, and do not waste your time and money trying to use this as an alternative banking vehicle.

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