Offshore Bank License

Offshore bank licenses are a prerequisite for conduction offshore banking business. Generally, no bank or financial institution is authorized to engage in any form of offshore banking activity without an offshore bank license.

Due to what offshore banking entails in terms of serving only foreign persons (i.e. people and corporations that are tax resident and nationals outside a given jurisdiction), it is absolutely necessary that an offshore banking license be sought before commencing such operations. Offshore bank licenses are not issued solely to banks that wish to operate as ‘offshore banks’ but to national or banks that serve the local public of a given jurisdiction which also wish to expand their services to nonresident persons. Consequently, offshore banking licenses are issued to both offshore and domestic banks.

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In case of a domestic bank that holds an offshore banking license it would be required that a separate system of accounts (offshore accounts and financial accounting) is maintained from the accounts of local residents. The domestic bank would thus provide offshore banking services and operate as an offshore bank as well, while serving the local public of the jurisdiction where it is located. In these scenarios, there are offshore bank licenses that are specifically issued to domestic banks that also do offshore banking, as opposed to a pure offshore bank that only serves foreign persons.

One would therefore hear about general or unrestricted banking/offshore banking licenses which would deal with these situations. Offshore bank formation may also involve the establishment of a bank offshore that serve a very specific purpose, group of persons or may specialise in only certain offshore banking services. ‘Restricted’ or ‘Class B’ or ‘Category B’ banking/offshore banking license would normally be the term used for the type of offshore bank licenses that are issued to offshore banks in these cases. The term used varies according to jurisdiction/country.

To form offshore banks, there are requirements that must be met. Offshore bank licensing may very likely be unsuccessful if an applicant for an offshore bank license does not meet the requirements or may show signs of matters that may raise some concern with the offshore bank licensing authority for offshore bank formation. Some of these issues may be related to auditing practices which may appear questionable, a shady background/reputation, apparent ownership/management conflicts and unacceptable location of head office/management. These criteria for offshore banking licensing may vary according to the offshore bank formation policies and rules of any given country.

Generally too, countries that allow persons to form offshore banks are required to adhere to international and regionally observed standards so as to maintain integrity and transparency in the offshore banking industry. Due diligence investigation for offshore bank formation is one of the essential requirements for which standards are established at the highest of administrative levels. Very often, legislation is passed to ensure that such practices and codes of ethics for offshore bank formation and the issuance of offshore bank licenses are instituted and enforced fully.

In maintaining these standards, offshore bank licensing and offshore bank formation responsibilities are delegated to subordinate bodies/agencies such as Central Banks and Financial Service Commissions/Supervisory or Monetary Authorities by respective governments, very often in keeping with international demands for the establishment of such offshore banking licensing and supervisory agencies. The role of each of these establishments in relation to offshore banks is clearly defined and may include the ability to pass secondary legislation in keeping with the provisions of the primary legislation for offshore banks and offshore bank licenses.

Offshore banks have continued to update their services and licensing procedures are yet more rigid to maintain transparency and even more than before, to comply with EU regulations on offshore/international financial regulatory demands.

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