It may seem strange to report a digitally connected world, but for many young businesses, setting up their first bank account in a new territory can be an extremely onerous process.  

That is in part thanks to a growing determination among international regulators to crack down on money laundering, not only in the traditional offshore hotspots, but also in the more developed OECD economies of Europe, Asia and North America. Compliance regimes across the world have tightened to the point where smaller companies genuinely struggle to get past the numerous hurdles and begin banking. However there are signs that new tech and a fresh appetite to welcome new players in the market may herald a change.  

It was with that in mind that a recent IR Global roundtable event brought together firms from across the world to discuss how they work with clients to ensure they balance compliance with relevant rules on banking with the need to get the right arrangements in place to start growing.  

Challenging times 

The event, chaired by UAEbased Thomas Paoletti, heard from Luis Santine, a Curaçao-based accountant, who explained that the main issue around opening bank accounts in that jurisdiction has become difficult in recent years.  

We’ve seen a shift whereby most of the structures are moving towards a substance-based model,” he says, pointing out that places like Curacao have been compelled to come more into line with global standards on AML in recent years. “Nevertheless we’ve lost some ground because of the perception that we’re a tax haven.” 

However, things are changing, as banks begin to embrace the idea of managing risk through clever use of technology. “Banks always welcomed clients and opened accounts for them,” Santine explained. “But now new providers from the fintech space are coming in and shifting the risk appetite a bit. We have seen good collaboration between banks and authorities that uses modern platforms and new types of underwriting.” 

Santine’s comments on the welcome emergence of fintechs to shake up the banking landscape were echoed by Paul Beare. “The likes of Monzo, Starling and Transferwise are prepared to look at other structures such as overseas owned. But even then they have a small appetite, and they may just say no unless there’s a director based in the UK.” 

Getting through the door 

And Paul, speaking from NZ but coming from a background steeped in UK law, was keen to explain that the banking options in the UK can appear somewhat limited, particularly if the new client seeking the account doesn’t – or isn’t able to – provide the necessary compliance documents.  

At the moment, it’s a lot easier for banks to say no and blame Covid,” he said. “The banks have struggled to adapt in the last year. From a banking perspective, the traditional banks are only really willing to get involved if the turnover is substantial – from £2.5m upwards perhaps – or if there are enough bodies in the business.” 

But what of Brexit? There have been numerous articles discussing London’s move towards becoming Singapore on Thames in terms of its attractiveness and ease of doing business, but will that really create a wider channel for more overseas business to make the journey to the UK? I think there will be further opportunities there,” said Beare 

“But that will require the government to put pressure on banks to relax their sometimes onerous requirements in order to attract these overseas companies and their investment. 

Indeed, Paul pointed out that while trust of ownership are extremely common in Australia and New Zealand, they are absolutely alien in the UK.  “So as soon as you put a UK-based company owned offshore with multiple trusts of ownership are involved it becomes an absolute nightmare. And while it might be good for the service provider from the viewpoint of set-up fees, it’s still easier for the banks to say no. So there will be change, but when that will happen I cannot say. 

For others on the panel, the challenges remain. For German-based Urs Breitsprecher the recent introduction of the EU’s Anti-Money Laundering Directive means that beneficial ownership comes to the fore when dealing with banks. “Anyone who owns more than 25% of shares or voting rights has to prove it, and that can be difficult at times, even within the EU. It might require you visiting that country’s national Companies House to find out. And then outside the EU it gets even tougher. Some documentation won’t be accepted in Germany, for instance.” 

Indeed Breitsprecher reported several deals falling through as a result of a failure to provide the relevant beneficial ownership documentation, while even the relatively simple task of opening bank accounts for foreign owned companies in Germany can be thrown into confusion by the current rules. “It’s really problematic – the German banks now want to know every person behind every company, regardless of their stake.” 

Banking on tech  

Looking east, things aren’t much easier. Opening accounts in Hong Kong, for instance, remains ‘extremely difficult’, according to Clinton Morrow. “Certainly the controlling shareholders and accounts signatories should be able to meet with the bank to meet KYC requirements,” he explained, pointing out that virtual banking licenses have yet to fully break through. “The banks aren’t quite there and still require physical presence.  

Clearly technology is having a big impact on banking across the world. As Paul Beare pointed out, fintech firms are driving genuine innovation.  

Certainly the political upheaval around Brexit does offer the Fintech firms an opportunity to make strides in the market. If there is a large bank backing a new player then you can see real change, but they would have to comply wit the AML directives and jurisdictional compliance.  So we still open clients’ trust account that we open and operate on our clients’ behalf.  

In a non-Covid world where can sometimes take six months to open a bank account in the UK, that can be problematic, so Paul explained using the trust account can both speed up the process and also provide evidence to help persuade the banks further down the line that the company should indeed get an account.  

Ultimately, all of the participants agreed that so long as governments, regulators and bankers lag some way behind the real and pressing needs of business, the importance of good advice and clear understanding of the various global regimes adds huge value to the work done by corporate services firms.  

“We’re really important to our clients, and we should never forget that,” Paul Beare concluded.