Most companies need one or several operational accounts with IBAN number to handle their business, and with the increasing amounts of online payments, they usually need mobile banking and a debit card.

Opening a bank account and dealing with the compliance of financial institutions (banks, electronic money institutions (EMI) or payment providers) has become one of the biggest challenges in internationalization. However, often customers just apply a few times or have no information how to deal with banks. To assist professionally, our company is in contact with many licenced banks and EMIs to understand their requirements, their risk appetite, and their technical procedures.

How many banks and financial institutions are there ?

According to the EBF (European banking federation), by the end of 2020 there were around 6000 banks with around 160000 branches operating in the EU, and there were over 1000 additional banks in nearby non-EU countries like Switzerland, Liechtenstein, Montenegro, Serbia, Ukraine and Russia. For different reasons, the amount of banks in the EU has decreased by around 30% since 2008.

Why there are difficulties to open a bank account:

First, licensing: national government bodies and international institutions grant banking licenses and regulate the sector. Being under pressure from international organizations like FATF from OECD, they install national anti – money laundering legislation and implement it, they upgrade the resources of financial regulators and reporting procedures for suspicious transactions. The theoretical setup of national regulators follows democratic principles (separation of legislation, execution, and jurisdiction), but de facto they can exercise a power that can only be found in dictatorships. So, management of banks is under pressure and forced to avoid risk.

Second, there is no obligation to contract: although a bank account is a necessary infrastructure for companies as well for private persons, most governments do not impose an obligation to contract on licensed institutions. Such an obligation to contract is usual for other suppliers of infrastructure (e.g. electricity, water, telecom), they are obliged to enter into a contract with every person or company who is willing to accept the general conditions and to pay the fees.

Third, banks have different risk appetite that also varies over time, depending mainly on their current portfolio and actual cases. Also, they have different approaches to evaluate risk, especially the risk of industries, of countries and of companies with directors who reside in other countries.

Expertise of Zugimpex:

Our team constantly observes the legal framework in different countries and the current activities of banks through direct contact as well as because of our clients. Therefore we are up to date about financial services, requirements, onboarding procedures and acceptance levels.

We assist to define the banking requirements of the clients. This includes online banking with IBAN in several currencies with SEPA payments, credit and debit cards, but also payment gateways and API integration to download bank statements into csv or xls format. In addition, many clients need proper tools for asset administration and other ones require financing. The result is a list of possible banks or money institutions.

Application to open a bank account:

To prepare the application process, we collect relevant information about the activities, transactions, requirements, and the persons:

  • Customer identity (documents, proof of residency, background)
  • Source of funds, in some cases source of wealth
  • Planned activities and their structure
    • Main activities
    • Main clients and suppliers
    • Incoming and outgoing payments: countries, total amounts, single amounts

Next, we make a short “OSINT” (open source intelligence) check on the internet and in different databases. So we can inform clients before they submit their application what the compliance departments of banks will see if they make their researches.

Based on information and OSINT, we can simulate the risk assessment:

  • customer risk: client type, industries
  • geographic risk (based on published lists)
  • product-service risk (e.g. high risk or low risk industry)
  • interface risk (if the client is present or provides proper video interviews)

With this information in hand, we can assist the clients to create a short list and to apply at different banks to open an account. We estimate the probability to get an account opened, and based on this estimation, we recommend the number of different applications required to have a high chance to get at least two accounts opened in time.

In addition, clients are informed in advance about opening fee, compliance fee and ongoing costs of the banks. For current accounts and everyday banking, customers can expect a standard quality, however, according to their terms, the institutions have different structure of the fees. In other areas, like online brokers, investment services, and payment providers, there are huge differences, and it is important to find a solution that fits to the requirements.

Please note that Zugimpex remains independent, does not act as an introducer, and therefore can advise the clients in their best interest.

Assistance in ongoing relationship with banks

To minimize issues in ongoing transactions, we recommend:

  • have a copy of the application available and make sure the transfers are in line with the information given there (total amounts of turnover, individual transaction volume, countries etc.). Inform the bank in case of variations in advance with good, documented reasons (e.g., new order).
  • have all documents in place before you make a transfer: invoice and agreements
  • sender and receiver of the payment shall always correspond with the contract and with the invoice. If this is not the case, an assignment contract shall be in place
  • avoid paying from companies to private persons, except salaries
  • avoid roll on transactions (in- and outgoing payments without reasonable margin)
  • if there is a loan contract, the ongoing interest payments must be done properly, because this can be checked later

Keep a good contact to the bank, especially in the following situations:

  • company changes (shareholders, directors)
  • online banking login problems
  • cards that are not working or lost
  • issues with the payments itself (e.g. it may be necessary to inform the bank to use a certain correspondence bank)
  • compliance updates or compliance requests

Five general rules in relation to banks and EMIs:

1. Know how banks (EMIs) are regulated and what they must do:

Financial market authorities publish on their websites the legal framework in their countries. It is reasonable to know the national minimum requirements a bank has to fulfil and to prepare the documentation before approaching a regulated financial institution.

  • Financial institutions have to define additional requirements for cases where the first risk assessment shows a higher risk. It is not bad to ask for these requirements and to prepare the documentation, too.
  • Portfolio- management is a core competence of banks. It is used to divide credit portfolios into categories and to monitor them periodically. Banks also use the concept of portfolio management also in the area of anti-money laundering and they define risk classes. Current appetite for risk depends on their current portfolio and on their situation with other clients. Sometimes it is possible to get informal information about such situations.

2. Understand the internal processes of the bank regarding anti-money laundering:

  • In addition to ongoing monitoring, most financial institutions have an internal seminar once a year. The presentation has an aggressive style and calls for unconditional action. Often, a later inspection by the internal compliance department is announced.
  • Back in the office, the department head worries and asks the employees to make sure that all formalities are met. They start to check all their files.
  • Then the employees contact clients and ask them to update their information and to provide additional documentation for some normal and for some extraordinary payments.
  • If the institution is in addition subject to an inspection by financial market authorities or if some critical cases appeared, management and employees are under pressure, and in such situations, they are quickly open to recommendations from the compliance department to end some relationships.
  • When the inspections are over, daily business comes into the focus of interest. Before the end of the reporting period, management shifts the focus on profitability and they realize that the bank needs some new customers.

3.Always prepare documents that you need anyway:

  • Identification documents:
    • Passport or ID (original or notarized with apostille)
    • Proof of address (utility bill)
    • Bank reference (in countries with UK- system)
    • In case of a company: extract from the commercial register, articles of association (notarizes, apostille, sometimes translated)
  • Customer profile:
    • Information about the customer including manager, shareholder and beneficial owner (CV, education, actual activities, source of funds)
    • Information about the company: purpose, regions of payments, main existing customers, main existing suppliers, balance sheets, former bank account statements
    • Information about planned activities of a new company: purpose, size and main regions of incoming and outgoing payments
    • Estimation of the results of risk assessment
    • Regular update of information
    • Documentation for all payments larger than the scope that was mentioned in the customer profile
    • Whatever is submitted, the compliance departments will check the files and ask for some additional information. The employees need to collect evidence that their compliance is done carefully.

4. Make sure payments fit to the common pattern of the industry and to your declared business activity:

  • Note that compliance departments use software developed by forensic accounting firms./li>
  • Example: Usually consultants ask for prepayment and send frequently small invoices. Consultants know that small invoices are paid quickly and increase the client´s commitment, and they create a permanent cash flow to finance expenses (sometimes, there is a big bonus at the end, too). Banks have many consultants as clients and they see their payment pattern. If the payment stream of a consulting project does not fit to the usual pattern, there will automatically be a follow up with the client.
  • Consider: the administration costs of an additional invoice plus payment are less than the price for a starter in a restaurant, but the costs of to find a new bank are quite high.

5. Diversify: is one bank account really sufficient?

  • Open a second bank account in another country, eventually a third one: in case a bank starts to be problematic, it is easy to move the money to the account at the second bank. If there is only one account, it is stressful to start a new opening procedure under time pressure.
  • Use them all so there are ongoing transactions
  • If you have profitable trade, try to divide incoming and outgoing payments to two accounts; it can help to keep total transactions confidential: the banker who sees the payments to customers may not be able to see sources and prices of your purchases and may not have an incentive to do this business by himself or to inform a friend and share with him.

(Updated July 2021)

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