How companies prepare for opening an account abroad

Barbashyn Law Team Sergiy Barbashyn Attorney at law, managing partner, Andriy Barbashyn Lawyer at Barbashyn Law Firm
1 November, 2023 7 min for reading
1 November, 2023 7 min for reading

Companies that want to do business abroad often need to open a payment account there. But it should also be taken into account that foreign regulators set certain restrictions for this, in particular, to prevent the laundering of dubious income, financing terrorism, etc.

 

Also, each country, in addition to general regulators, has its national bodies that ensure the stability of the financial system and protect the interests of bank clients. Such bodies are responsible for monetary policy, the emission of funds, and the stability of the financial system.

 

In this article, we will analyze what you need to pay attention to before contacting a bank to open an account.

Banks vs payment systems

Having business activities only on the territory of Ukraine, it is worth understanding that each country establishes its own rules for controlling financial flows. Refusal to open accounts in the EU for newly established companies is a common practice for both local residents and foreigners.

🔹 If you do not have clear requirements for opening an account in a bank, for example, to attract investments or because of obligations to counterparties, then a payment system can be a good solution. At the same time, it is worth understanding the difference.

  • A bank is a licensed financial institution engaged in attracting deposits and placing funds on its terms. In simple terms, the primary source of bank income is profit from the difference between interest on deposits and loans, as well as from other fund management and account servicing operations.
    • Usually, banks have a higher level of security, are provided with guarantees of refunds from government authorities, and have deposit programs for funds in accounts.
    • However, payments may take longer to process, and there are more restrictions on the account opening process.
  • A payment system is a component of banking. It is responsible for transferring money between different banks, customers, and businesses. The primary role of the payment system is the organization and execution of payments. These systems can be created as separate payment organizations with their license or as functional elements in the bank.
    • Among the system’s advantages is the speed of account opening due to simplified customer verification, high speed of transactions, and convenient digital infrastructure.
    • The disadvantages are the impracticality of long-term storage and accumulation of funds due to the need for integrated deposit programs, a lower level of security, and limitations regarding types of currencies.

✔️In summary, the payment system allows you to receive and send funds at the first stages of the company’s activity, satisfying the requirements for money transfers. However, if your activity becomes more profitable, more and more funds are stored in your accounts, and you want to have confidence in their preservation and state security, then at this stage, you need to move towards passing the bank’s compliance.

Opening a bank account

When obtaining permits and starting operations, banks develop their protocols, according to which each account opening procedure takes place. This protocol can be compared to a questionnaire when accepting a job, where a bank employee decides whether to start working with you.

✔️ Below, we provide an approximate list of items that banks pay attention to:

  • Customers, counterparties, and other recipients of goods and services are located in the country of the company’s registration.
  • Confirmation of the company’s physical address in the relevant country. Addresses where many companies are registered are subject to greater surveillance.
  • The field of business is clear because progressive directions such as “artificial intelligence” can cause additional questions for bank employees.
  • Need documentation or compliance with KYC (know your customer) rules to prevent financial crimes.
  • Possible instability of the company and owner to ensure constant operations on the account.
  • International restrictions, for example, are introduced with international sanctions.
  • Information that you publish on social networks or that is available under your name on the Internet.
  • Previous negative experiences with other banks.
  • Activities related to cryptocurrencies are subject to exceptional control.
  • Need for more information in the CV of the director or founder(s).
  • Impossibility of confirming the origin of funds.
  • Availability of licenses and permits for conducting activities (if necessary).

The specified list is only indicative; depending on the country or each case, there may be additional complications that you need to be prepared for.

💡 In addition to the general verification stages, each bank has its own policies and business models, which your activity may not fall under or need to be adapted. However, it is possible to prepare for the questions mentioned earlier and present yourself in the best possible way if they are processed correctly.

Results

🔹 The opportunity to participate in international financial transactions is an essential step for business development. By passing bank compliance, you give a “signal” to other companies about transparency and confidence from banks regarding your company.

In some cases, it is a prerequisite for conducting business, for example, to receive investments or to start interacting with marketplaces.

Opening an account in many jurisdictions can be more complicated than registering a company. At the same time, during registration, the company is usually subject to legal requirements. In case of particular questions or lack of documents, the process can be repeated or renewed.

At the same time, banks can demand 500 euros only for the analysis of the documents sent by you, without guarantees of a positive answer. But if they show sure signs that are a signal for failure, then it is possible to start a new process only after correcting the shortcomings. And it can take six months, a year, or even more.

📌  Another alternative is to open an account in a payment system and switch to opening a bank account after the company has gained some momentum. Given the complexities and requirements involved in the account opening process, it’s essential to plan.

 

Published by AIN

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