How to Setup a Banking License in 2024

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To open a bank, you need to obtain a permit from the relevant regulatory authority of the jurisdiction where the entrepreneur intends to conduct business. Banking institutions have the right to engage in such regulated activities as:

• issuance of e-money.
• investments and everything related to them (transactions, management, protection, administration and consulting on all issues that relate to that section of banking).
• consumer lending and related assets.
• lending secured by residential real estate, as well as other housing financing.
• insurance mediation.
• accepting deposit funds.

What Is a Banking License? Different Types of Banking Licenses

A banking license (click here) is a document that confirms compliance with a number of strict government regulations regarding the protection of funds and customer data by a company. For this reason, only the company that has received a banking license has the right to be officially called a bank.

To obtain such a document, your enterprise must meet a certain list of criteria, which is headed by the availability of financial reserves and ensuring reliable protection of data systems.

Depending on the specifics of your enterprise, there are several types of licenses:

• general license (class A) gives permission to provide banking services at the international level (both to the local population and to non-residents).
• restrictive or domestic license (class B) only allows customers to serve certain territories and categories specified in the document.
• Fintech-license is a virtual document that supports huge companies in large-scale operations. Such licenses are issued to digital banks that operate only on the Internet, focusing on digital customer service. A document of this type is necessary for a bank if it intends to engage in securities trading or securities underwriting.

The regulation of the banking services sector also includes supervision of consumer lending transactions. Forms of lending that include financial instruments (securities, funds and derivatives) are regulated under the Markets in Financial Instruments Directive II (MiFID II).

A bank eligible to accept deposit funds must be licensed to provide payment services in accordance with the PSR or authorized to issue electronic money in accordance with the EMR. As stated in the Capital Requirements Directive (CRD), certain banking operations are subject to mutual recognition by EEA member states (a process more commonly known as passportization).

Meeting Prerequisites for Licensing

In order to establish a bank, you need to obtain approval from the local regulatory authority, which is the main one in the jurisdiction where the entrepreneur intends to operate.

First of all, ask for approval from the regulator, because only after receiving it you can fully begin the licensing process.

The bank and Fintech-licensing procedure consists of the following stages.

1. Submission of a preliminary application: demonstration of a business plan and a description of the service list provided. Consider your financial resources, investment policy, IT policy and outsourcing requirements when applying for a license.

Receiving Authorization With Restrictions. The Company Must Submit:

• business plan;
• recovery and resolution plan;
• documents on financial resources (on capital (ICAAP) and liquidity (ILAP)).
• an outline of the proposed governance/board of directors/senior management regime, senior management roles;
• description of IT systems;
• outsourcing plan;
• a document that describes the sources of funding and approves capital adequacy.

The business plan includes:

• data on goods/services, target market;
• competitive advantages of the company, which are confirmed by the study of the relevant market;
• financial assessment (for a period of at least 5 years);
• monitoring and risk management methods;
• business continuity plans;
• accurate information about the planned regulated activity.

In the field of IT, you will need to prove that the persons who are interested in starting a bank have everything necessary to develop a successful IT infrastructure, monitor it and ensure data security. You will be granted a “temporary” bank license 6-8 months after application, if the regulators are satisfied that the applicant has sufficient resources to open a banking institution and successfully manage it.

2. Mobilization: after your request has been approved, you will need to complete the process of finalizing some of the components. This process can take up to 1 year. The term mobilization means:

Full capitalization of a banking institution;

• approval of senior management and staff training;
• building such systems as risk-based management, internal audit;
• introduction of IT systems;
• end of outsourcing.

When using the words “bank” or “banking” in the name, you must obtain FCA approval.

Application Submission and Engagement With Regulators

To obtain a license, you will need to comply with the following points:

1. Your business must have a head office registered in the jurisdiction of your future place of business.
2. The applicant must have the resources that are necessary for honest and quality business.
3. The owner of the enterprise is obliged to convince the regulator that he has the appropriate experience to conduct regulated activities.
4. The applicant’s business model must be risk-free for the purposes of the regulator.
5. Nothing should affect the quality of the verification and the process of supervision and control of the applicant. Any close and family ties should not interfere with effective supervision of him.
6. All staff of the future bank will be evaluated by higher authorities. The qualifications, experience and suitability of the position held by each employee will be checked.
7. The chief director of the enterprise must always be in the jurisdiction that is chosen for the conduct of activities.
8. Everyone has the right to become a founder of a company: as a rule, there are no requirements for residency.
9. Your facility must have a designated person who will liaise with the regulatory body.
10. The amount of share capital depends on the jurisdiction in which your company operates.

Your bank details will be entered into the Financial Services Registry from the moment it is authorized. If the authorization request is denied, the applicant will receive a notification detailing all reasons for the denial. After correcting all inaccuracies, you have every right to re-apply for licensing your bank.

Conclusion

Opening your own banking company and licensing it is an expensive pleasure that will take a lot of time and effort. If you have undertaken this procedure, then you must be completely sure that all the rules and requirements of your enterprise are observed, so that your finances and time are not wasted.

Keep in mind that in order to operate in the US, you will need to obtain a license from each state in which you wish to provide your services.