Many of you might have heard about the current struggle that companies dealing with blockchain and cryptocurrencies are faced with when trying to open a Bank account. Most of our clients ask whether the process is still the same and what are the main requirements to ultimately have an operative Bank account.
If you have a company dealing with blockchain or cryptocurrencies, you would need a Bank Introducer. The scope of this introduction is to assist the client by referring a possible banking partner that will be able to entertain their company’s line of business.
DWP have agreed to refer a possible banking partner to the client, that is working within the industry and has expressed interest in accepting crypto asset related business cases. DWP ensures that such banking partner is suitably licensed to provide such service to the client.
To begin with, we need to distinguish between PSPs and Banks. Payment Service Providers (PSPs) provides the facility of a wallet to be able to pay and receive the funds in that wallet. It is an online service which requires the same level of due diligence as a bank and adopt the same procedures. However, PSPs tend to be more open for this sphere. On the other hand, a Bank is a financial institution that performs the deposit and lending role through a physical Bank account. It also provides classical banking services such as Debit/ Credit Card, ATMs, cheque books, transfers, foreign exchange services, overdrafts and loans.
First Steps for Opening a Bank Account
The process of opening an account may take approximately 3–4 months. The process for a Bank introduction with our company starts by the internal on-boarding process which on average may take 1–2 weeks, depending on the responsiveness of the client.
During this process, due diligence is carried out on the involvements of the company. At this stage, the line of business of a company is to be established to determine whether the company is dealing with blockchain and/or cryptocurrencies.
Why is this important? As many of you might know, few are the banks that are considering such lines of business within their risk parameters, and thus we take into consideration different types of institutions to reach the client’s goal, that of opening an account with a financial institution.
As part of the internal process, due diligence is carried out on the involved persons such as directors, shareholders and the company secretary whereby documents are requested in line with the FIAU Implementing Procedures and internal policies and procedures. Such documents will also be used by the Banking Facility Manager of DWP to initiate the process of opening a Bank account.
Once the internal on-boarding is cleared, the next step would be the setting up of the company, which needs to be incorporated and to also be considered as a tax resident in Malta.
It is important to note that the company does not need to be licensed before opening a bank account.
A Bank account for a blockchain company is not a walk in the park. One would need to examine different Banks and PSPs to see which are the most suitable that particular customer. The Bank would need to clearly understand the line of business of the company and thus it is of utmost importance to examine different scenarios before approaching a particular Bank or PSP.
What are Banks really looking for
Every Bank and PSP is different, but some requirements are common.
Jurisdiction: Apart from the Line of Business of a Company, the institutions are interested in the jurisdictions involved. You may think that any jurisdiction may be acceptable, but the bank may consider some jurisdictions as high risk. For this reason, the Bank will ask for the customers and the suppliers of a company, even if they are still to be considered as prospective.
Flow of Funds: You may be asking why is this important. Well, the Bank will consider opening a Bank account only if it is confident enough that the company is not shady. In this respect, they would need to determine the flow of funds of the company, that is from where the company is to receive funds and to where such funds are to be transferred. These are also known as the inflows and outflows of funds, which need to be clear and transparent.
Substance: Another thing that the banks are looking for when onboarding a new customer is the substance in Malta. Certain Banks regard a registered office and the residence of the director and/or the ultimate beneficial owner as adequate substance in Malta. However, most of the institutions do not stop there.
There are banks that for a Bank account opening, the company would need to have a physical office here in Malta and also would need to have employees in that physical office. Reality is that the more substance there is, the more likely it is to be accepted as a client. The Banks will take into consideration that a company with a lot of substance in Malta would have already been at the scrutiny of Maltese Authorities, and that is a plus.
Beneficial Owner: The institutions also look for detailed information about the beneficial owner ( natural person holding 25%+1 of shares within the company). It is important that a beneficial owner of a company where its trading activities are in relation to blockchain has relevant experience in relation to the line of business. In this regard, the institutions are interested in the level of education and the experience of the beneficial owner.
Source of Wealth & Source of Funds: Importance is also given to the source of wealth and the source of funds. With regards to the source of wealth, institutions require a declaration of the total net worth via a source of wealth declaration. The Banks are also interested on how the net worth of that particular individual was generated.
Also, regarding to the source of funds, institutions are interested in the first transaction to be hit the account once it is opened or how the client started the investment in the company. Banks need to know how the share capital has been generated since it is a substantial amount, and proof needs to be provided.
Outsourcing: The Banks are also interested in which part of the product or service is being outsourced. They will also ask for agreements with third parties, even if it these are not yet available they will ask for drafted agreements.
Marketing: Some Banks may also go into further detail and will be interested to know on how the service/product of the company is to be promoted and which marketing tool is to be used. They will be intending to identify the level of experience of the promotors and also to know whether the marketing team is also familiar with the company’s line of business.
Malta’s banking sector is very aware of the mitigation of risks when dealing with new technologies. Currently, there is a struggle that companies dealing with blockchain and cryptocurrencies are facing when trying to open a Bank account, however it is not impossible to do so. DWP strives to assist its clients by referring possible banking partners that will be able to accept a company’s line of business, even when dealing with blockchain and cryptocurrencies.
The above-mentioned article is simply based on independent research carried out by Dr. Werner and Partner and cannot constitute any form of legal advice. If you would like to meet up with any of our representatives to seek further information, please contact us for an appointment.
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