Opening an offshore bank account is very different to opening one at your local branch. There are a number of factors that come into play, which may impact your decision. These factors are:
- The jurisdiction of the account;
- Restrictions on the account;
- The stability of the bank;
- The cost of the account;
- The services provided.
Before delving into these fields, it is important to highlight that Southpac has conducted due diligence on all our banking partners to ensure their stability and the security of our clients’ funds. We undertake due diligence on both the underlying owners of the banks as well as the financial position and security.
The Jurisdiction of the account
For the purpose of asset protection, it is important to ensure that the bank account is in a jurisdiction away from where the ultimate beneficial owner resides. In addition, an extra layer of protection can come about by having the account in a jurisdiction different to the entity which holds it. To that end, we have a number of banking relationships in Switzerland. Switzerland has a reputation as one of the leading banking centers of the world, with its neutrality and the maintenance of its monetary sovereignty seen as key factors.
Some people may question the Swiss banking system in the wake of the UBS forced buyout of UBS, however the banks we work with follow a different business model. We will touch more on this below when looking at the stability of the banks.
Restrictions on the account
Whilst Switzerland is a stable banking jurisdiction, they aren’t particularly fond of US clients. Banks in Switzerland require a SEC registered advisor appointed to the account. For that purpose, we work with several different Swiss based advisors that all provide something a little bit different. It is also worth highlighting that we have recently added an option that allows passive investment without the need of an advisor in Switzerland.
Due to this restriction, it is important we have options available to our clients that aren’t looking for investment advice. Our main relationship here is in the Cook Islands, where clients can hold cash or direct their own investments without the need for a SEC advisor. The other advantage of the Cook Islands is that account opening times are far quicker, with accounts typically open in two weeks or less, as opposed to Swiss accounts that take six weeks or more.
We are continually looking at further jurisdictions without restrictions, and are hopeful to add another option for clients in the not too distant future.
The Stability of the Bank
We wrote about this topic earlier this year in the wake of the Silicon Valley Bank (SVB) collapse, and the ongoing issues at Credit Suisse. You can find that article here: Is Your Bank Safe?
The key point with regards to the banks we use, is that they are largely custodial banks with less reliance on lending out your funds. As a result, their balance sheets are highly capitalized and they carry less risk than traditional banks. The SVB model and the Credit Suisse model were significantly different to this, and carried significantly more risk on their balance sheet. This was in the form of a duration mismatch for SVB and poorly performing investments and loans for Credit Suisse.
The cost of the account
Given the business model above, the banks we use have to make money in a different way. Whereas your local bank will take your funds, lend them out and take an interest margin, the banks we use will just charge a fee. These fees are the price of having a gold plated balance sheet.
Of course, the fees charged will depend on what you are looking to do with the account and we will be able to analyze and compare fees across different options to find the most cost effective.
The services provided
Ultimately the choice of bank will come down to what you are looking to do within your trust or company. Through our relationships, we can facilitate:
- Investment advice;
- Self-directed investment portfolios across all major markets;
- Interest earning deposits;
- At call cash accounts; and
- Transactional accounts.
The final note we will make is that some people will be surprised by the amount of due diligence / KYC materials that offshore banks ask for. Due to heightened risk of money laundering, offshore banks need to be able to document the source of funds. The type of questions and evidence required can be similar to applying for a loan through your local bank. We are here to help you through this at every stage.
If you have any questions around offshore banking or would like to set up an account, please contact us for a complimentary consultation.