The country you choose to bank in is as important as deciding where to live or where to buy an investment property. You wouldn’t buy a house or move your family to a war-torn neighborhood. So why would you send your money there?
This is GlobalBanks. So it should come as no surprise that banking is one of the most important decisions you make. And one of the most important considerations for banking is the jurisdiction you bank in.
It doesn’t matter if you’re starting out or sitting on a small fortune – banking is personal. And the jurisdiction you choose to bank in will depend on your priorities.
To make the right decision, you need to understand what you’re looking for. Including, understanding your risk tolerance and the services that you’re interested in. And each country, like each bank, is different.
Keep in mind, as with choosing banks, you should be looking for the one that best fits your needs, not someone else’s. So even if a jurisdiction isn’t the best for one person, it doesn’t mean it isn’t perfect for you.
If you’d like to get a head start on account opening as a non-resident then download our FREE Non-Resident Banking Starter Guide right now!
Practical Questions to Ask When Choosing A Banking Jurisdiction
To get started, let’s take a look at some practical considerations. These are not the only considerations when choosing a jurisdiction. But before diving into the details, these can act as a helpful initial screen.
Q1. Do the banks offer your desired currency or do they force you to transact in the local currency?
This is something that we have seen at banks in Singapore, Mauritius, and other countries. Being forced to bank in the local currency can be costly and annoying. It can also slow down transaction time and make your business and personal life suffer as a result.
Q2. Is the jurisdiction solvent and well managed? Will it be able to support banks in the case of a sector-wide crisis?
This is a pretty obvious consideration. If you are planning on keeping any amount of your money in a particular jurisdiction, you want to make it’s safe. There are two levels of consideration to figure out whether your money is safe. The first is the bank and the second is the jurisdiction. Determining if the central bank and the government are well-capitalized is a good place to start. We will discuss this further below.
Q3. Has the jurisdiction introduced bail-in legislation?
This is what the European Union and other countries are now doing. It passes on the outcome of a banking crisis to depositors. Meaning if you have your money in a bank that is going under, you’re on the hook. This is shocking on many levels, not the least of which is the moral hazard that it creates for bankers.
Q4. Is the jurisdiction on a blacklist or gray list?
Banking in a jurisdiction that is on a watch list can make it very difficult to send or receive money. It can also result in extra reporting and even account closures at other banks. Even if your desired country has been on a watch list in the past you should still be wary. Of course, being on a watch list before doesn’t mean they will be on one again. But it can be a sign of underlying issues within the banking industry.
Q5. Is there a reputation risk of banking in the jurisdiction?
Stereotypes extend to your banking activities as well. Your clients and partners will look at you differently, depending on where you bank. Countries like Belize, Seychelles, Cayman, and Panama carry negative connotations. This is especially true for people from developed countries. When it comes to business, make sure the jurisdiction you bank in doesn’t negatively impact you.
Q6. Does the country follow international regulations and standards? Does it protect itself against high-risk and unsavory clients?
Yes, regulation is bureaucratic and annoying. But it also serves a purpose and enforces transparency in the banking industry. This can help protect your money, especially in less developed financial jurisdictions. This can attract illicit activities and unsavory clients. In turn, this will attract scrutiny from international banking bodies and regulators.
These are only a handful of the considerations when choosing a banking jurisdiction. And these questions should only act as the first layer of assessment.
In fact, you might find that the best jurisdictions for you don’t get the best scores across the board. But that’s okay, as long as you make an informed decision and weigh the risks.
Other Important Considerations
Banking In A Small Jurisdiction
For instance, many people find that Andorra is a great starting point for private banking. Andorra offers world-class private banking at a fraction of what it costs in Switzerland.
But, Andorra has a much smaller GDP than the total amount of deposits. This makes it susceptible if there was ever a sector-wide banking shock. GlobalBanks Insiders can read more in our Andorra Banking Report in the GlobalBanks Library.
If you’re not yet a GlobalBanks Insider and would like to learn more about this report and the benefits you can receive, click through below.
Banking in a Jurisdiction That Has Not Signed International Agreements
Likewise, Georgia has become a favorite banking jurisdiction for digital nomads and entrepreneurs. But Georgia has not yet signed any information-sharing agreements.
This could result in the jurisdiction getting targeted by international regulators. Resulting in investigations or bank closures as we have seen elsewhere. GlobalBanks Insiders can read more about banking in Georgia in our Georgia Banking Report.
Banking in a Jurisdiction With a Low Reputation
Lastly, Panama’s reputation has taken a major hit over the past decade. This is mainly due to the Panama Papers, which didn’t even involve Panama as much as some other countries. In any case, banking in Panama can carry a negative reputation.
Yet Panama still has well-managed banks and strong banking regulations. It also offers access to USD and good interest rates. In fact, Panama is a great banking option for many Insiders looking for USD outside of the United States. GlobalBanks Insiders can read more about opening accounts in Panama in our Panama Banking Report.
The point is, even the best jurisdictions have both positive and negative attributes. After all, there is no such thing as a perfect banking jurisdiction. There can only be the perfect banking jurisdiction for you.
How to Assess Banking Jurisdictions
To dive deeper, let’s discuss some of the specific factors that make a jurisdiction good or bad. We’ll look at them from the perspective of depositors and how these factors can impact your funds.
In general, the following factors should be considered when choosing a banking jurisdiction. Understanding each and choosing where you should bank based on what you find will lead to a much better result. Your money will be safer and you won’t have as many headaches.
With this in mind, we’ll dig into financial, currency, and political issues. These are all important to understand before opening an account. These factors will impact your experience, how you access your account and your money.
You want to be banking in a stable jurisdiction that isn’t rife with corruption and conflict. That’s a given. But there are several other considerations that often go overlooked. These include the size of the economy, the size of deposits, and the economic reliance on banking.
Many popular banking jurisdictions are small countries with large banking sectors. This is the case in countries like Panama and Andorra. Most Caribbean island nations also face this challenge.
With this in mind, understanding total bank assets compared to GDP is important. The result of more deposits than GDP is that the jurisdiction has more assets than it can handle. If there was a financial crisis, the government would not be able to bail out the banks. It would need help from international agencies or would rely on a bail-in. Meaning depositors would be on the hook.
Additionally, a jurisdiction’s economic reliance on the banking sector is important to know. It can tell you how susceptible they can be to the influence of foreign governments.
For instance, the U.S. and others don’t hesitate to investigate foreign banks. And, jurisdictions that are considered facilitators of money laundering are particularly vulnerable.
This is what happened when the US accused Banca Privada d’Andorra (BPA) of money laundering. BPA’s client accounts got frozen and BPA shut down. The impact is pretty obvious for clients of the bank. The lesson is that your funds are at risk if the government can’t withstand foreign pressure.
Most people don’t look at banking jurisdictions as financial entities, but they are. And you need to assess them as such if you’re putting your personal wealth within their borders.
In fact, understanding the key financial indicators of a jurisdiction can tell you a lot. It can inform you on the economy, politics, military, and even social conditions. In other words, financial indicators will impact the safety of your funds.
So what should you look at when considering a country’s financial performance? To start, you should understand the jurisdiction’s headline indicators. These include GDP, Debt-to-GDP, unemployment rates, inflation, interest rates, and the local currency. You should also take a look at the key indicators of the central bank – if the country has one. This includes central bank liquidity and solvency.
You might think this level of research is a bit much just to open an account. And depending on the jurisdiction, you might be okay without taking these steps. In fact, if you’re not looking for payment processing instead of investments, most of it might not matter.
Likewise, if you’re considering stable jurisdictions, you might get away with ignoring these. For instance, Singapore has been historically stable and the underlying financials are strong.
But if you are considering a developing jurisdiction, these considerations are important. And by taking a few minutes to educate yourself before opening an account, you could save a lot of money and time.
Obviously, understanding the political risk within a jurisdiction is an important consideration. But you shouldn’t stop there. Many jurisdictions are affected by the political risks from surrounding jurisdictions as well.
For instance, the European Union sets guidelines centrally. Yet, even countries that are not member states can be influenced by their decisions. This can happen to surrounding countries, protectorates, or those interested in becoming members.
Making sure you understand more invasive political risk is also important. But we will cover that in the section on Regional Conflict and Risks below.
Regional Conflict & Risks
It might seem odd to be discussing regional conflict in 2019. But the reality is that some countries are still faced with military conflict or the risk of it. And understanding this before you dive into a banking jurisdiction is important.
In fact, many Digital Nomads and entrepreneurs have found themselves attracted to Georgia. It is an increasingly popular jurisdiction, thanks to easy opening and high interest. But ten years ago, Georgia was in direct military conflict with Russia, no small opponent. Insiders can read more about banking in Georgia in the Georgia Banking Report.
Similarly, within the last two years, South Korea has been at the center of much concern. As tensions increased between North Korea and the United States, they were in the middle. While the situation is calm today, that doesn’t change the fact that there are risks.
If you’re banking in a risk-prone jurisdiction, this could have serious implications. That doesn’t mean you shouldn’t bank there. But, as with all the considerations discussed, you should make an informed decision.
Quality of the Banks
Yes, this is a report about why choosing a jurisdiction is as important as choosing the right banks. But the banks themselves can also act as an indicator of the jurisdiction. After all, the jurisdiction is the one that imposes regulations and monitors the banks. So understanding whether the banks are strong will give you a lot of insight.
To start, determine whether banks are implementing the correct procedures. This includes CDD, KYC, AML, and CTF.
Do Regulations Help at All?
Regulation isn’t all bad. At least it isn’t meant to be. And, as depositors, there is a lot of gain from a bank that imposes these frameworks correctly. While it might slow down your account opening it can also protect your accounts. The bank will be less likely to cater to criminals. So it’s less likely that your fellow clients will be conducting illicit activities.
An example of a jurisdiction that is known for having banks that operate loose KYC is Georgia. Their compliance is slack and they do not participate in information-sharing arrangements. But as mentioned, this jurisdiction is very popular with several groups. In fact, many Insiders already bank here.
But by not forcing tough regulations they might end up attracting money launderers. Similarly, clients engaged in illicit activities are more prone to banking here. This could result in your account being collateral damage in a very messy situation.
FATF & OECD Rankings
Knowing how a jurisdiction ranks with regulators can tell you a lot about banking there. This is especially true when considering the groups setting bank and compliance policies.
For instance, an account in a “high-risk” jurisdiction will have problems receiving payments. Similarly, accounts in “monitored” jurisdictions will have problems sending international wires.
To clarify, the Financial Action Task Force (FATF) sets standards internationally. They focus on policies that combat money laundering and terrorist financing. They insist that strong compliance and anti-money laundering policies will make corruption difficult. Make sense.
To extrapolate, criminals won’t want to open accounts in jurisdictions with strong regulations. And, fair enough. Why would they waste their time when the country next door doesn’t ask any questions?
But what does that mean for you? If you bank in a jurisdiction that is “high-risk” or “monitored” you will be scrutinized. That is, compared to banking in a jurisdiction that complies with all requirements.
To determine if the jurisdiction is “high-risk” or monitored by the FATF you can check their website here.
Understanding How Jurisdictions Perform
As with all things, not all banks will operate under the perceived risk of their jurisdiction. And individual jurisdictions will have a different mix of pros and cons. So we don’t apply strict tiers to jurisdictions.
That said, we do generally try to assess the key brackets where banks can float between. This helps us use the information that we assess to provide context to the banks that operate there.
Additionally, when considering a jurisdiction, we consider both the perceived and real risks. As it’s one thing to hear about the risks in popular media, but it’s another to know what the actual risks are.
At GlobalBanks, we do this for you by analyzing each individual banking jurisdiction. We look at their suitability and determine which client profiles work best in each.
Very Good Banking Jurisdictions
High-ranking jurisdictions are typically well-respected globally. They have political and economic stability and impose tough regulations on their banks. This ensures consistent standards across banks, maintaining high standards for depositors.
Likewise, these jurisdictions aren’t known for financial crime. The risk of having an account frozen or losing access to correspondent banks is very low.
Not surprisingly, these jurisdictions consist of developed Western countries. These include EU nations, Switzerland, Canada, and the UK. It also includes the likes of Singapore, New Zealand, and Australia.
Some Insiders might be wondering why Western nations are safe banking hubs. Well, the reality is, for someone that does not originate from these nations they are the best options. And even if you are from them, they still offer viable solutions. Again, just because a jurisdiction is or is not good for you, doesn’t mean that it isn’t perfect for others.
Good Banking Jurisdictions
Banks in this bracket don’t get a free pass when it comes to reputation. But they don’t have any explicit regulation risks or faults either. They have a generally good record but aren’t outstanding. To this end, they tend to be well documented and known by regulators as good places to bank.
Banks from these jurisdictions may have inefficient operating methods or management practices. And they may not have the best levels of liquidity or capitalization, so be sure to check. They also tend to take part in aggressive lending.
Jurisdictions in this bracket include most developed nations outside those mentioned above. This bracket also includes developing countries in Europe and Asia. But the big countries here include the United States, Panama, and some European nations.
Poor Banking Jurisdictions
Poor quality jurisdictions typically exist outside of major financial hubs. This group consists of offshore banking hubs and small island jurisdictions. They tend to have established financial industries and services for offshore business. But they are still subject to aggressive regulatory pressure from other jurisdictions.
These jurisdictions suffer from reputation issues, typically surrounding money laundering. This is something to consider if you’re looking at banking in such jurisdictions. No surprise, there will be high levels of due diligence and scrutiny involved in sending and receiving transfers to banks in this bracket.
Some people view these countries as strong banking jurisdictions. One reason for this is that they tend to come with strong asset protection laws. But think twice and consider your business relations before establishing accounts here. Such jurisdictions would include Georgia, BVI, Cayman, Mauritius, and more.
Banking Jurisdictions To Avoid
This last bracket consists of the jurisdictions that we do not consider acceptable. But as we have said before, that doesn’t mean that they don’t offer any value. Certain clients, such as those in the Unlucky Passport Club, might be perfectly matched to open accounts in these countries. You can learn more about the Unlucky Passport Club in our recent article.
In general, these jurisdictions do not follow best practices. For this reason, they are not considered credible options. And banking in one of these jurisdictions can damage your reputation or cost you your deposit.
This bracket includes jurisdictions in the Middle East outside of the GCC and South Asia. It also includes many African nations. Dictatorships such as Cuba and North Korea are of course on the list too, as is Russia.
What Does This Mean For GlobalBanks Insiders?
Thanks to the global economy, choosing a bank is no longer limited to your local jurisdiction. You can pick anywhere in the world to bank, based on your needs.
By considering the above factors, you will be able to find a jurisdiction that suits your needs while also finding a jurisdiction that is safe and protects your money.
GlobalBanks Insiders and GlobalBanks IQ members can use their Dashboard to get started now. Search for specific jurisdictions that are best suited to your client profile. And find reports in the GlobalBanks Library highlighting jurisdictions specific to your requirements.
Are You Ready to Get Started?
If you’re ready to take action and start opening international accounts now, you can access GlobalBanks Insider or GlobalBanks IQ.
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