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How to choose a regulator for a financial company

London was home to many European fintech companies - currently almost 50% of all payment institutions of the European Economic Area (EEA) are clustered in the UK. However, Brexit means that they will face the risk of losing authorization to provide financial services within the European Union (EU), e.g., lose the opportunity to serve clients from the all over the EU.

Therefore, new companies are not rushing to get a British license, and there are many companies under the jurisdiction of Financial Conduct Authority (FCA) that are looking for new regulators in the EU countries. Sometimes choosing a jurisdiction is more difficult than finding a life partner. For this reason, considering different regulator proposals, Bilderlings have defined several measures, when looking for a new jurisdiction. Now more than ever, we need to keep tabs on those criteria.

Registration turnaround time

The majority of countries offer similar conditions in terms of the timing - about 1-2 months for document preparation and 2.5-5 months for review of the documents. Lithuania, which has been actively welcoming British fintech companies over the past few years, offers a faster clearance process: 1 month for preparation and around 3 months for document review and registration. However, one should take into consideration the number of applications under review – a promises is a promise, but the regulator may not be able to physically meet the timeframe of three months if they have 60 applications “in line”. This aspect may change; therefore, it is necessary to discuss this matter with industry colleagues or agents who are aware of the situation at a particular point of time. 

Registration fee and Annual supervisory fee

Numbers may change, in whatever way they want. Malta requires 3 500 EUR for registration, the Netherlands – 6 800 EUR, while Lithuania asks only 1 463 EUR. As for the annual payments, there is also the same question. Every country demands whatever it wants. If there is no such an information on the website of the regulator, by all means find out. The average amount you can expect to pay is 2 500 EUR. However, many regulators calculate % from the turnover, but for some it will cost “no more than”, and for others - “no less than”. If you want to make your life easier, you can hire an intermediary who will help you get through that circle of hell. The turnkey approach for setting up a company (registration, document preparation, forming a company, etc.) costs starting from 50 000 EUR. 

Infrastructure and a local branch in the regulator country

All regulators require a local office in their country. However, requirements may differ - the essence of these requirements is in how strong connection your business should have with the regulator country. Is it enough just to set up a mailbox, or do you need local employees, etc.? Many regulators require the company to have employees residing in the regulator country and holding senior positions. Here it is worth adding the entire infrastructure related to renting an office, an average wage level and labor laws.

Possibility to open an account with the local bank

Obtaining a license does not always guarantee that you will be able to open an account with the local banks of this country. This is why it is necessary to find out in advance how loyal the jurisdiction’s banks are to payment institutions. Industry’s colleagues and lawyers from the country are best-placed to tell you about the jurisdiction and its particularities, as well as help with license registration. In fact, it is one of the most important aspects to consider, when choosing a regulator.

Reputation

Reputation is the most exquisite and valuable asset. The reputation of the regulator and the country itself is everything and nothing at the same time. In an ideal world, the reputation of a regulator depends on the quality of its homework. How can we evaluate the "quality"? In an ideal world - by the presence / absence of money laundering scandals. However, if you open a Google search and type “the name of any EU country” and “AML scandals”, you will find that dirty money and messy procedures are spread around all countries in about the same way. Meanwhile, on the one hand, these scandals have had almost no effect on some regulators, and, on the other hand, some of them have led to a banking crisis. On the grounds of this fact, it is not necessary to consider the reputation of the regulator separately from the political weight and reputation of the country itself. 

But for ourselves, we have identified a few indirect criteria, which, it seems to us, can be used to evaluate the reliability of the regulator; here they are.

  • Does the regulator allow agents to work with remote identification?
  • Does the regulator allow financial institutions to use offshore maintenance services?
  • How clearly has the regulator defined the concept of an offshore company? Are companies divided into offshore companies and shell companies?
  • How strong the connection with the country is necessary to open an account in the local bank (that said, how easy it is to open bank accounts for individuals and legal entities from other countries)?

If the answers to all questions are “yes”, “easy”, “no problem”, it is not a very good sign. A good indicator for the country is that the financial sector can live without requiring an infusion of money from outside, and therefore the regulator does not bear the risks of non-residents. A mature financial regulator is one that have clearly defined and described the procedures and position in regard to working with offshore companies. Otherwise, this will result in discovering “the position towards offshore companies” at the later stage, when you are already actively working with them, and then it may not be in your favor.

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