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Incorporation of a bank in EU

Incorporation of a bank may seem to be rather far and unreachable goal, but in fact this destination is not so much different from incorporation of any other legal entity. Surely, due to the involvement of other people savings and possible crucial effect on a country's overall economy, it is important that banks are subjected to stricter regulations and frequent audits.

European Commission and European Central Bank work together in order to strengthen the Economic and Monetary Union. One of the tools developed to navigate towards the above mission is a Single Supervisory Mechanism which grants an authority for ECB to conduct supervisory reviews and inspections, ensure compliance with EU rules, set higher capital requirements as well as grant or withdraw banking licences. Nevertheless, each EU member state can have slightly different procedures and requirements regarding incorporation of banks.

General procedure of incorporating a bank

As with any other type of business, the first thing to consider is the actual need and potential market for the bank. You will also have to demonstrate the necessity and survivorship of the bank during the charter application process by presenting a business plan. A business plan will usually demonstrate a financial projection for the next three to five years and the ability to earn profits for bank's investors.

An important detail of the process of incorporating a bank is to find a strong team to serve as board of directors. Usually, it could be five to thirteen people who oversee the strategic plan of the whole bank and make sure that that the employees comply with federal regulations as well as bank's policies. Bank's board members might also be the ones investing their money as you will need a sufficient amount of funds for the starting capital to ensure all banks operations and comply with the regulators in regards to the amount of collateral. Other sources of the starting capital could be a bank holding company, founders groups, private equity funds or other supporting financial institutions.

In addition to board members, you will have to find a trustworthy team of professionals to ensure that all parts of the bank are functioning correctly. For example, operating a bank can be a rather confusing process with numerous regulations to comply with, therefore it is crucial to hire a legal team with preferable experience in banking. Another extremely important team for a bank is risk management. The infrastructure of risk management should be established before the opening of a bank so that various risks, such as liquidity, market, credit, legal, reputational and operational, would be monitored and controlled as well as policies and procedures kept in place from the first moment of the incorporation of the bank.

Incorporation of a bank in Latvia

As a member state of EU, Latvia is also part of the Single Supervisory Mechanism which grants an authority to ECB for various supervisory actions, including granting and withdrawing banking licences. In order for a bank to receive an operating licence in Latvia, it needs to submit a number of documents and other information according to the Credit Institution Law and Regulations on the Issue of Credit Institution and Credit Union Operating Licences. The documents need to be submitted to the Financial and Capital Market Commission. After all documents are submitted, the Commission examines the application for the banking licence and within three months proposes a draft decision to ECB, based on which ECB grants or denies a banking licence. A minimum starting capital for a bank in Latvia is set to be 5 million EUR.