What is a banking license and what powers do its holders obtain?

If you plan to operate as a Banking-as-a-Service (BaaS for short) provider, you should obtain a banking license. This is a crucial aspect as your choice will settle the scope of your business, the menu of services you will deliver, the client base, and even your market share. Read on to figure out the core aspects regarding the license, its types, and the reasons you’d decide on this or that option.

The definition of a banking license

Being a core element in the sector of finances, a banking license is an operational permit issued by regulative agencies that empowers a person to open a financial entity in a certain country and gives a right to operate within this territory. Generally, the industry of finances in most countries features a highly strong level of regulation. since banking is a core part of every country’s economy, firms in this sector must adhere to many clearly-defined official rules to stay afloat.

A banking license guarantees that a licensed bank has duly developed policies and procedures, giving clientele the peace of mind that their funds and private data are in a safe place. Since there is a high degree of trust involved in the banking process from the client side, approval is only granted in instances where the regulatory agencies see zero risk possibility that those running the bank will default on its obligations to the public.

Banks fall under the applicable laws of the jurisdiction that grants the banking licenses. For instance, in the United States, an institution can be licensed by state or federal authorities. An authorization issued by a state restricts the bank’s operations to within the state’s borders. Being the primary supervisory body, the state would bear the responsibility for ensuring that the bank has sufficient operating cash and reserve funds, the senior management is competent and transparent, operations are in line with state and federal legislation, and the clients’ funds are entirely secured after deposit.

What are the varieties of banking licenses?

Overall, there are several kinds of legal permits granted to entities that primarily deal with funds:

• Traditional– allows for a plethora of large-scale activities: delivering payment-related servicing, clients’ deposit management, cards, credits, and other financial products’ issuance, etc. A licensed bank keeps assets itself and provides deposit guarantees of up to 100,000 EUR.
• Fintech– is granted to online-only firms providing services via the Internet. By delivering services online as an alternative to servicing in physical offices, online-only firms give clientele a time-efficient way to easily manage their funds from phones anywhere and anytime.
• E-money– this type permits entities to deliver financial offerings, however, their scope is limited (for example, they cannot conduct clients’ deposits management). The law stipulates that such businesses are obliged to establish a partnership with a bank to keep funds, and, therefore, money does not fall under the protection of the EU directive.

How to obtain a banking license?

To become authorized, a firm must get in touch with a state supervisory agency to initiate the procedure. Generally, alternative license issuance requires up to 1,3 year and its varies from 1,500 to 3,000 EUR. The procedure of receiving traditional banking licenses can last up to 1,5 year and is priced at approximately 25,000 EUR.

According to applicable law in the EU, the minimum capital requirement is established as 5 million EUR. However, if the regulator is concerned because the applicant’s business model seems to entail risks, they can increase this amount. Also, an applicant must submit appropriate documentation:

• A business description, fiscal projections;
• A description of your organizational structure,
• Policies and procedures, etc.

The next mandatory step is interviews and checks to make sure the applicant is “fit and proper”. The purpose of these actions is to check whether those who are running the business are reliable and competent, and that no evidence to be concerned about the security of customers’ funds exists.

If you are seeking a hassle-free way to enter the financial market, you can take into account ready-made banking licenses for sale. An established business model, operational structure, reliable reputation, and necessary permits in place would greatly facilitate the process of opening a bank from scratch. The lawyers of Eternity Law International provide a comprehensive legal approach for obtaining a banking license in different countries and offer many banking licenses for sale. We are at your service if you have any questions or need a consultation.

Please contact us to get more information regarding banking licenses for sale.

You can also see other offers in category ready-made companies, banks for sale and licenses for sale.