A guide to UK bank accounts for overseas-based companies in the UK

As a Banking Consultant at Carpenter Box, I’ve witnessed a growing trend of overseas-based companies seeking assistance in securing UK bank accounts. The intricacies involved in this process, especially for companies with directors and shareholders based abroad, have become increasingly challenging.

Can a foreign company have a bank account in the UK?

This fundamental question is at the forefront of many businesses looking to establish a financial presence in the UK. The answer is yes, but the journey to obtaining a bank account has become rather more difficult due to evolving appetite for risk on the part of the banks who currently appear to be subject to greater scrutiny from their regulators.

Banking regulatory environment: a closer look

The Financial Conduct Authority (FCA) and the Prudential Regulatory Authority (PRA) continue to scrutinise banking activities with an unwavering focus. In 2022 alone, the FCA imposed fines of £215.8 million on UK banks, citing shortcomings in record-keeping and oversight of client trading activities. Notably, a single bank faced a £107.7 million fine for Anti Money Laundering (AML) failures related to transaction monitoring.

Traditionally, certain trading activities, such as casinos, online gambling, and money-transfer businesses, were classified as high risk, leading banks to exercise heightened scrutiny or exiting these sectors entirely. Additionally, transactions involving countries under United Nations sanctions, like North Korea, Iran, Syria and Cuba were forbidden, and as a result, banks swiftly distanced themselves from such activities.

The shifting landscape: A challenge for overseas companies

Surprisingly, an emerging trend is the refusal of banks to open accounts for companies whose directors and shareholders hail from well-regulated countries, including Western Europe and the United States. Why the shift?

The primary challenge is that the more distant the bank is from its clients, the more difficult it is from them to demonstrate to the FCA and the PRA that they are competently monitoring their clients’ activities. For UK-based businesses, a periodic review is relatively straightforward, relying on Companies House data and then taking a passport and/or driving licence to confirm their identity. Plus, an Electoral Roll search to confirm where they reside.

However, when directors and shareholders are overseas, this process becomes time-consuming and costly for banks. Even with identification documents certified by local notaries, this third-party involvement can expose the banks to additional risk rather than when they undertake this themselves in locations where they are based. Even if they are prepared to accept this additional risk, these periodic reviews of overseas-owned and operated clients are much more time consuming and expensive than for those with UK based directors and shareholders.

The impact on overseas companies

This shift in policy creates a substantial hurdle for overseas companies seeking to expand into the UK. The expectation of a seamless post-Brexit environment, with free-trade agreements attracting inward investment, is dampened by the practical difficulties many companies face in simply opening a bank account.

Ana Christie, Chief Executive of Sussex Chamber of Commerce, raised this matter on my behalf through the British Chambers of Commerce, who then consulted with UK Finance, the body representing the banking and finance industry in the UK. They advised that:

… UK lenders take their KYC and AML responsibilities extremely seriously and the fines for compliance failures are significant.  It is simply much harder to conduct KYC checks when directors are non-UK based. This isn’t just an issue for UK banks but also for banks in the USA and other European states……..” and “..[the] bottom line from the banks is that they have to do what they do and there’s no real way around that because they want to manage what they perceive to be potential risk

Potential solutions and cautionary notes

One potential solution involves directors and shareholders of overseas companies first opening accounts in their home countries with banks that have branches in the UK. This might streamline the account opening process or, at the very least, facilitate sharing identification documents.

Alternatively, they might need to make payments from their residing bank overseas. However, this is challenging, as some remitters, including HMRC for VAT refunds, insist on payments to UK-based bank accounts.

Caution is warranted

While numerous online-only banks have flourished, some entities may open and operate accounts for overseas businesses without the same regulatory backing. Choosing an entity regulated only by the Financial Conduct Authority (FCA) but not the Prudential Regulatory Authority (PRA) puts the entirety of your funds at risk in the event of a ‘bank’ failure, as the PRA operates the Financial Services Compensation Scheme underwriting deposits up to £85,000.

The landscape for overseas-based companies seeking UK bank accounts is undeniably challenging. As we navigate this complex terrain, we continue to advocate for changes that facilitate a smoother process. For businesses experiencing these challenges, reaching out for personalised guidance can make a substantial difference. If you’d like further discussion or if you’re facing similar issues, please contact us, and we’ll endeavour to guide you to a bank that may offer assistance.