KYC is to blame! the “cumbersome” Know Your Customer (KYC) procedure as the main reason why companies find it difficult to open an account in Luxembourg. KYC regulations protect against money laundering and the financing of terrorism (AML). The Luxembourg Banking Association (ABBL) acknowledges that KYC can entail “very long delays in compiling the file.” Sometimes it takes months.
If “the procedure for onboarding companies can sometimes be perceived as slow,” says a Raiffeisen representative, this is “mainly due to the constant increase in regulatory requirements in terms of KYC/AML. These requirements oblige banks to collect a growing volume of detailed information, which naturally lengthens the analysis and validation processes. However, it should be remembered that these controls are necessary to protect the integrity of the financial system and therefore to protect customers.”
The ABBL has identified “cumbersomeness and complexities” in the KYC/AML requirements specific to certain situations. This applies in particular to companies with an international shareholder base and a complex structure, for example with foundations or holding companies located in different jurisdictions. Public entities are also affected, as the identification of the beneficial owner--the person who controls an entity--is required in all cases. Here, it is state officials who must take on this role and submit to the checks required by the circulars (identity document, origin of assets, etc.). Another critical case: listed companies and their subsidiaries.
The client’s responsiveness and cooperation are crucial to speeding up the process.
As a Bil representative points out, “a detailed knowledge of the company’s structure, its shareholders and its beneficial owners” is therefore necessary to ensure compliance with AML/KYC regulations, but also with Fatca and CRS, two regulations designed to combat tax evasion.
If opening a bank account takes a long time or is unsuccessful, customers can blame the regulations... but according to the banks, sometimes it’s also the fault of the customer. They don’t always understand the bank’s legal obligations, explains the ABBL, which can lead to multiple exchanges between the bank and the customer due to incomplete documentation. “The client’s responsiveness and cooperation are crucial to speeding up the process,” adds a Post Finance spokesperson.
Another stumbling block--and not the smallest one--is the bank’s acceptance policy, linked in particular to its appetite for risk. When it analyses an application, Bil seeks to “understand the company’s business model and assess the potential risks to which we would be exposed in the event of collaboration (geographical risk, sectoral risk, financial risk, ESG risk, etc.) and ensure that this is compatible with our risk management policy.”
A bank's commercial policy and risk appetite for risk play a vital role.
“A bank’s commercial policy and its appetite for risk play a vital role when it comes to establishing a relationship with a new customer,” says a representative of Luxembourg’s financial regulator, the CSSF. “For example, a bank that only wants to open accounts for companies with a low risk profile will not open accounts for companies with a high risk profile. Banks that want to have customers with a higher risk profile must, in return, take all the necessary measures to reduce the risk.”
Key question: to what extent are banks stricter than the regulations? The CSSF reiterates the requirements in this area: the bank must “ensure that it receives all the information necessary” to assess the customer’s risk profile and comply with the legislation in force. “For example, a bank may need to request more information from a new customer in order to clearly identify the business model and the associated risks.”
On this basis, “in accordance with international rules--in particular those of Financial Action Task Force [FATF]--which also take account of inclusion and proportionality--the CSSF ensures that the anti-money laundering rules are designed to be effective, without introducing unnecessary bureaucratic obstacles.” The regulator continues: “Within this framework, regular exchanges take place with the industry, also to avoid the Luxembourg rules being stricter than what is required by the FATF and the EU.”
Banks are not necessarily looking to attract more deposits.
, CEO of the Luxembourg House of Financial Technology (LHoFT), sees no indication that opening a business bank account is more difficult in Luxembourg than elsewhere in Europe. “I see similar problems in Ireland and other countries, linked to European regulations and KYC requirements. Only the neo-banks seem to have overcome these constraints thanks to more efficient processes. Traditional banks, on the other hand, remain slow throughout Europe.”
And while, as Raiffeisen is keen to point out, “the refusal of an application is not solely linked to cost or risk considerations,” these factors are nevertheless important, says the CEO of LHoFT: “Banks in Europe are under pressure in terms of profitability. We saw this with ING in Luxembourg in retail banking. Integrating a complex client, such as an alternative fund manager, can take more than six months because of the complex structures and the analysis of beneficial owners. This costly process makes banks question whether integrating such clients is profitable.”
“It should also be remembered that banks do not make money from deposits,” Zubairi goes on. “During the period of negative interest rates, they were losing money on the deposits they are legally obliged to hold, while mortgage lending, at low interest rates, was flourishing. Now, with rates rising, lending is slowing down… and the banks can no longer make efficient use of their deposit base. Their model is based on lending, and if they can’t do that profitably, they’re not necessarily looking to attract more deposits.”
So many obstacles to opening a business account… or even to Luxembourg’s economic development? The OECD has not drawn up an international comparison on this precise point, and its data does not reveal, for example, any problems with business financing in the country. MP (CSV), who has been very active on the issue of opening accounts, comments: “It’s an important issue, but if there is one real brake on Luxembourg’s economic development, it’s housing!
This article in French.