In a post-Brexit UK tasked with plotting a recovery from the lingering economic impacts of Covid, attracting and attaining foreign direct investment (FDI) flows is crucial. Yet many foreign businesses setting up in the UK seem to be running into a problem early on – setting up a corporate bank account.
Mike Curran, a tax advisor and private client director at PwC, says: “[This problem has] been around forever, it is just more noticeable post-Covid. There is a lot of big interest in the UK again for business activity. [Investors] are coming from all over the world and many are finding that they are hitting this brick wall and that there is very little help when they do.”
With global competition rising when it comes to FDI flows, this issue has long been lamented by inward investors. So what causes the delays when setting up a corporate account in the UK and what can be done to streamline the process?
I’m sorry, do I know you?
An anonymous finance specialist and former inward investment manager at a major UK bank explains that foreign companies expanding into the UK, or foreigners setting up new companies in the UK, run into problems for several reasons.
For companies that are expanding in the UK, they often arrive in the country with their funding already arranged. This makes for a “not fantastically attractive client” to the banks, according to the finance specialist, because more often than not it means there is no lending required for the business.
Foreign businesses that are looking to borrow money aren’t necessarily more attractive. Even if these businesses did want to borrow money during their setting up period in the UK, it is unlikely banks would lend to them (at least initially) as “they will have no track record in the UK”.
Essentially, banks like to lend money to new British companies run by British people with a trackable financial history in the country. Without the need for a loan and/or the capability of receiving one, foreign companies in the midst of setting up in the UK aren’t a particularly attractive prospect for a banker.
This bleeds into the issue of foreign individuals setting up businesses in the UK. Andrew Oury, partner, accountant and tax advisor at Oury Clark – a financial and legal advisory firm – breaks it down. “If you are a single shareholder, single director or even two shareholders and you are all British with British addresses, and everything is in the UK, then fine, you can open a bank account; that is not so difficult,” he says. “The moment you have got foreign ownership, and perhaps no UK directors, then that becomes much more difficult.”
Essentially, being an unknown entity without a track record in the UK means that the bank has to get to know the client before it can help them, and this can be a long and gruelling process.
Regulations and little reward on foreign corporate bank accounts
The anonymous source believes that, when it comes to lending money to foreign investors, fear over not following bank protocol or concerns over regulations prohibit bankers from being more helpful. He adds that not doing appropriate due diligence into a foreign client or business could result in hefty penalties or indeed a lost licence.
The source explains that even when banks do the due diligence and set up the account, there is no guarantee of a return. “I used to think of [this work] as being a bit like a farmer planting seeds, and I would plant ten seeds in the field,” he says. “On average, one or two of them could grow to be very interesting things indeed; the other eight of them wouldn’t do an awful lot.”
The economic equation of these companies setting up is a fairly unappealing one for banks with the anonymous source saying the only win for banks would be to earn small amounts in foreign exchange.
For the bankers involved in setting up corporate accounts, foreign businesses present excessive paperwork, higher levels of risk and, as shown above, often little promise of reward. Yet, with the need to attract and retain sources of FDI particularly pressing, what are businesses’ perspective on this problem, and could it be a deterrent when it comes to considering the UK as an investment destination?
Breakdowns over banking
For foreign businesses operating in the UK, this is a well-known headache that is part and parcel of the setting up process. Amanda Brill, founder and managing attorney of Brill Immigration – a US immigration law firm based in London – says: “Opening up a corporate bank account in this country is one of the most stressful things I have ever been through.”
Despite many of the experts we spoke to explaining that it is strict regulation and a lack of history with British banks that cause heavy delays for businesses, Brill says her ordeal was actually her second business endeavour in the UK, having had a previous business that had been in operation for ten years.
“I remember when we first started that [first] business, it was also very difficult, but we had hired a company that helped us set up in the UK at that point,” she says. “[For the second business] this was me trying to do it on my own, being a British citizen now and having the history of operating a business for more than ten years.”
So, for businesses hoping to set up accounts, leaning on the support available from advisories can prove useful. When asked for the advice he gives to clients setting up, Curran says: “Have a business plan and make sure you have got your story straight. Try to have a vanilla approach of what you are and what you are doing. That will help get you through a lot of the bank’s checklists.”
Experts also agree that having a connection to the bank, either through a colleague or business relationship, can be useful in getting in touch with the right people. More generally, having a UK-based director or board member and a history of decent turnover can also help speed things up.
Oury has sympathy for the banker’s position, however. “[Businesses] just have to be patient and a bit respectful about the process that they have got to go through,” he says. “There is an enormous amount of fraud out there and it is a laborious process.”
Fintech and challenger banks to the rescue?
In business, time often equals money, so if investors are tangled up in a lengthy process to open bank accounts, is there a temporary solution to ensure operations continue at an acceptable pace? Oury is an advocate for fintech solutions.
“There are numerous fintech providers that are great, and you can get an e-money account set up pretty quickly and easily these days through them,” he says.
Brill highlights digital challenger bank Starling as having a good reputation among her friends and contemporaries.
Curran agrees that these options can be used for basic money access but with the caveat that it can’t work as a replacement for a bricks-and-mortar bank account. “[Fintech accounts are] not necessarily what clients need,” he says. “For an early stage business, fintech causes problems sometimes with auditors and everything else of that nature. It is not an easy solution for a growth business.”
Another issue surrounding foreign investors acquiring a traditional bank account is that such accounts are often needed for businesses to attain a sponsorship licence for worker visas. So although fintech solutions may help operations continue – at least in a limited form – during initial set-up, sooner or later the business will have to face the rigorous process of attaining a more conventional British corporate bank account.
For those struggling with the process of setting up a corporate bank account, Brill gives the following advice: “You have to be incredibly resilient and patient to keep going. Just know that you are not doing anything wrong – it is just this bad.”
With both sides – banks and businesses – pointing out the flaws in the process, is the government doing enough to cultivate change?
“I think the dialogue needs to increase,” says Curran. “We have started [that dialogue] with the UK’s Department for International Trade [DIT]. Its focus is winning work for the UK; [we are asking] ‘what is the use of winning a piece of work if the company can’t actually do the business in the UK, because we have just not got all the things covered?’ There are multitudes of other problems for clients coming into the UK, it is just that banking is a key one because it impacts so many of the areas in which clients operate.”
Curran, and all of the experts spoken to for this piece, highlight that this problem is not exclusive to the UK and there are similar stories from clients struggling to open bank accounts elsewhere. Yet under the new lens of a post-Brexit economy, the UK perhaps feels the weight of the problem more heavily at present than other locations. Oury says: “The DIT and numerous organisations, such as ourselves, are very passionate about solving this problem.”
As the UK continues to pursue what has so far been a faltering levelling up strategy, with attracting foreign investors a key part of this policy, resolving any hurdles when it comes to bringing in FDI should be a priority. While diligence is important, the country isn’t in a position to risk losing projects because these investors can’t afford to wait for access to a corporate bank account.