Conditions precedent for starting of business operations
The bank must start to perform its business operations no later than 60 days as of the day of its registration in the CRCC.
Above time window is indeed very narrow and time must be extremely carefully managed. In many ways, this phase is critical in the process; therefore, in course of bank license application certain activities and operations have to be scrutinized, planned, undertaken and analyzed.
Start of operations cannot be envisaged without proper function of the bank’s corporate governance. Apparently, in addition to legislation imposed by the Government of Montenegro and the CBoM, business operations and risk management must follow respective documentary aspects of bank’s bylaws. This process must be followed by the proper controlling functions of internal audit, compliance etc.
Office (headquarter). In the application for a bank license, founders must have submitted to the CBoM an evidence on either ownership or lease of the business premises in which head office of the future bank is going to be located. In some cases, only pre-agreement on purchase or lease are submitted; if so was the case, founders must either purchase or lease business premise that satisfy respective technical conditions for conducting of the banking business.
Security system. A duly licensed legal entity providing security services must be contractually engaged in order to physically and/or electronically protect bank’s assets and workforce.
Telecommunications & Internet. Bank must have at least two independent telecommunication & internet service providers (two separate physical telecommunications & internet connections). Such redundancy shall provide means for continuous operation of certain vital banking service: inland payment operation, internet banking, reporting to CBoM etc.
Workforce. Given the standard of regulations imposed by the CBoM and other administrative branches of the Government of Montenegro, minimal requirement for workforce can be assessed in the range of 25 employees. Such workforce must be timely engaged in terms of working contracts (i.e. pre-agreements), having been prepared in a way to properly and timely demonstrate responsibilities given by specific positions in the bank. Workforce must be employed in accordance to the Labor Law. This is very complex sub-phase of this phase, the one that gives human touch to an administrative process that have been undertaken in course of the previous months.
Hardware. Computing equipment can be either purchase or lease. Given the short period of time designated for the bank's start-up, it seems that leasing of necessary equipment may prevent consequences of poor planning that very often may result from the fact that number of parallel processes must have been followed up within the shortest possible timeframes. Servers, workstations, equipment for computer networking and telecommunication… is extremely expensive; in addition to that, it must be timely ordered since local resellers do not store complete assortments in their inventories.
Software. System software can be easily provided by local resellers, and it can be done within days. Aggregate prices of operating systems licenses may vary from few hundred EUR to EUR 50k per annum. When it comes to banking core application, passing of proper decision with respect to (long term) service provider (partner) must be carefully scrutinized. In local market, prices of such software solutions vary from EUR 250k to EUR 1M (again, hidden costs and maintenance fees must be inspected with utmost care). Mistakes made during this process can be very expensive and sometimes impossible to mitigate.
SWIFT interface (international payment gateway). There are number of high-quality service provider that can be engaged in order to obtain SWIFT code (BIC code) for the bank. Without such code, bank cannot open the inland payment account with the CBoM (consequently, without such account, bank cannot start to work within the 60 days period, following the date of license). This critical phase of the project must be timely planned, and respective partner should be timely informed on services it is expected to be provided.
Inland payment account. Once SWIFT/BIC code is obtained, the CBoM will immediately open the inland payment account and the compulsory reserve account. Once accounts are opened, the CBoM shall impose testing period during which all inland payment operations will be simulated (SWIFT messages exchanged), and respective response tested. Upon fulfillment of all legal and technical requirements, bank will be permanently connected with RTGS/DNS servers of the CBoM.
First accounting. Once inland payment account has been opened by the CBoM, the bank can transfer founder’s capital from the escrow account to the bank's account. This is condition precedent for the start of business operations and very important moment in the life of the bank. It may be said that after this moment risk that bank's license may be voided by the CBoM (due to failed compliance with 60 day term for starting of business operations) converge to zero.
International payment account. This process extremely depends of the quality of international business connections of the bank’s founders. Due to compliance and AML expenses, big international banks are not enthusiastic when it comes to opening of international payment accounts to small local banks, especially to start-ups.
Once bank started to perform inland payment operations, it can accept deposits, extend loans etc.
The CBoM shall verify that bank become capable to perform basic operations; in opposite case, CBoM is entitled to void bank’s license on the ground that bank failed to start to provide its services within the designated term.
In broader sense, it should be understood that aforementioned activities between the bank and its first clients must be followed by the important activities performed within the bank, notably:
- Reporting to bank's management (financial, internal audit, compliance).
- Reporting to the Anti Money Laundering & Financing of Terrorism Administration.
- Reporting to the CBoM.
- Reporting to the Protection of Funds Administration.
- Reporting to the Tax Administration etc.
Next phase: Expenses breakdown