BREXIT AND UK BANK ACCOUNT DIFFICULTIES
Brexit and UK bank account difficulties
The U.K. bank accounts of thousands of British nationals living in the European Union will be closed by the end of the year as the country nears its exit as a member nation.
If pan-European banking rules no longer apply to the U.K. once the Brexit transition period ends on December 31, it would become illegal for U.K. banks to provide services for British customers in the EU without applying for new banking licences. So far, no new arrangement has been agreed.
Lloyds Bank confirmed to The Sunday Times that it will be withdrawing services from Holland, Slovakia, Germany, Ireland, Italy and Portugal - in a move that will affect 13,000 British customers. The letters note the bank is no longer allowed to offer them services and they should seek alternative arrangements.
At the time of writing there has been no communication that will effect Cyprus residents. However there is a FAQ page on the Lloyds website which includes the question:- Why can’t a non-UK resident apply for a new savings account with you?
To which the answer given is ‘Whilst we value the relationships we have built, we have made a strategic decision to focus our attention and resources mainly in the UK and to reduce the number of countries in which we operate. Among the considerations for that strategic decision are the varied legal and regulatory requirements that apply in each overseas jurisdiction.’
“We have written to a small number of customers living in affected EU countries to let them know that due to the U.K.’s exit from the EU, regrettably we will no longer be able to provide them with some U.K.-based banking services,” Lloyds said in a statement.
Coutts is another UK bank which has begun notifying clients resident in the EU that they will no longer be able to serve them from January as UK institutions step up their no-deal planning. HSBC and Santander say they have no plans to close British expat accounts in the EU.
Without a continuation of crucial pan-European banking rules, known as passporting it becomes illegal for U.K. banks to serve British customers living in the EU without applying for new banking licences. UK fund and investment management groups have primarily responded to the challenge by opening EU-compliant distribution hubs in Luxembourg and Dublin.
Cyprus residents may recall that around 4 years ago that those with bank accounts at Barclays were written to with a letter than stated their accounts would be closed if they held less than a specified level in their account, a figure in the hundreds of thousands of pounds.
Many UK expatriates retain pension and dividend payments or rental income in GBP and wish to continue the use of their UK based bank account whilst living abroad. Some pension trustees even insist that pension payments are paid into a UK based account.
So for those residents who have been notified or expect to be notified of their account closure what alternatives are available?
The use of international bank account, what often used to be termed ‘offshore’ may be appropriate for some clients. Here we try and provide some useful guidance for those in need.
What is an international account?
An international savings account is, simply put, a savings account that is based outside of the UK. While it might call to mind images of oligarchs and shady characters who deposit money with overseas institutions in order to avoid tax, that's not often the case. In fact, they're more likely to be opened by expats and other people working abroad.
Many of UK-based banks and building societies have a non UK mainland arm, You are typically required to invest a minimum sum of £1,000 to £75,000 open an account, so these accounts are unlikely to be suitable for first-time savers.
What charges will I pay with an international account?
One downside to offshore savings accounts are the myriad fees and charges that you can face for the day-to-day running of the account. The most common charges you'll need to look out for include: Withdrawal fees, Transfer fees, Monthly accounts fees, Charges for not maintaining a minimum account balance, CHAPS fee (these can vary depending on which currency is used), International payments, Cheque clearance charges, Document translation charges, Agents payments on foreign transactions. Prices will vary between providers; some advertise free withdrawal fees as a major perk, while others will charge a percentage of the amount being withdrawn. You should check a provider's terms and conditions before opening a savings account to see if the charges suit how you want to use it.
How do I open an international account?
1. Find a bank: make sure it offers the kind of account that you want, and then apply either online or over the telephone - depending on what the bank offers.
2. Send your verification documents: much like opening a UK account, the bank will need to check your identity. You'll usually need things like a certified copy of your passport or driving licence, plus recent bills or bank statements. We can normally assist you with those aspects.
3. Get approved: the bank will usually contact you to say your account is open and ready to go.
4. Make your initial deposit: this will usually be done online, but you may also be able to send a cheque. As with UK accounts, minimum initial deposits vary, so you may have to pay anything from £1-£10,000 in order to activate your account.
5. Start using your account:
How are international accounts managed?
Managing an international account is usually done online, and most providers have telephone service lines
Where are most offshore accounts held?
The most common countries that hold international accounts for UK citizens are: Jerse,y Guernsey, Isle of Man and Gibraltar.
Are my savings protected?
Before you open any savings account, it’s vital to ensure you understand how your money would be protected, if at all, in the event of a provider’s collapse. Most of us will remember back to the 2013 Cyprus banking crisis.
Money held in UK offshore financial institutions is NOT covered by the UK’s Financial Services Compensation Scheme so your cash will not have the same standard of protection it would get if you saved with a bank or building society based in the UK. The location of the financial institution you choose may not be immediately obvious from its website – but it will affect whether your money is protected if it went bust. Several popular jurisdictions have their own financial compensation schemes so, as in the UK, a proportion of your savings is guaranteed should your account provider go bust.
Here are some examples from some of the most popular countries for international accounts:
Jersey Depositor Compensation Scheme (JDCS) covers up to £50,000 per person, per Jersey Banking Group.
Isle of Man: Depositors' Compensation Scheme (DCS) covers up to £50,000 of net deposits per individual depositor.
Guernsey: Guernsey Bank Deposit Protection Scheme (GBDCS) covers up to £50,000 per individual claimant per institution.
Gibraltar: Gibraltar Deposit Guarantee Scheme (GDGS) covers up to €100,000 of qualifying deposits.
It's worth remembering, however, that each country's depositor protection scheme is only as strong as the economy of that country. In the UK, the FSCS is backed by the UK government, which is highly unlikely to ever go bust. Smaller economies could be more vulnerable, however.
You should also investigate the standard of financial regulation in the country you’re considering: are there controls on who can set up a bank and how it is run?
It’s also worth checking whether there is a consumer complaints system in the country where your savings will be held. Should anything go wrong with your account, it’s important that you’re able to seek redress in a simple manner – and in a way that won’t cost you any extra money.
This article makes no recommendations for Cyprus residents to move to a specific account or banking institution, just offering some potential options.
Some options at the time of writing.
HSBC EXPAT PREMIER ACCOUNT
The HSBC Expat Premier Account is an award-winning bank account available in sterling, dollars or euros. Included with the account is a debit card, a Foreign Exchange app as well as a complimentary travel security service. The account is access via 24/7 phone access, mobile banking app, online or a dedicated Relationship Manager. Minimum Balance £50,000 deposit
Natwest International, International Select Account
A fee-free international current account to help make your money work in the UK and internationally.
LLOYDS PREMIER INTERNATIONAL ACCOUNT
Lloyd's Premier International Account is designed for high earning expats who need to manage multiple currencies while living outside of the UK. The accounts are held in offshore accounts in either Gibraltar or the Isle of Man. With the account there is also a dedicated relationship manager and worldwide travel insurance included. Account holders can also choose the currency of the account from either Sterling, Euro or US Dollars with a Visa debit card in the chosen currency. Minimum Requirements £100,000+ salary per year (or £100,000 to deposit into a Lloyds saving account)
STANDARD BANK OPTIMUM ACCOUNT
Opening an international bank account with Standard Bank is easy and within the reach of anyone wanting to expand their horizons. With a low entry point, the Standard Bank Optimum Account is your door to a world of international banking. Expats need look no further if they want the assurance provided by an established bank able to offer holistic banking solutions. Minimum balance £4,000.
Santander International Gold Bank Account
The Gold Bank Account is an everyday international bank account, available in Sterling, Euro or US Dollar currencies. It is accompanied by a Visa debit card available in all three currencies for easy worldwide access to your money. Minimum Balance £25,000 across Santander International products
There are one or two institutions that we have discounted. One bank has a scheme where it holds deposits and investments in one suite. The problem here is that, along with a high minimum balance, your IFA can see all banking transactions, whether its your EAC bill, your night out on Bar Street, or your variable taste in online purchases.
Please also note that those who are Cyprus resident but who are Crown Employees, e.g. British Armed Forces and UK Public Officials posted abroad, are defined as living in the UK.
Written by Lee Hinton, an Associate Member of the Chartered Institute of Securities and Investments, holds the Cyprus Ministry of Finance Advanced Examination certificate and holds the UK Diploma in Financial Planning. Contact Lee at Aisa Group on 26951600