Payment management

Non-resident and Italian bank accounts… why don’t they open them anymore?

What’s going on? How come foreign non-residents haven’t been opening bank accounts in Italy lately? International entrepreneurs that make use of international payment systems, those who own a business based on drop shipping or self-publishing, and those who sell information products and/or consultancy and services, have all necessarily observed how much more difficult it has become to carry on business of late. Also, they will probably have perceived that this is essentially due to the snags and obstacles connected to sending, receiving and transferring funds, and opening Italy-based bank accounts.

We see it from “the inside”, meaning from our Italy-based offices. In fact, we’re quite submerged by requests for assistance and pleas for support. Lately they seem to pour in incessantly! What our foreign clients are reporting? Well, mainly, enquiries relate to their protests, and grievances. They contact us with complaints concerning blocked Transferwise accounts, cut off Revolut accounts and other analogous situations. Also, they seek advice as regards the troublesome and laborious operations they find themselves having to handle when attempting to open a bank account. 

Having a dedicated payment manager is essential. If you’re in any way involved in business transactions you must have realized how much more complicated it has become to open an Italian bank account for non-resident individuals, and, to the greatest extent, for non-resident companies.  In a nutshell: if you don’t live in a closet you must have noticed significant radical changes to how things used to work before 2014. 

What is the CRS – Common Reporting Standard?

Actually, we can set the decisive date at July 15 2014, when the OECD council formally approved the Common Reporting Standard (CRS), developed upon request of the G20. What does this ruling establish? Basically, all the CRS does is commands that all member jurisdictions collect information from their trust companies, banks and lending institutions, and exchange this information with the other member jurisdictions on an annual basis. The resolution also numbers and itemizes the financial account information subject to be reciprocated, which financial establishments are prescribed to report, and the kinds of accounts and taxpayers to be comprised in the reports.

Although, as detailed above, the CRS limits itself to establishing an automatic and regular exchange of information between countries. However, it has indirectly made it very complicated to open current accounts for non-resident individuals and companies. Even those with perfectly legal and legitimate businesses are denied a checking account.

Why is this? The basic issue is that in order to curb tax fraud, countries have placed a heavy burden on financial institutions, by asking them, in essence, to be in charge of identifying tax evaders. So, from 2014 onwards, banks have been required to ascertain and verify whence their clients’ funds originate from, and considered responsible and liable. Namely, a bank which makes the mistake of allowing a tax evader to open a bank account ends up having to pay remarkably high fines. 

Hence, daily challenged by these new chores and incumbencies, banks are now struggling to keep up with the new regulations. On top of all the rest. Banks have had to deal with noticeable “revolutions” in just a few years. First they had to adapt to the Basel regulations issued after, and as a result of, the Lehman Brothers crisis. Then, they have had to comply with the anti-money laundering policies, i.e. those rules, laws and procedures established to avoid deceitful masking of criminally gained funds. Naturally anti-money laundering regulations only refer to a circumscribed lot of transactions, as they have been developed to hinder criminal behavior. However their implications are far-reaching, and as such create momentous logistical issues which need to be handled by single banks. Then again, banks have had to face administrative innovations brought in by the anti-evasion regulations as established by the CRS. 

Difficulties arise because banks are corporations, and only some of them are large enough to implement all these directives. Most Italian banks are small to medium in size. And, the rising tendency to banking mergers that has been taking place in recent years is, among other issues, due to the fact that banks are unable to keep up with all these regulations. 

In conclusion, bank-related legislation has generated a perverse effect: if a prospective account-holder’s situation is slightly different from the standard one the bank will refuse him/her an account in fear of facing fines.