In this post, I’ll review the timeline to acquire and build out a bank in Puerto Rico. The purpose of this post is to cover the steps to turn a small international bank into a profitable larger bank in a specific niche. 

The use case that inspired this post was to build a crypto friendly bank. The model banks are: FV Bank (Puerto Rico), XAPO Bank (Gibraltar), and Arival Bank (Puerto Rico). The build out for a trade finance or wealth management bank would be very similar. 

At the end of this post, I will list the bullet points for this project. That might help clarify the matter further. Note that this article is about purchasing an existing bank in Puerto Rico. Starting a bank from scratch basically adds 24 months to this timeline. 

Therefore, the goal of this project is to acquire an international bank within the United States territory of Puerto Rico  and turn it into a pivotal financial institution catering to the crypto industry. This process follows an intricate and well-delineated timeline.

Acquisition and Regulator Approval:

This stage comprises the initial acquisition of the bank and securing approval from the regulator via the change of control process. The timeline is structured as follows:

Week 1: Negotiate with the seller and sign a Letter of Intent (LOI). This will provide a 30 to 45-day window to conduct an audit and prepare for the submission of the change of control request.

First 30 days after signing LOI: Tasks include writing the business plan, auditing the target bank for risks, preparing documentation for personal background checks, and providing three years of audited financial statements from the buyer and buying entity.

Days 30 to 45 after signing LOI: Submission of the change of control package to the seller for review, negotiation of any components of the package, and filing the change of control application with OCIF are to be completed.

The OCIF is set to review the application within 30 days of filing, followed by 30 to 60 days of question and answer sessions. Approval will hinge on verification of the source of funds and the financial ability to support the bank in an economic downturn. 

Post-Acquisition and Buildout:

The following assumes the bank purchased has a basic core system and a low level correspondent partner. 

Upon approval of the change of control, the provision of traditional banking services, such as deposit taking and transfers, can begin. Further steps are categorized into three main stages.

Step 1: This involves hiring qualified staff in the crypto and digital asset business, drafting policies for crypto and custody of digital assets, building an advanced core system, and implementing a compliance system. Other procedures include obtaining Visa principal membership, changing SWIFT to match the new name, and filing paperwork reporting the change of control.

Step 2 (6 months after takeover): This stage involves applying for a digital asset custody permit, improving correspondent banking partner, hiring marketing staff, and preparing for the launch of new business units. It ends with a soft opening of the crypto and digital asset business units and subsequent full opening.

Step 3 (12 months after Step 2): This includes banking and BSA audits of operating history, preparing and filing the Fedwire application, and receiving Fedwire.

In summary, the process of acquiring and transforming a small international bank to support the crypto industry is elaborate, detailed, and strategically planned. It requires expert planning and execution but offers an innovative way to integrate traditional banking services with the burgeoning field of digital assets.

Comments on Timeline: 

The above assumes the following: 

• The target bank is operational with a small core system and a correspondent banking partner. 
• The target bank has never had regulatory or compliance problems.
• The target bank has at least 12 months of clean BSA and other audits. 
• The target bank has never had Fedwire and had it revoked. 

If you were to purchase a bank with no operating history, this would extend the time to begin Step 2 by 12 months and Step 3 (Fedwire) by 24 months. If you purchase a bank with regulatory issues, audit problems, or one that has previously lost Fedwire, this will extend Step 3 by 24 to 36 months. 

Bullet List Version: 

Per our various conversations, the objective is to acquire an international bank in the US territory and transform it into a financial entity that supports the crypto industry.

Acquisition: 

The first stage is acquiring the bank and gaining regulator approval (the change of control process). Here is the timeline for this stage of the project. 

One week: negotiate with the seller and sign a Letter of Intent. Upon signing, the seller will give us 30 to 45 days to audit and prepare to submit the change of control request. This is our lockup period.

First 30 days after signing LOI: 

• Write business plan and build financial model (Christian)
• Audit target bank for risks (Auditor)
• Prepare documents and file for personal background checks from JS Held (Christian)
• Provide 3 years of personal audited financial statements from buyer (Your CPA)
• Provide 3 years of audited financial statements from the buying entity and provide information on your Cayman structure (Your CPA)
• Build website 

Days 30 to 45 after signing LOI: 

• Submit the change of control package to the seller for review. 
• Negotiate any components of the change of control package with the seller. 
• Sign the Membership Units Purchase Agreement with the seller.
• Seller files the change of control application with OCIF.

Change of Control Process: 

• OCIF will review the application within 30 days of filing.
• Then 30 to 60 days of questions. The key to a successful application is returning any requested information quickly. 
• Approval will depend on proving 1) the source of funds, 2) financial ability to support the bank in an economic downturn and to provide capital as necessary. 
• Only cash and cash equivalents are counted in this process. For example, real estate is not considered on your balance sheet. 
• The objective is to complete the change of process by Nov 15 to Dec 15. This means beginning immediately and writing the business plan within 30 days. This is putting a major rush on the case. If we exceed Dec 15, we won’t receive the approval until 2024. 
  • EDITOR’S NOTE: This article was written in July of 2023.

Payments: 

• Transfer of $500,000 into escrow upon signing the LOI.
• Transfer of an additional escrow amount after completing due diligence and prior to signing the MUPA.
• Transfer the remaining balance into escrow upon approval from OCIF.

After the Regulatory Approval: 

After the change of control is approved, you may begin providing traditional banking services immediately. This typically means deposit taking and transfers. We can discuss other services you wish to provide. 

The following are the tasks to complete after the change of control to achieve your objectives. 

Sep 1 After the Change of Control (projects can be run concurrently): 

• Hire qualified staff in crypto and digital asset business with a focus on compliance.
• Draft policies and procedures for crypto and custody of digital assets (90 days)
• Build out an advanced core system that will support digital asset custody (4 to 6 months)
• Build out a compliance system for crypto and digital asset custody (KYC, KYCC, AML, BSA, et al – 3 months)
• Debit and credit cards
• Visa principal membership (Examples: FV Bank or Zenus Bank – 3 months)
• Change SWIFT to match new name (60 days)
• File paperwork with correspondent banks and ABA number reporting the change of control (30 days). 

Step 2 After the Change of Control (6 months after takeover): 

• Apply for digital asset custody permit (30 days)
• Apply for improved correspondent banking partner (60 days)
• Hire staff for marketing and onboarding to prepare for launch of new business units.
• Soft opening of crypto and digital asset business units. Testing of 10 accounts, 50 accounts and 100 accounts (90 days)
• Full opening. 

Step 3 Begins 12 Months After Step 2 is Completed

• Banking and BSA audits of operating history (3 months)
• Prepare and file Fedwire application (30 days)
• Receive Fedwire (5 to 8 months)