Gibraltar: Offshore Business Sectors
Banking in Gibraltar is regulated by the Financial Services Commission under The Banking Ordinance 1992 (as amended). A substantial amount of subsequent legislation has kept Gibraltar up with current EU regulatory standards. See Offshore Legal and Tax Regimes and Law of Offshore for further details of the regulatory regime and of the offshore taxation regimes for banks.
Under EU 'common passport' legislation any branch of an authorised EU bank may establish itself in Gibraltar subject only to notification procedures. Likewise a Gibraltar-licensed bank may set up branches elsewhere in Europe. Most of the banks established in Gibraltar are branches of major UK, European or US banks. Gibraltar-registered banks have three branches elsewhere in Europe.
The minimum capital required for the issue of a banking license in Gibraltar is EUR5m, in line with EU requirements, and the supervisory regime follows EU and Basle Committee guidelines. In considering the issue of a banking license, the Commission applies a number of guidelines, many of which are set out in Law of Offshore.
The banking sector is well established in Gibraltar in both the offshore and local market. The advantages of offshore banking in Gibraltar include its favourable tax status, the lack of exchange controls, excellent communications, stable government, and EU membership. Much of the banking activity in Gibraltar is directed to asset management for high-net-worth individuals, not least because Gibraltar has tried hard to attract such people with special tax regimes. See Personal Taxation for details of these schemes.
Under the Deposit Guarantee Scheme Ordinance, 1997, a deposit protection policy was put into effect in 1999 by the Gibraltar Deposit Guarantee Board in line with EU directives in this area (see Law of Offshore).
A fee of GIP25,000 (at the time of writing) is payable by banks in Gibraltar on application for a deposit taking licence.
In January 2004, Chief Minister, Peter Caruana launched the Gibraltar Association of Compliance Officers. The Association, which agrees upon compliance standards and duties, offers training programmes, and provides a forum for compliance officers to share their expertise, was established to fill the gap left by the UK's Compliance Institute, which in 2003 announced that it would only be offering support to members based in the United Kingdom.
As the finance industry continues to implement tougher "Know Your Customer" requirements in the wake of global initiatives, the role of the compliance officer has become increasingly important.
Trevor Nicholls, chairman of the steering committee behind the Association explained at the time that: "Where in the old days compliance was in effect a "part-time" duty carried out by someone in middle management, most major financial service firms now have at least one - and sometimes more - qualified professionals doing the work full-time. Not everyone realises that 'due diligence' and KYC are only a small part of the compliance function. Part of the problem, even among compliance officers, is that everyone has a different concept of what compliance is and what their duties are."
In June, 2004, Gibraltar's Criminal Justice Ordinance (1995) was amended to adopt into local law a European directive designed to prevent money laundering in the financial system. The provisions of the amendment created an offence of failing to disclose information to the police where a person has knowledge that money laundering is taking place, and put in place a 'good faith' requirement if a disclosure is not to be treated as breach of confidentiality.
In March, 2006, a team of International Monetary Fund personel arrived in Gibraltar to conduct an investigation into the workings of the jurisdiction's financial system. The ten-strong IMF team focused their investigation on the banking and insurance sectors.
The object of the review was to measure Gibraltar's laws against 49 principles designed to protect financial centres against money laundering and terrorist financing. The last such IMF investigation in Gibraltar took place five years previous.
The conclusions of the IMF review were published in May 2007, and endorsed Gibraltar’s robust regulatory environment, according to the jurisdiction's government.
The IMF team conducted an extensive review of the Financial Services Commission’s regulatory and supervisory practices in the fields of Banking and Insurance, as well as a jurisdiction-wide review of the Anti-Money Laundering and Terrorist Financing Regime, which also included the FSC, as well a large number of enforcement agencies and Government Departments.
In all three areas Gibraltar was found to be meeting international standards, and was found to be ahead of many onshore - and much larger - finance centres.
However, the report made a number of recommendations for further improvements, which were accepted by the government and the FSC. The government said that most of these had already been identified and were being actioned.