The
banking sector is well established in Gibraltar
in both the offshore and local market. See
Offshore Business Sectors
for details of the offshore banking industry.
There
were 26 banks in Gibraltar in 1996, but this
number had dropped to 18 by 2007.
At
December 2006, the combined balance sheet
total for all banks amounted to £8,361,666
Most
of the banks established in Gibraltar are
branches of major UK, European or US banks.
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.
Financial
services in Gibraltar are regulated by the
Financial Services Commission. The Commission
introduced important changes to the way it
supervises locally incorporated banks and
non-EEA branches in 2002. Within this time
the FSC had been rolling out a risk based
approach to supervision, where the supervisory
team evaluate an institution in terms of the
risks posed to an institution in the way it
does business or the type of business it is
in. This new approach to supervision aimed
to focus supervisory resources on the areas
deemed to be high risk for an institution
in order to ensure that the right controls
and procedures are in place to mitigate the
risks or where corrective action is required
by an institution.
As
regards financial services regulations, Gibraltar
aims to match UK standards. An example of
this is the local money laundering legislation
which implemented the EU Directive and was
extended as in the UK to encompass all crimes.
Accordingly, all banking supervision regulations
are the same as those in the UK and procedures
for opening an account are much the same.
There
is no stock exchange in Gibraltar and it has
not been as widely used for corporate financial
holding purposes as some other jurisdictions,
so that corporate financial services are not
as well developed as private services.
A
deposit protection policy is being brought
into effect by the Gibraltar Deposit Guarantee
Board in line with EU directives in this area
(see Law of Offshore).
As
with banking, insurance business is well developed
in the private sector, with thirteen companies
supplying the local market.
In
January 2004, Chief Minister, Peter Caruana
launched the Gibraltar Association of Compliance
Officers, which was immediately joined by
around 35 financial services companies.
The
Association, which will agree upon compliance
standards and duties, offer training programmes,
and provide a forum for compliance officers
to share their expertise, has been 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: "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 create 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.
Another section of the amended legislation
will widen the scope of ‘economic activities’
deemed to be ‘relevant financial businesses’
for the purposes of money laundering offences,
although the provisions will be relaxed where
a financial institution is already subject
to the Money Laundering Directive or incorporated
in a jurisdiction where equivalent measures
are already in place. Further exemption to
certain identification requirements is also
given to payments received from an account
in a client’s name or from a credit institution
bound by the provisions of the directive.
It
emerged in December, 2005, that an agreement
had been reached between the governments of
Gibraltar and the United Kingdom over the
Rock's obligations under the EU Savings Tax
Directive, which came into force in July.
Like
other European 'offshore' jurisdictions, Gibraltar
has had to come to terms with the EU's Savings
Tax Directive, and opted for a withholding
tax on bank interest payments to nationals
of EU Member States. In this way, Gibraltar
preserved banking confidentiality.
The
jurisdiction had come under fire from the
Channel Islands, as its legal status in relation
to the UK and European Union meant that the
Directive did not apply to it in quite the
same way.
However,
under the deal announced by the UK's Paymaster
General, Dawn Primarolo and Gibraltar's Chief
Minister, Peter Caruana, Gibraltar and the
UK exchange information about the returns
on savings under the Directive, or, in Gibraltar's
case only, if the savers so choose, will impose
a withholding tax on returns on savings of
UK residents with accounts there.
The
rate was set at 15% from April 1 2006 to June
30 2008, following which it rises to 20% for
the next three years, and 35% thereafter.
In
a statement released in the summer of 2005,
responding to criticism from the Channel Islands
over Gibraltar's implementation of the Directive,
the Gibraltar authorities announced that:
"The
Government of Gibraltar notes statements in
the Channel Islands which refer to a 'last
minute problem' and 'an initial difference
of views between the UK and Gibraltar' in
the implementation of the Taxation of Savings
Directives between the UK and Gibraltar and
demanding a 'quick resolution to the problem'.
There have even been calls for UK to 'force'
Gibraltar to comply with the Directive."
"These
remarks are based on lack of familiarity with
the facts. Gibraltar already is within the
ambit of and complies with the Savings Directive.
There has been no 'last minute problem', nor
any difference of views. Nor, as has been
said has 'Gibraltar signed up to the Directive'.
The Directive applies, and has always applied
to Gibraltar as of right and obligation because
Gibraltar is an integral part of the EU. However,
as was stated jointly by the Gibraltar Government
and the UK Government in a joint press statement
issued by them on 1st July 2005, the Directive
does not apply as between the UK and Gibraltar
because we are not separate member states
in relation to each other."
"Nevertheless,
as announced jointly on 1 July 2005 the two
governments are in discussion to agree appropriate
arrangements for exchange of information between
them outside of the legal framework of the
Directive, which does not apply between them.
The two Governments have jointly announced
that they are working together with a view
to agreeing such arrangements during the next
few months. Expectations by ill informed third
parties that this should happen by the end
of this month are as inappropriate as they
are unrealistic."
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.
TheIMF
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.
