GIBRALTAR: BANK DEPOSITS

Gibraltar Bank Deposits

The banking sector is well established in Gibraltar in both the offshore and local market with assets of more than GIP8bn. The advantages of offshore banking in Gibraltar include its favourable tax status, the lack of exchange controls, excellent communications, stable government, and EU membership.

NB: The EU's Savings Tax Directive, which came into force on 1st July, 2005, means that for all citizens of EU member states there is an exchange of information between the Gibraltar authorities and the individuals' home tax authorities in regard to payments of interest and other returns on savings. The Directive does not however apply to payments to corporate bodies.

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. A number of Gibraltar-based banks offer Internet banking services.

Banking in Gibraltar is regulated by the Financial Services Commission under The Banking Ordinance 1992. A substantial amount of subsequent legislation has kept Gibraltar up with current EU regulatory standards. 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 evaluates 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 was designed 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.

A deposit protection policy has been brought into effect by the Gibraltar Deposit Guarantee Board in line with EU directives in this area (see Law of Offshore), and in October 2008, as the global financial crisis escalated, the FSC sought to draw the attention of savers to the scheme.

The FSC argued that whilst the Rock is well placed to withstand most of the banking crisis striking Europe and the United States, savers should nevertheless be made aware of these deposit protection arrangements.

"With the present financial situation being so prominent in world news events, it is normal for depositors to show a level of concern about the security of their deposits," the FSC said in a statement at the time.

The Gibraltar Deposit Protection Scheme covers 90% of a bank's total liability to a depositor, subject to a maximum payment to any one individual of GBP18,000 (or EUR20,000, if greater). A bank's total liability to a depositor is the aggregate of all accounts in the name of that depositor, including the depositor's share in a joint account or a client account. Joint accounts are normally divided equally between account holders.

However, the FSC went on to point out that a number of deposit-takers operating in Gibraltar do so as branches of UK banks or building societies. In these cases, the deposits are covered by the UK Financial Services Compensation Scheme, which, as of October 7, 2008, guarantees deposits up to a limit of GBP50,000. These branches include Barclays Bank PLC, Leeds Building Society, Lloyds TSB Bank plc, Newcastle Building Society, and Norwich & Peterborough Building Society

Deposits with all other banks are covered by the Gibraltar scheme.

"The FSC would like to reassure the general public that it is closely monitoring developments in the financial markets and does not expect these arrangements to have to be brought into effect," the statement concluded.

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.

The identity of bank account holders in Gibraltar is confidential and is only disclosed by the bank if they are ordered to do so by the Courts when investigating serious criminal activity.

See Offshore 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.

Most Gibraltar banks offer special rates of interest to wealthier private depositors under the heading of private banking. Minimums have fallen substantially in many cases, although some firms still maintain more traditional entry levels before offering special treatment to their clients.

Some care is needed when approaching a 'private banker' or a bank offering customised relationship management (there are lots of expressions all amounting to the same thing). What matters is the structure of the bank. This is not to say that one kind of bank is necessarily more reliable than another, just to understand why the bank is offering personal attention, and what it hopes to gain from it.

Some banks are little more than front ends for investment funds. They may be safe enough, but are they objective? Perhaps it is best to look for a bank that is trying to make money out of private banking as an activity in itself, rather than just using it as a scoop for customers for its financial products. If you just want a bank that will give you a good rate of interest without deduction of withholding tax, then the choice is simpler.

Private banking doesn't just mean investment: banks like to lend money, and especially to richer people. This raises the question of how a private banker is going to get rewarded. Depositing money with a bank is reward enough, of course, whether into the bank or into one of its financial products, but private banking when it has an advisory nature and is not accompanied by lending or borrowing may be fee-based. Provided the sum involved is large enough to justify the fee costs, an advisory private banking relationship is probably a good way to go. The bank will get the benefit from time to time of being able to offer bridging finance, or of holding large amounts in transit etc. It can hope for more substantial involvement with you in future. But the immediate relationship is between financial adviser and client.

For a fuller treatment of offshore banking, see www.investorsoffshore.com.