Gibraltar: Business Environment
Banking and Financial Services
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 dropped to 14 by mid-2013.
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 was 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.
Since December 31, 2010, Gibraltar's Deposit Guarantee Scheme specifies that any claimant with a qualifying deposit will be entitled to the lesser amount of 100% of the total of all qualifying deposits with the failed bank (including all branches); or EUR100,000 (or the sterling equivalent).
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, from 2011, guarantees deposits up to a limit of GBP85,000 (GBP50,000 prior). 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.
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 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.
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.
Another section of the amended legislation aimed to widen the scope of 'economic activities' deemed to be 'relevant financial businesses' for the purposes of money laundering offences, although the provisions would 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 2005.
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 then 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 rose to 20% for the next three years, and 35% thereafter.
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.