An introduction to the banking industry in Gibraltar

BANKING IN GIBRALTAR

ABOUT GIBRALTAR

Gibraltar is a self-governing territory with its own elected government.

It enacts laws independently of the United Kingdom and maintains an independent tax status.

Gibraltar is a member of the European Union and has been ever since the accession of the United Kingdom on 1 January 1973, by virtue of Article 229(4) of the Treaty establishing the European Economic Community (as amended) (the "Treaty"), which states that the provisions of the Treaty "apply to the European territories for whose external relations a member state is responsible".

Gibraltar is treated as member of the European Union by virtue of the United Kingdom's membership and is required to operate internationally recognised and EU standard anti-money laundering and Organisation for Economic Co-operation and Development ("OECD") conventions.

Gibraltar can take advantage of the single European passport for banking, insurance and investment services that allows Gibraltar licensed banks, insurance companies and investment services providers to operate in other EU Member States enabling them to sell their financial products throughout the EU and the European Economic Area.

THE FINANCIAL SERVICES COMMISSION

The Financial Services Commission (the "Regulator") (www.fsc.gi), a statutory body corporate, originally established in 1989, is the regulatory authority responsible for all Gibraltar-regulated financial services, including banking.

The Regulator's commitment to providing financial services regulation in an effective and efficient manner ensures Gibraltar maintains its position as a reputable and robust finance centre. Gibraltar's reputation was most recently endorsed in the International Monetary Fund ("IMF") evaluation on Gibraltar's supervision of Banking, Insurance and Anti- Money Laundering measures, which referred to Gibraltar's robust regulatory environment.

The Regulator is obliged to implement standards of legislation and regulatory practice, which match UK practice, including the establishment of a Depositor Guarantee Scheme, broadly similar to those available to depositors under the United Kingdom's deposit protection arrangements.

GIBRALTAR'S BANKING LEGISLATION

The Financial Services (Banking) Act 1992 (the "Act"), as amended, and supporting regulations, in accordance with relevant EU directives, provides the legal framework for the supervision of deposit takers who provide banking services in or from within Gibraltar either as a Gibraltar incorporated legal entity or a branch of a deposit taker authorised in either EEA State or a third country.

CRITERIA FOR GRANTING OF BANKING LICENCES

In considering the issue of a banking license, the Act imposes a number of guidelines, including the following:

• the applicant must enjoy a "high reputation and standing in a financial community";
• every person who is a director, controller or manager of the applicant is required to be a fit and proper person to hold that position;
• the applicant must provide certain minimum levels of service to the public or money markets;
• a minimum capital requirement of €5,000,000, in line with EU requirements, and the supervisory regime follows EU and Basle Committee guidelines, in required. This requirement must also be met on a continual basis throughout the applicant's authorisation. The applicant may be required to hold higher amounts of capital than the stipulated minimum; and

• the applicant must maintain an adequate solvency ratio.

 

PRACTICAL PROCEDURE FOR LICENSING

Initially, applicants should arrange a meeting, together their legal advisers, with the Head of Banking and Investment Services Supervision, after which a written application in the required form should be submitted.

The application form should be accompanied by the following documentation:

• Individual or Body Corporate Questionnaire (as the case may be) for every director, manager, officer or controller;
• Shareholder Organogram;
• Business Plan;
• Financial Forecasts;
• Statutory Returns (Forecast);
• Management and Outsourcing Agreements;
• Customer Agreements, policy wordings, mandates, etc;
• Documentation defining the Applicant's Constitution;
• Confirmation of share allotment and payment of shares;
• Details of Professional Indemnity Cover;
• Details of Source of Funds;
• Authorisation Profile;

• Additional supporting documentation or information requested by the Regulator.

 

All documents in a foreign language must be accompanied by an English translation.

"FOUR-EYES PRINCIPLE"

An applicant will need to satisfy the "Four-Eyes Principle". The overriding requirement is for the four eyes (two individuals) criterion to be met on a continual basis over the entire operations of the applicant. These provisions are designed to ensure that at least two minds are applied both to the formulation and implementation of the policy of the applicant. Both must demonstrate the qualities and application necessary to influence strategy, day-to-day policies and their implementation, and both must actually do so in practice. Both persons' judgements must be engaged in order that major errors leading to difficulties for the business as a whole are less likely to occur. Further, they must have sufficient experience and knowledge of the business and the necessary authority to detect and deal with any imprudence, dishonesty or other irregularities that may occur.

FITNESS AND PROPRIETY

The basic elements that are relevant to an assessment as to the fitness and propriety of an applicant are honesty, integrity and reputation, competence, ability to control business and organisation and financial position. These categories are not exhaustive and significant checks are undertaken on proposed directors, controllers and managers, in order to ensure that those concerned undertake the business in a sound and prudent manner and that due account is taken of proper corporate governance practice.

IMPORTANCE OF BUSINESS PLAN

The business plan is probably the most important document that is used on a day-to-day basis because it distils all the policy-making, systems, processes, procedures and efforts of the applicant into easily-readable financial projections in a simple profit and loss account, appropriations and balance sheet with solvency margin calculations. The applicant will be required to submit evidence that it has considered the risk, compliance and operational issues associated with the proposed activity, as well as evidence that it has documented these, together with the procedures, processes, policies, systems and controls to be put in place.

The business plan should clearly and comprehensively set out the following:

• the proposed activity and how it is to be conducted;
• the resources that are to be made available and the systems that the applicant intends to employ;
• an outline of how clients are to be attracted;
• what arrangements are to be put in place to safeguard customer monies and/or other assets;
• the manner in which records will be maintained;
• how and by whom any decisions will be made;
• the level and nature of fees to be charged to clients;

• if the applicant forms part of a larger group the plan should also provide details of the activities of the group and a description of the group structure.

 

FEES AND TIMEFRAME

The applicant is required to submit an application fee of £10,000 with the application. The Regulator endeavours to process applications for authorisations within timeframes that are well below the statutory period of six months; however, there is no binding commitment to process the application before this statutory period expires. It should be noted, however, that this timeframe could only be met when the application is complete and it is therefore up to the applicant to ensure that a full submission of an application and accompanying documents has been made.

TAXATION

The taxation of companies in Gibraltar has changed significantly in recent years. The tax exempt regime whereby companies were exempt from all tax payable in Gibraltar on payment of a nominal fee no longer applies. A new corporate tax regime has been introduced so that any new business established in Gibraltar after 1st July 2009 will pay tax on its profits at the rate of 10%. This will also apply to all companies as from 1 January 2011 with the exception of energy and utility providers to whom the rate of 20% will apply.

CONCLUSION

Gibraltar's unique status within the EU and its offshore capabilities make it an enticing location. Due to its status within the EU, Gibraltar is politically distinguished from Jersey, Guernsey, or the Isle of Man. Gibraltar's inclusion on the so-called ‘White List' of jurisdictions that have substantially implemented the internationally agreed tax standards set by the Organisation for Economic Co-operation and Development (OECD), reinforces its reputation as an international business centre of quality. In addition, Gibraltar has a strong track record of complying with international standards of financial regulation, as assessed by the International Monetary Fund and other organisations.

There are also advantages for high net worth individuals residing in Gibraltar as personal tax for such individual is capped and in addition no tax is payable on trusts settled for non resident beneficiaries. Gibraltar has no investment tax nor does it have any form of gift, wealth or inheritance taxes.

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