Gibraltar: Executive Summary - IMF Report on Gibraltar
Last Updated: 20 March 2002

Executive Summary

  1. The development of the financial sector in Gibraltar has been facilitated by its location, a favorable tax regime, a stable government, status within the European Union (EU), no exchange controls, a legal framework based on the British system, and the availability of a well-qualified labor force, particularly well endowed with accounting and legal skills.
  2. This assessment covers both offshore and onshore financial activities, as there is no difference in the regulation and supervision of onshore and offshore financial institutions. Regulation and supervision have been based on relevant EU legislation and reflect U.K. practices in these areas.
  3. The Gibraltar financial sector is not large by international standards. For example, assets of banks that conduct only offshore business amount to £1.9 billion compared with Cyprus’ £l2 billion and Cayman’s more than £450 billion. However, its contribution to employment and to the foreign exchange earnings of the economy is important. It is estimated that the financial sector, both onshore and offshore, accounts for roughly 30 percent of GDP or about the same as tourism.
  4. The financial services provided are broad and include banking, insurance services, and some relatively small-scale fund management and advisory business. Current policy is that all such activities should be carried out in physical premises in Gibraltar, with accounting records and management available for inspection in the territory.
  5. Banking is the most important offshore activity but with assets of US$5 billion, it is small relative to that carried on in some other jurisdictions and does not create significant risk for the international financial system.
  6. There are also a number of insurance companies whose total assets are about US$325 million, and a modest investment and securities industry. In addition, there are approximately 28,500 active companies registered of which 8,800 are exempt companies. The provision of professional trusteeship and company management services is deemed to be "controlled activities" and there are 83 groups that are licensed to conduct that business.
  7. The mission undertook a Module 2 assessment in accordance with the procedures agreed upon by the IMF’s Executive Board in July 2000. This comprised a Basel Core Principles assessment of the supervision of the banking sector, an assessment of the insurance sector based on the International Association of Insurance Supervisors’ (IAIS’s) principles of insurance supervision, an assessment of the investment and securities business, based on the International Organization of Securities Commissions’ (IOSCO’s) principles, and an assessment of the provision of company and trust activities services.
  8. With respect to the assessment of company and trust activities there are no agreed international standards. The OECD’s Principles of Corporate Governance focus on the management of public companies. These principles are not applicable to trusts and are not directly applicable to privately held trading or holding companies which are typical in offshore jurisdictions. The assessment therefore is based on certain developing ‘good practices’ which have applied in the Edwards Report on Crown Dependencies and the KPMG Review of Financial Regulation in Caribbean Overseas Territories and Bermuda.
  9. The results of our assessments indicated that supervision is generally effective and thorough and that Gibraltar ranks as a well-developed supervisor. It meets most of the international standards and ‘good practices’ and is making considerable progress with respect to those principles with which it is not yet fully compliant or observant.
  10. There is a high level of compliance with the Basel Core Principles for Effective Banking Supervision. Gibraltar is compliant with 18 of the principles and largely compliant with the other seven.
  11. Insurance is also supervised to a good standard. Gibraltar is observant of 13 of the Core Principles promulgated by the IAIS, largely observant of three others and materially non-observant of one. The latter relates to onsite visits and Gibraltar is aware of this weakness.
  12. With regard to the regulation and supervision of investment and securities activities, Gibraltar was assessed with respect to the 30 IOSCO principles and is fully compliant with 19, largely compliant with three and eight are not applicable.
  13. In the area of company and trust regulation and the supervision of company and trust service providers, where there are no international standards, as yet, Gibraltar is in the forefront of the development of good practices. It is worth noting that Gibraltar was one of the first jurisdictions to have introduced regulation and supervision of the company and trust services business
  14. In 1989, the Government of Gibraltar introduced the Financial Services Commission Ordinance which was enacted in Gibraltar’s Parliament. Whilst overall policy in respect of financial services remain within the remit of the government, the Ordinance established a Commission that is fully independent of the Government of Gibraltar in regulatory and supervisory matters. The Ordinance provides for appointment of the Commissioner also Chairman of the Financial Services Commission—and the seven other members to be made by the Governor (acting with the agreement of the U.K. Foreign Secretary). The Ordinance also requires the Financial Services Commission (FSC) to provide advice to the Government of Gibraltar on the regulatory aspects of financial services matters and, in practice, this has meant that the FSC and the Government have established a close working relationship. The promotion of Gibraltar as a financial centre is the responsibility of the Gibraltar Finance Centre Division within the Ministry of Trade, Industry and Telecommunications.
  15. The FSC is the sole regulatory and supervisory authority for financial services providers operating in or from within Gibraltar. Under its founding ordinance, the FSC is required to match U.K. supervisory standards where European Union law applies and as Gibraltar is part of the European Union through the United Kingdom’s membership, it has put in place relevant EU directives that apply to the financial sector.
  16. The FSC carries out its duties diligently and has an intimate knowledge of the institutions under its supervision. Its policy is to be approachable and accessible to its licenses and this is characteristic of small jurisdictions where people are well known to each other. There is general acknowledgement in the industry of the FSC’s professional approach.
  17. There is some scarcity of resources, and this has meant that the amount of onsite supervision has been somewhat less than desirable. The FSC is aware of these limitations and is making efforts to resolve them. The issue of additional resources is one that is faced by many jurisdictions. This is a result of the demand internationally for more and better supervision.
  18. The FSC’s activities are supported by a well-developed Information Technology (IT) system that provides a wide range of timely management information. This facilitates peer group analysis, trends and exception reports.
  19. Current anti-money laundering measures as they relate to the Basel Core Principles, the IOSCO Principles and the IAIS Principles appear to be effective, although as in other jurisdictions, there is always scope for improving know your customer requirements. The FSC complies with accepted international standards of cooperation with foreign supervisory agencies with regards to the exchange of information and allows foreign home supervisors to conduct onsite reviews in Gibraltar.

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