BANKING SYSTEM OF GIBRALTAR

Gibraltar is a constituent part of the European Union, having joined with the United Kingdom in 1973, under the provisions of the Treaty of Rome relating to European dependent territories. However, it is excluded from the Common External Tariff, the Common Agricultural Policy and the requirement to levy Value Added Tax. Subject to notifying the Commissioner, who must be satisfied that they meet certain criteria in accordance with the relevant EU Directive, Gibraltar licensed or authorized financial institutions can provide services throughout the EU and EEA without having to seek separate licenses or authorization in the 'host' Member State. This is known as the "passporting" of financial services.

Banking operations in Gibraltar are governed by the Banking Ordinance 1992, which was produced in line with European Union directives. Its administration is executed by the Commissioner of Banking, who is also the Commissioner of the Financial Services Commission. The Bank of England monitors the day-to-day banking in Gibraltar through a Banking supervisor.

Gibraltar is taking full advantage of the Single European Passport for Banks and new legislation which makes way for EU Banks to set up branches in Gibraltar and also for Gibraltarian Banks to set up branches in Europe. Small by international standards, the Gibraltar banking sector comprises seventeen banks and building societies. Gibraltar's banking sector is mature and has been contracting as a result of restructuring, mergers and acquisitions. There are no differences in licensing or supervision of institutions engaged in offshore/onshore banking activities. Ten banks exclusively engage in offshore activities and seven combined onshore and offshore activities.

At 31st December 2003, the combined balance sheet total for all banks amounted to approximately £4.9 billion. Third-party funds under management by the banks amounted to approximately £5.3 billion. Of the 17 banks currently licensed, all but one are major international names. Ten of these banks are incorporated in Gibraltar and are licensed by the Commission. There are six branches of EEA-authorized banks which operate in Gibraltar under the terms of their home-country authorizations, in accordance with European legislation. There is also a branch of a non-EEA authorized bank, from Jersey, which is licensed by the Commission. In addition there are representative offices from Jersey, Isle of Man and Morocco.  The business undertaken by the banks is straightforward as many of the banks are used to raise funds for their parent banks. Moreover the level of off-balance sheet activity is minimal and relates to traditional banking transactions only. A number of banks concentrate on providing wealth management to higher income brackets.

Gibraltar is a full member of the Offshore Group of Banking Supervisors and is compliant with all the international banking regulatory standards promulgated by the Basel Committee for Banking Supervision. The IMF concluded that Gibraltar is compliant with 18 of the principles and largely compliant with the other seven. It also noted that "it was evident that the FSC carried out its duties diligently and had an intimate knowledge of the banks under its supervision."

Passporting

Under the Banking Consolidation Directive locally incorporated banking institutions are able to provide cross border banking services into other member state jurisdictions by virtue of their banking authorization in Gibraltar. This means that locally incorporated institutions can passport their banking and investment services within the EEA states. The advantage that this offers is that these institutions are able to tap into the overseas markets and serve the needs of the expatriate client base from Gibraltar. There are at present five local institutions who are providing services into member states by way of the notification provisions. Inwards notifications for the provision of services have also been received by the Commission, bringing to ten the number of institutions entitled to provide services into Gibraltar without the establishment of a physical presence.

Main Elements of Supervision
The full range of requirements under the Banking Ordinance 1992 are applied to banks for which Gibraltar is the home supervisor. Branches of banks whose home regulator is based with the EEA are supervised by their home supervisor, whereas branches of non-EEA banks together with the locally incorporated institutions are supervised by the FSC. The minimum capital requirements for a locally incorporated bank is €5 million and the bank has to continue to meet this on-going requirement.  Gibraltar implements the provisions of EU Directives and applies the supervisory criteria set by the Basle Capital Accord.

Risk Based Approach to Supervision
The Commission introduced important changes to the way it supervises locally incorporated banks and non-EEA branches in 2002. Within this time the FSC has been rolling out a risk based approach to supervision, where the supervisory team will 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 is 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. This risk framework has now been further developed into an FSC wide approach to risk based supervision and the new approach will be applied to all banks once the current supervisory period comes to its natural end.

List of banking institutions operating in Gibraltar:

ABN AMRO NV
Bank Medici AG
Banque Jacob Safra (Gibraltar) Limited
Barclays Bank PLC
Barclays Private Clients International (Gibraltar) Limited
BBVA Privanza International (Gibraltar) Limited
Credit Suisse (Gibraltar) Limited
EFG Bank (Gibraltar) Limited
Jyske Bank (Gibraltar) Limited
Leeds & Holbeck Building Society
Lloyds TSB Bank PLC
Lombard Odier Darier Hentsch Private Bank Limited
Newcastle Building Society
Norwich & Peterborough Building Society
SG Hambros Bank & Trust (Gibraltar) Limited
The Royal Bank of Scotland (Gibraltar) Limited
The Royal Bank of Scotland International Ltd(Trading as NatWest)
Turicum Private Bank Limited