Banking

Setting up a bank in Gibraltar

The Gibraltar Financial Services Commission describes the process of applying to set up a bank in the jurisdiction 

An institution may be authorised to conduct banking business in or from within Gibraltar in one of three different ways, depending on its particular circumstances. The level of responsibility of the Financial Services Commission in supervising these institutions will vary depending on the type of authorisation.

Locally incorporated institutions

The supervisory responsibilities over an institution incorporated in Gibraltar carrying out deposit taking business rests primarily with the Financial Services Commission. This type of authorisation will therefore involve the Financial Services Commission in all areas of supervision.   If the institution is a member of a banking group, other supervisory authorities may also have certain responsibilities.

European authorised institutions

The home supervisor - the competent authority in the institution's home country - is responsible for the supervision of all the activities of the institution, wherever they may be. The host supervisor, in this case the Financial Services Commission, would therefore have reduced supervisory responsibilities, mainly restricted to the supervision of liquidity and, to a certain extent, money laundering systems and controls.

Third country branches 

This type of authorisation relates to branches of banks authorised in non-EEA countries. The responsibility of the Financial Services Commission is somewhat greater than that for EEA branches since European Directives will not apply directly to the institution. Requirements in these cases may vary depending on the particular circumstances of the operation (relationship with home supervisors, scale and type of activity). It is also relevant to note that it may be more difficult to meet the licensing criteria since EEC directives would not directly apply to the institution.

In each of the above cases, the Financial Services Commission will collect information for prudential and for statistical purposes for the purpose of carrying out its duty to protect depositors and the reputation of Gibraltar in relation to financial matters.

Criteria and procedures for licensing

How to apply

Details of any intended application should be discussed with the head of banking and investment services supervision at the outset. A meeting can be arranged to facilitate this. It is generally better to address the main areas of the licensing criteria prior to a formal application being submitted.

An application will generally consist of the following:

• Form BNK1. Details of the institution. This also requires a business plan to be prepared as detailed below.
• Individual Questionnaire Form. Details of the directors, managers and controllers where they are individuals.
• Form BNK2B. Details of the directors, managers and controllers where they are corporate.
• A comprehensive business plan extending for at least five years should be submitted. This should include the nature and scale of the intended activities, plans for its future development and arrangements for its management. The institution should also append a liquidity policy and large exposures policy (including connected lending).

The Commissioner retains the right to request such further information as he deems necessary to reach a decision on the application. When the Commissioner arrives at a decision he will notify the institution accordingly. If it is his intention to refuse to grant authorisation, notice of this will be given to the institution. The institution then has the right to make representations, which the Commissioner must take into account before making his final decision.

Statutory licensing criteria

All the minimum criteria for authorisation must be continuously fulfilled by an authorised institution and are therefore monitored by the head of banking and investment services supervision as part of his regular supervision. At the application stage therefore, all the minimum criteria must be satisfied.

The following is a brief summary of the main points of these criteria (these are covered more fully in Part IV of the Financial Services (Banking) Act 1992:

• Every person who is to be a director controller or manager of the institution must be a fit and proper person to hold such position. The Commissioner will take into account various matters, some of which are the nature of the position, the skills and experience of the individual and the institution concerned.
• At least two individuals must actively direct the business (the four eyes principle), furthermore The commissioner expects there to be clear reporting lines to the board of directors for any major decisions and regular routine reporting.
• The business is to be conducted in a prudent manner. At the outset, the Commissioner will assess this through the business plan, the quality, experience, balance and organisation of the management team and the nature of the institution's business.
• The institution's paid up capital and reserves in the first instance be not less than five million EUROs or its equivalent.  On an ongoing basis, these must be sufficient to safeguard the interests of its depositors. It is not considered sufficient to comply with the capital adequacy requirements at a minimum level.
• Adequate liquidity should be maintained to ensure that the institutions liabilities can be met in a timely fashion, having regard to the times at which liabilities fall due and assets mature.
• Adequate accounting and other records and systems and controls should be in place for the conduct and monitoring of the business. Particular attention will be paid to the requirements of the Anti-Money Laundering regulations.
• Head office to be located in Gibraltar for all locally incorporated institutions. The Commissioner will seek to establish where board meetings are held, where the day to day management function is carried out and where those responsible for overall control and management decisions reside, amongst other things.

Certain activities conducted by banks may also require licences or authorisation under the Financial Services (Investment and Fiduciary Services) 1989 or Financial Services Act 1998.

Banking application policy

The approach of the Financial Services Commission is only to accept applications for banking licences from structures that are over 75% owned by established banking groups from reputable jurisdictions.

The FSC considers that the support provided by existing banking operations in terms of home state supervision, management structures, controls, systems, liquidity, financial support and expertise to their subsidiaries is a vital component of the FSC's supervisory approach when considering new applications. The ability of the regulator to rely on such support mechanisms permits local operations to be established in the knowledge that should external support be required these are readily available.

The FSC, will in exceptional circumstances, consider applications where the applicant is part of a large established financial services group but does not have banking parentage, consider applications for banking operations.

In order for the FSC to consider such applications the following additional pre-conditions, to those required of banking applicants, must be met:

• The applicant will be directed by a suitably qualified board including the appointment of appropriate non-executive directors.
• The “four-eyes” of the applicant will have relevant banking expertise in the areas that the applicant seeks to conduct its operations.
• The applicant’s solvency will be required to be significantly in excess of that requirement for operations which have a banking parentage. The excess will depend on the nature of the proposed operations.
• The controllers of the applicant have the necessary financial and other resources to support the organisation including the ability to inject additional capital, liquidity and management if required to do so by the FSC This may include the provision of legally enforceable personal guarantees from the shareholders.
• The systems of control adopted by the applicant will not only be appropriate for the banking activities proposed but will also have resilience and redundancy built in to run as a stand-alone operation.
• Except for treasury operations of significant publicly quoted institutions, the operations and business model of the applicant will be at arms length, and in most cases ring-fenced, from the operations and businesses of its controllers.
• The number of depositors who may be eligible to the Deposit Compensation Scheme or Investors Compensation Scheme will be limited to a level the Commission considers prudent given the nature and scale of the bank’s operations. Where appropriate the bank may be required to take out additional safeguards (such as insurance) to provide an additional safeguard to the scheme.  

Source of funds of applicant firms

The FSC seeks, as a matter of routine, information on the source of funds of applicant firms or individuals to ensure that regulated firms are not being funded from the proceeds of criminal activities or being misused by organised crime syndicates.  In most cases the FSC will rely on professional or other intermediaries to conduct these due diligence checks as part of the application process. 

What is required?

Irrespective of the requirements imposed on the professional firm or intermediary under the Crime (Money Laundering & Proceeds) Act, or other legislative or regulatory requirements dealing with countering money laundering or terrorist financing, the FSC will need to be satisfied that appropriate verification of an applicant firm or individual has been conducted. 

In order to ensure that the applicant firm or individual has satisfied the FSC requirements, the following minimum processes should be followed for any person (legal or natural) who is supplying any form of financing to the applicant firm which represents 10% or more of the capitalisation of the firm.

Full accountability of how the person has accumulated this wealth or funds, and audit trail of the flow of funds from their present holding into the applicant company.  

What needs to be supplied to the FSC?

The FSC will expect the above information to accompany all applications where the persons are not already known to it, or where this information, previously supplied, is more than five years out of date.

Previously supplied information

The FSC will, as part of its risk assessment work, be verifying that statements made by professionals or intermediaries regarding source of funds of applicant firms or individuals are adequately supported by documentary evidence.  Where this is found not to be the case, the FSC will no longer rely on the work conducted by such persons and will carry out this due diligence itself.
 
As a consequence of resourcing issues, it is anticipated that where the FSC is obliged to take on this work, there will be considerable delays to the application processing.

Bearer shares and instruments

The FSC will normally not permit an application to be submitted where the ownership of the firm will be held via bearer shares or instruments or where the shareholder controllers themselves are corporate entities whose ownership is held via bearer instruments without accountability of the ownership structure.