The Finance Centre

Gibraltar observes high standards of supervision and financial regulation. The Gibraltar Financial Services Commission (FSC) is the regulatory authority for financial services providers operating in and from Gibraltar. Under its 1989 founding act, the FSC is required to match UK supervisory standards where European Union law applies.

Gibraltar's high standards have been corroborated by several international bodies. Gibraltar was one of the first jurisdictions within the EU to implement the Money Laundering Directive on an all crimes basis. A report of the Financial Action Task Force (FATF) published in November 2002 stated that "Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering" and is "close to complete adherence with the FATF 40 recommendations".

An IMF report from October 2001 judged that Gibraltar was compliant with 66 out of 67 established international standards on financial regulation and concluded that "supervision is generally effective and thorough... Gibraltar ranks as a well developed supervisor". Under OECD rules, Gibraltar has been classified as a co-operative tax jurisdiction.

The financial sector is governed by various ordinances (primary legislation), regulations and administrative and guidance notes. Information on the supervisory regime is available on the FSC's website . The relevant legislation is available in full on the Gibraltar government website .

The main legislation applicable to the financial sector is the Financial Services Act 1989, which regulates investment activity and certain other controlled activities, such as Company Management and Professional Trusteeship. Other important legislation is the Banking Act 1992 and the Insurance Companies Act and numerous regulations.

All financial services providers operating in and from Gibraltar, both companies and individuals (including where the latter act as directors of client companies), are required to be licensed and subject to inspection by the FSC. In July 2006, there are the following number of licensed institutions in Gibraltar:

• banks: 18
• company management groups: 78
• insurance managers: 8
• insurance companies: 51
• professional trustees: 46

All STM Fidecs' trading subsidiaries holding licences have been inspected (by coincidence) during 2005 with good to satisfactory outcomes.

Gibraltar is within the EU (unlike the other offshore financial centres, such as the Channel Islands and the Isle of Man). The advantages of this far outweigh the disadvantages.

Advantages

• The EU Treaty's provisions on "Freedom of Services" apply to Gibraltar. Banks, insurance companies and investment funds have direct access to the 450 million citizens of the enlarged EU, without requiring "fronting" by local institutions.
• Gibraltar's financial service providers are subject to regulation only by the Gibraltar Financial Services Commission (home base regulation).
• The E.C. Commission has recently confirmed in writing that the Parent & Subsidiary Directive, the Mergers Directive and the Interest & Royalties Directive all apply in full to transactions between Gibraltar companies and companies in the other 24 Member States.

Disadvantages

• The European Commission will not tolerate zero corporate tax rates on the basis that this represents unauthorised State Aid in contravention of articles 87-89 of the EU Treaty.

Despite Gibraltar's membership of the EU, it has been granted various derogations; the principle one being from VAT.

Community law applies to Gibraltar by virtue of article 299(4) of the EC Treaty, as a territory for which a Member State (the UK) has responsibility for external affairs. However, Gibraltar is not part of the UK and implements EU directives within Gibraltar independently of the UK's own implementation. Where Community law requires the setting up of a competent authority, Gibraltar sets up its own.

For further information on STM Fidecs, please contact us or telephone on Gibraltar (+350) 200 42686.