## Executive Summary ## Source details **Canonical URL:** [Executive Summary](https://www.imf.org/-/media/files/publications/ofca/english/cr07154.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/cr07154.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/cr07154.pdf.json) --- ### Scope and context - Assessment covers Gibraltar’s compliance with: - The Basel Core Principles for Effective Banking Supervision (BCP). - The International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICP). - The Financial Action Task Force (FATF) 40+9 Recommendations on AML/CFT. - Follow-up to a 2001 IMF assessment under the Offshore Financial Center program and takes into account revisions in standards (including the 2003 revisions to the FATF Recommendations and IAIS ICP). - Gibraltar is an overseas territory of the United Kingdom, a constituent of the European Union since 1973 under the U.K. Treaty of Accession (with stated exclusions). - Population and macro context: - Population: about 30,000. - Per capita GDP: some £18,000 in 2002/03. - Economic structure: - Dominant sectors: tourism, ports and shipping, and financial services. - Internet gambling firms have recently established operations in Gibraltar. - Fiscal and tax context: - Exempt company regime in place since 1967 for companies not owned by Gibraltarians and not doing domestic business. - Effective corporate tax rates: range from 20 to 35 percent. - No capital gains tax, wealth tax, inheritance tax, estate duty, VAT, or sales tax. - Personal income tax contributes the bulk of fiscal revenue. - A new tax regime expected by July 2007. - Exempt tax regime to be phased out by 2010; starting July 2006 no new entities will be given an exempt status. - Gibraltar’s financial services sector benefits from EU “passporting” (cross-border provision of services in the EEA). ### Institutional and legal framework - Unified regulator: Financial Services Commission (FSC), established under the FSC Ordinance (FSCO) 1989. - Key legislative instruments include: - Banking Ordinance (1992) (and subsequent amendments). - Insurance Companies Ordinance (1987). - Financial Services Ordinance (1989 and 1998). - Financial Services (Collective Investment Schemes) Ordinance 2005. - Protected Cell Companies Ordinance (2001). - AML/CFT legal framework divided between: - Drug Trafficking Offences Ordinance (1995) (DTOO). - Criminal Justice Ordinance (1995) (CJO). - Terrorism financing addressed by the Terrorism Ordinance (2005) and the Terrorist Order issued by the United Kingdom in 2001 and 2002. - Gibraltar has a police-style Financial Intelligence Unit embedded in the Gibraltar Criminal Intelligence Division (GCID) that is a member of the Egmont Group. - The FSC issues Anti-Money Laundering Guidance Notes (AMLGNs) and is responsible for AML/CFT supervision of entities under its remit. - FSC governance: - An eight-member Commission appointed by the Governor of Gibraltar with approval of the U.K. Foreign and Commonwealth Secretary; the Commissioner acts as Chairman. - Key implementation authorities vested in the Commissioner through separate legislation. - Main statutory accountability consists of periodic reviews commissioned by the Governor; latest statutory review undertaken during 2004 and published in 2005. ### Financial sector structure and scale - Sector composition: - Primarily branches or subsidiaries of international firms. - Most firms provide services to nonresidents and target niche markets or products. - Banking: - Number of banks: 18 banks in Gibraltar; all except one are branches or subsidiaries of international banks. - Seven banks provide retail services to the small domestic market; for only two does domestic retail constitute a significant part of their business. ### Main findings — banking, insurance, and AML/CFT - Banking supervision: - High standard of compliance with the Basel Core Principles for banking supervision. - Prudential requirements based on EU requirements and U.K. prudential rules as required by the Banking Ordinance. - A risk-based supervision system introduced in 2001 and recently enhanced is well-designed. - Insurance supervision: - Found compliant with the majority of the Insurance Core Principles. - On-site inspections being undertaken on a risk-based approach. - FSC attention to increasing number of supervisors and training to achieve a higher rate of on-site inspections in a growing sector. - AML/CFT: - Authorities have improved the AML/CFT regime and take a practical approach to implementation. - Focus on effective international cooperation; good international reputation for cooperation and information sharing. - Remaining needs to reflect the revised FATF 40 + 9 Recommendations include legal and supervisory enhancements. ### Key deficiencies and areas for further action (AML/CFT focus) - Legal and supervisory gaps identified: - Criminal laws on money laundering need consolidation; powers presently available only in drug-related money-laundering cases should be extended to money laundering involving proceeds of other crimes. - Proposed legislation on mutual legal assistance should be enacted. - FSC’s Anti-Money Laundering Guidance Notes need updating to cover terrorist financing; some key AML/CFT provisions currently only in guidance notes should be reflected in law or regulation. - Bureaux de change and money transmitters should be supervised for AML/CFT compliance. - Government should conduct risk assessments of a number of designated non-financial businesses and professions (DNFBPs) and, as appropriate, extend AML/CFT supervision to them. ### Box 1 — Priority Recommendations (selected) - Governance of the FSC: - Adopt governance structure in line with best international practice to maintain independence. - Grant FSC authority to set its own fees. - Banking: - Amend legislation to require the FSC to indemnify staff for costs that arise in defending themselves against legal action. - Insurance: - Introduce legislation relating to the “Approved Persons Regime” without delay. - Increase number of supervisors and training to achieve higher rate of on-site inspections. - AML/CFT: - Consolidate criminal laws and extend powers beyond drug-related ML cases. - Enact proposed mutual legal assistance legislation. - Prosecutors and police should pursue cases to create deterrence against misfeasance by professional service providers. - Update FSC AML Guidance Notes to reflect terrorist financing risks. - Supervise bureaux de change and money transmitters for compliance. - Conduct risk assessments of DNFBPs not presently supervised and extend monitoring authority as appropriate. *International Monetary Fund — Executive Summary of the assessment* ### Banking services to nonresident clients and wealth/asset management - Provision of investment services to nonresident clients is the most important function (in terms of value added) conducted by Gibraltar banks. - Banks provide various wealth/asset management services; business origination channels include independent asset managers (in Gibraltar or overseas), parent offices, and Gibraltar-based marketing efforts. - Fiduciary deposits from parent banks are common. - Client base: mostly European nationals who reside in the region part of the year and are interested in owning property in the region. - Mortgage lending to nonresidents: - Some banks provide mortgage lending for properties in southern Spain and Portugal; for tax reasons some book such activity out of parent offices (e.g., in the United Kingdom), while Gibraltar banks provide administration services. ### Insurance sector developments and cross-border passporting (as of March 2006) - Total insurance companies licensed in Gibraltar: 50. - Seven had notified that they would be passporting their services by establishing a branch in other EEA states. - Forty-two had notified they would provide services to other EEA states. - Nine companies licensed in other EU states provide services in Gibraltar. - Growth driven by ability to passport services to EU member states. - Insurance managers often provide brokering and accounting services. - Two locally incorporated firms provide insurance services to Gibraltar residents; residents can purchase insurance through branches or agencies of EEA companies. ### Non-bank investment firms and collective investment schemes - Investment firms: - Most investment services provided by banks; a number of non-bank firms provide portfolio management and some act as securities brokers. - At least one firm provides spread betting services. - Collective investment schemes (CIS): - 48 CIS registered, of which only five are domiciled in Gibraltar and supervised directly by the FSC. - Forty-three recognized as UCITS or U.K. registered funds. - Under the Financial Services (Experienced Investor Funds) Regulations (2005), six experienced investor funds have been established. - Experienced investor fund eligibility: investment limited to high net worth individuals or bodies with a minimum net worth/assets of Euro 1 million or a participant who invests a minimum of Euro 100,000. ### Company and trust service providers; other intermediaries - Number of company and trust service providers stable in recent years; sector includes large international firms and domestic professional accountancy and legal firms and pure company management firms. - 14 bureaux de change and one money transmission agent outside the banking system. ### Online gaming and gambling sector - Fifteen online gaming licenses issued. - Employment in sector increased from 550 to about 1,350 people. - Firms provide online gambling and sports betting services; several firms listed on the London Stock Exchange and two are very large global players. - One land-based casino with annual turnover of about £ 6 million per year. ### Findings from earlier assessments and authorities’ response (2001 assessment and follow-up) - 2001 assessment: supervision generally effective; Gibraltar met most international standards and was making progress where not fully compliant. - Banking: compliant or largely compliant with all principles. - Insurance: materially nonobservant with only one principle; observant or largely observant for the rest. - Areas for improvement: supervisory resources, on-site inspections, legislative protection of FSC staff, monitoring banks’ country risk, licensing procedures, oversight of AML compliance. - Authorities’ implementation since 2001: - FSC significantly increased supervisory staff since 2001. - On-site supervision improved via adoption of a risk-based supervisory approach. - Some recommendations await enactment of legislation (e.g., revised FSCO to indemnify FSC staff; draft Approved Persons Regime). - FSC view on civil monetary penalties: alternatives considered equally or more effective; updated BCP assessment concurs. - Insurance: corporate governance review ongoing. - Securities: FSC does not consider industry large enough to justify self-regulatory organizations. ### Statutory review and governance recommendations - 2005 Statutory Review recommended: - Changes in organization and governance structure of the FSC. - Increase FSC staff and provide AML/CFT training focusing on vulnerabilities related to Gibraltar services. - Adopt traditional governance for the Commission; assign regulatory powers to the Commission rather than the Commissioner; appoint Chairman separate from Chief Executive. - Independence of the FSC highlighted as critical to Gibraltar’s reputation as a well regulated financial center. - Recommendation: vest regulatory and supervisory powers in an independent and well-constituted FSC Board rather than the Commissioner; Board appointment should be transparent and include experienced local and international representatives. - Further measures: provide FSC authority to set its own fees and formalize indemnification of supervisory staff for costs defending litigation. ### Cross-border cooperation and information exchange - Authorities devote resources to international cooperation; information shared through formal and informal channels with foreign supervisors. - EU constituency facilitates cooperation with EU member states. - 2005: Gibraltar became a member of IOSCO and intends to sign IOSCO’s MMOU in 2007. - As an EU constituent, Gibraltar can provide full cooperation at early stages of criminal investigations to EU member states; recent legislation extends same privileges to non-EU states provided reciprocity. - Draft legislation would extend privileges automatically to states that ratified the UN Transnational Organized Crime Convention and address limitations on foreign restraint and confiscation order enforcement in non-drug related cases. - GFIU (Gibraltar FIU): - Admitted to the Egmont Group in 2004. - Regularly shares information through the Egmont secure web system. - Has responded to all 40 requests received and initiated ten requests. - Contributed to overseas investigations via close cooperation. - FSC information sharing: - Shares information with other international authorities subject to financial sector ordinances; may share when confidentiality will continue. - Concluded MOUs with several foreign supervisory authorities; shares information even without formal agreements where appropriate. - Proposed Financial Services (Information and Cooperation: Powers and Confidentiality) Ordinance would consolidate cooperation powers, permit information exchange with other domestic agencies, and satisfy requirements to sign IOSCO’s MMOU. ### Sectoral assessments — Banking (high-level) - High standard of compliance with the Basel Core Principles. - Prudential requirements follow EU minimums and U.K. prudential rules; FSC required to match U.K. standards. - Proposed Approved Persons Regime would enhance approval processes for directors, managers, and key staff. - Risk-based supervision system (introduced in 2001 and enhanced) categorizes risk into six groups: financial soundness and capital; environment; business plan; controls; organization; and management; supervisory intensity depends on calculated risk profile. - Observations on risks: - Credit risk low and usually well secured. - Little market and liquidity risk as managed by head offices. - Credit concentrations low. ### Sectoral assessments — Insurance (high-level) - Insurance supervision compliant with majority of IAIS Insurance Core Principles. - Legislation clearly defines insurance regulation and supervision; detailed guidance notes exist. - Senior supervisors experienced; supervisors have adequate powers of intervention and enforcement used when required. - EU Directives incorporated and legislation updated; capital adequacy requirement exceeds EU directive minimum. - On-site inspections being implemented on a risk-based approach; FSC increasing supervisors and training to meet growing sector needs. - Recommendation: consider legislation to provide consumer protection to domestic insurance policy holders insured with Gibraltar insurers. ### Sectoral assessments — AML/CFT (high-level) - Authorities have implemented improvements in AML/CFT regime in banking and progressed in other sectors. - Principal AML risk lodged in professional sector (lawyers, accountants, TCSPs) exposed to layering and integration of proceeds. - Some placement-stage risk related to drug trafficking, migrant smuggling, and organized crime in southern Spain. - Most money laundering cases involving Gibraltar arise from investigations into international fraud schemes; traditional organized crime and drug-related cases are a minority. - Recommended legal and regulatory steps to reflect revised FATF 40 plus 9 Recommendations (selected): - Consolidate criminal laws on money laundering. - Extend powers presently available only in drug-related cases to money laundering cases involving proceeds of other crimes. - Prosecutors and police should pursue cases to create deterrence against misfeasance by professional service providers. - Enact proposed mutual legal assistance legislation. - Update FSC AML Guidance Notes to reflect terrorist financing risks and key provisions in law or regulation. - Supervise bureaux de change and money transmitters (non-bank) for AML/CFT compliance. - Government to conduct risk assessments of DNFBPs not supervised by the FSC or GRA and, as appropriate, extend monitoring authority for AML/CFT compliance to them. - Note: Since the assessment, legislation to amend the Financial Services (Investment and Fiduciary Services) Act 1989 has been drafted to make the FSC responsible for licensing and supervision of bureaux de change and money transmission services. ### Key statistics (Table 1 — Gibraltar: Financial System, 2001–06; as of end-March, unless otherwise specified) - Banking: - Number of banks (2001–2006): 19, 19, 18, 17, 18, 18 - Branches: 9, 8, 8, 6, 7, 7 - Subsidiaries: 10, 11, 11, 11, 11, 11 - Total assets (end-December; in billions of £): 5.2, 5.6, 4.9, 4.8, 5.7, 8.4 - Assets under management (in billions of £): 5.9, 5.5, 5.2, 5.2, 5.2, 6.5 - Insurance: - Companies (2001–2006): 17, 22, 31, 39, 46, 50 - Life: 1, 2, 2, 2, 3, 3 - Non-life: 6, 10, 16, 24, 30, 33 - Reinsurance: 4, 4, 3, 1, 3, 3 - Captives: 6, 6, 10, 12, 10, 11 - Total assets (in billions of £): ..., ..., 0.9, 1.4, 2.0, ... - Intermediaries (number): 27, 29, 27, 28, 29, 30 - Of which: Life: ..., ..., 20, 20, 20, 20 - Managers (number): 7, 7, 7, 6, 8, 8 - Investment: - Investment firms: 24, 26, 23, 22, 25, 26 - Dealers: 6, 8, 6, 4, 5, 5 - Managers: 18, 18, 17, 18, 20, 20 - Principal dealer: 0, 0, 0, 0, 0, 1 - Funds under management (in billions of £): 1.2, 1.4, 1.0, 1.0, 1.4, 3.7 - Collective Investment Schemes (CIS): - CIS (recognized; UCITS/FSA): 44, 44, 44, 42, 42, 43 - CIS (authorized): 1, 1, 2, 4, 4, 5 - Total assets (in millions of £): 20.8, 11.9, 12.4, 162.3, 221.8, ... - Experienced investor funds: n.a, n.a, n.a, n.a, n.a, 6 - CIS operator: 1, 3, 2, 3, 2, 1 - CIS administrator: n.a, n.a, 0, 1, 2, 4 - Trust and company service providers: 83, 78, 78, 80, 82, 82 ### IAIS Insurance Core Principles — Licensing, governance, monitoring (selected) - Licensing and Approved Persons Regime: - Licensing requirements set out in guidelines; business plans must include risk management, reinsurance, internal controls, IT policies, underwriting and claims guidelines. - Detailed checks on beneficial owners, senior managers and controllers required prior to approval. - FSC introducing an “Approved Persons Regime” this year. - Corporate governance and internal controls: - Guideline on Criteria for Sound and Prudent Management (1998) considered sufficient by supervisor pending Approved Persons Regime legislation. - On-site inspections initially focused on Corporate Governance; program extended to include management risks. - Market conduct and monitoring: - Domestic market small; general insurance concentrated in motor and personal lines. - Reporting requirements set in Insurance Company Ordinance and regulations; reporting time for annual accounts currently six months after year end and reduction to four months recommended. - On-site inspections commenced on a risk-based approach; inspections of five insurance managers in 2005 and nine in 2006. - Recommended action (selected IAIS CPs): - Introduce legislation relating to the “Approved Persons Regime” without delay (CPs 7 and 9). - Strengthen legal requirements on internal controls and business plans (CP 10). - Compile complete market statistics and detailed analysis, especially regarding the United Kingdom (CP 11). - Reduce reporting time for annual financial returns to four months (CP 12). - Complete cycle of on-site inspections to confirm underwriting procedures and technical provisioning (CPs 19 and 20). - Complete on-site inspections to confirm approved AML/CFT procedures are applied in practice (CP 28). ### FATF 40+9 AML/CFT assessment — Main findings and deficiencies (selected) - General: - Gibraltar authorities have implemented improvements to keep abreast of evolving AML/CFT standards and focus on international cooperation. - Principal AML risk lodged in professional sector (lawyers, accountants, TCSPs); placement-stage risk linked to drug trafficking, migrant smuggling, and organized crime in southern Spain. - Most ML cases arise from international fraud investigations. - Legal framework and institutional measures: - ML legal framework divided between DTOO and CJO; Attorney General concluded post-Montilla (2005) that prosecutions require clear and convincing proof of underlying offense, limiting prosecutions where predicates occur abroad. - Mutual legal assistance limited for non-EU states during investigative stage except in drug-related cases. - Recommendations: consolidate CJO and DTOO into a single statute, extend reversal of burden provisions, and make mutual legal assistance effective. - GFIU is a police-style FIU embedded in GCID, member of Egmont Group; functions effectively but would benefit from clearer public explanation of authority and functions, especially regarding STRs related to terrorism. - Preventive measures and DNFBPs: - FSC AML Guidance Notes require CDD, ongoing monitoring, MLRO designation, and STR reporting; Guidance Notes need strengthening for TF. - FSC supervises banks, investment businesses, insurance companies, and controlled activities; outside FSC scope are Gibraltar Savings Bank, bureaux de change, and nonbank money transmitters. - Weaknesses: limited oversight of bureaux de change and lack of oversight of the single nonbank money transmitter; oversight provided by a government committee with limited enforcement powers. - TCSPs are licensed, regulated, supervised and subject to regular inspections; other DNFBPs lack comparable oversight. - New gambling regime under Gambling Ordinance 2005 transitioning oversight for internet-based gambling; implementation and resourcing required. - Ratings summary (selected): - R.1 ML offence — PC (partially compliant) due to gaps such as migrant smuggling not indictable. - R.2 ML offence–mental element — C (fully met). - R.3 Confiscation and provisional measures — LC (largely compliant). - R.5 Customer due diligence — PC. - R.13 Suspicious transaction reporting — LC. - R.23 Regulation, supervision and monitoring — PC (no supervision for bureaux de change or the non-bank money remitter). - SR.IX Cash border declaration and disclosure — NC (no declaration or disclosure system). - SR.II Criminalize terrorist financing — C (fully met). - SR.VIII Non-profit organizations — LC (review recommended, especially exempt religious charities). - Institutional and other measures (selected): - GFIU: LC — needs clearer public record of functions and clarified reporting lines for TF-related STRs. - Law enforcement: C — dedicated specialized resources, close cooperation with foreign counterparts. - Supervisors: LC — no oversight of bureaux de change or money transmitters; FSC compliant for supervised sectors. - Resources, integrity and training: LC — adequate specialized professionals but need formal clarification of FIU role; inadequate resources for oversight of bureaux de change and money transmitters. - Legal persons and arrangements: LC — share warrants to bearer should be repealed; Companies House searchable fields, and access to beneficial ownership need improvement. ### Recommended action plan — FATF 40+9 (selected) - Legal system and institutional measures: - Consolidate ML offences in DTOO and CJO into a single ordinance and criminalize migrant smuggling as indictable. - Extend reversal of burden provisions beyond drug-related confiscation; enable detention of cash at border on suspicion it relates to any crime. - Enact proposed legislation extending enforcement of external confiscation orders to states party to UNTOC. - Clarify GFIU authority to issue “nonconsent” letters and publish guidance. - FIU and reporting: - Provide clearer public explanations of GFIU roles; document internal procedures; clarify reporting obligations for TF-related STRs and reporting channels. - Amend GO to require gambling licensees to report suspected ML to GFIU rather than Gambling Commissioner. - Enhance outreach and statistical feedback to sectors not regulated by FSC. - Preventive measures for financial institutions: - Prohibit anonymous and fictitious accounts in law or regulation. - Address in law/regulation CDD timing for occasional transactions, wire transfers, suspicion, and doubts about identification data. - Require identification of natural person who ultimately owns or controls the customer. - Ensure bureaux de change, Gibraltar Savings Bank, and money transmitters apply PEP requirements and consider new technologies risk. - Verify record keeping and wire transfer rules; ensure business correspondence retention and timely provision to authorities. - Supervisory and oversight system: - Ensure bureaux de change and nonbank money transmitters are licensed, supervised, and subject to effective sanctions. - Require principals to keep lists of agents for money and value transfer services. - Ensure all financial institutions are subject to rules that prohibit criminals or associates from holding significant ownership or management positions. - DNFBPs: - Develop and apply strong CDD and record-keeping requirements for all DNFBPs not subject to FSC AMLGNs, including enhanced measures for higher risk customers and PEPs. - Finalize and implement gambling regulations; ensure GRA resourced and issue mandatory Codes of Conduct requiring compliance with AMLGNs. - Identify and designate an authority to monitor DNFBPs (consider FSC expertise) and ensure representation on the domestic Enforcement Committee. - Legal persons, arrangements, and NPOs: - Repeal share warrants to bearer; make Companies House database fully searchable; provide FSC and law enforcement access to company information; limit or abolish asset protection trusts and “flee clauses” or require disclosure of settlor. - Review charities regime and blanket exemption for religious charities. ### Authorities’ response (selected) - The FSC welcomed the IMF's assessments of BCP and IAIS compliance and accepted recommendations, highlighting pride in the Risk Assessment Framework. - The Government welcomed recognition of efforts on AML/CFT, noted ongoing major revision to frameworks and methodologies, and committed to legislative amendments to give effect to the 3rd Money Laundering Directive. *Source: IMF assessment report.* ### Executive Summary ...................................................................................................... ### Executive Summary ### Scope and context - Assessment covers Gibraltar’s compliance with: - The Basel Core Principles for Effective Banking Supervision (BCP). - The International Association of Insurance Supervisors (IAIS) Insurance Core Principles (ICP). - The Financial Action Task Force (FATF) 40+9 Recommendations on AML/CFT. - Follow-up to a 2001 IMF assessment under the Offshore Financial Center program and takes into account revisions in standards (including the 2003 revisions to the FATF Recommendations and IAIS ICP). - Gibraltar is an overseas territory of the United Kingdom, a constituent of the European Union since 1973 under the U.K. Treaty of Accession (with stated exclusions). Gibraltar has a population of about 30,000 with per capita GDP of some £18,000 in 2002/03. - Gibraltar’s economy is dominated by tourism, ports and shipping, and financial services; internet gambling firms have recently established operations in Gibraltar. - Fiscal and tax context: - An exempt company regime has applied since 1967; exempt companies are those not owned by Gibraltarians and not doing business domestically. - Effective corporate tax rates range from 20 to 35 percent. - No capital gains tax, wealth tax, inheritance tax, estate duty, VAT, or sales tax. - Personal income tax contributes the bulk of fiscal revenue. - A new tax regime is expected to be in place by July 2007. - The exempt tax regime is to be phased out by 2010 and starting July 2006 no new entities will be given an exempt status. - Gibraltar’s financial services sector benefits from EU “passporting” (cross-border provision of services in the EEA). ### Institutional and legal framework - The Financial Services Commission (FSC) is the unified regulatory and supervisory authority for financial services; established under the FSC Ordinance (FSCO) 1989. - Key legislative instruments include: - Banking Ordinance (1992) (and subsequent amendments). - Insurance Companies Ordinance (1987). - Financial Services Ordinance (1989 and 1998). - Financial Services (Collective Investment Schemes) Ordinance 2005. - Protected Cell Companies Ordinance (2001). - Money laundering legal framework is divided between: - Drug Trafficking Offences Ordinance (1995) (DTOO). - Criminal Justice Ordinance (1995) (CJO). - Terrorism financing is addressed by the Terrorism Ordinance (2005) and the Terrorist Order issued by the United Kingdom in 2001 and 2002. - Gibraltar has a police-style Financial Intelligence Unit embedded in the Gibraltar Criminal Intelligence Division (GCID) that is a member of the Egmont Group. - The FSC issues Anti-Money Laundering Guidance Notes (AMLGNs) and is responsible for AML/CFT supervision of entities under its remit. - The FSC governance structure: - An eight-member Commission appointed by the Governor of Gibraltar with approval of the U.K. Foreign and Commonwealth Secretary; the Commissioner acts as Chairman. - Key implementation authorities vested in the Commissioner through separate legislation (e.g., Banking Ordinance, Insurance Companies Ordinance). - Main statutory accountability consists of periodic reviews commissioned by the Governor; the latest statutory review was undertaken during 2004 and published in 2005. ### Financial sector structure and scale - The financial sector consists primarily of branches or subsidiaries of international firms. - Most firms provide services to nonresidents; firms typically target niche markets or products. - Banking: 18 banks in Gibraltar; all except one are branches or subsidiaries of international banks. Seven banks provide retail services to the small domestic market; for only two does domestic retail constitute a significant part of their business. ### Main findings — banking, insurance, and AML/CFT - Banking supervision: - Assessment found a high standard of compliance with the Basel Core Principles for banking supervision. - Prudential requirements are based on EU requirements and U.K. prudential rules and practices as required by the Banking Ordinance. - A risk-based supervision system introduced in 2001 and recently enhanced is well-designed. - Insurance supervision: - Assessment found insurance supervision compliant with the majority of the Insurance Core Principles. - On-site inspections are being undertaken on a risk-based approach. - FSC has confirmed attention to increasing the number of supervisors to achieve a higher rate of on-site inspections in a growing sector. - AML/CFT: - Authorities have improved the AML/CFT regime to keep abreast of evolving standards and take a practical approach to implementing AML/CFT controls. - Authorities have focused resources on providing effective international cooperation and have a good international reputation for cooperation and information sharing. - Remaining needs to reflect the revised FATF 40 + 9 Recommendations include legal and supervisory enhancements (see recommendations). ### Key deficiencies and areas for further action - AML/CFT legal and supervisory gaps identified: - Criminal laws on money laundering need consolidation; powers presently available only in drug-related money-laundering cases should be extended to money laundering involving proceeds of other crimes. - Proposed legislation on mutual legal assistance should be enacted. - FSC’s Anti-Money Laundering Guidance Notes need to be updated to cover terrorist financing; some key AML/CFT provisions currently only in guidance notes should be reflected in law or regulation. - Bureaux de change and money transmitters should be supervised for AML/CFT compliance. - Government should conduct risk assessments of a number of designated non-financial businesses and professions (DNFBPs) and, as appropriate, extend AML/CFT supervision to them. ### Box 1 — Priority Recommendations - Governance of the FSC - The FSC should adopt a governance structure in line with best international practice. This would help it to continue to maintain its independence. - The FSC should be granted the authority to set its own fees. - Banking - Legislation should be amended to require the FSC to indemnify staff for costs that arise in defending themselves against legal action. - Insurance - Legislation relating to the “Approved Persons Regime” should be introduced without delay. - Attention should continue to be given to increasing the number of supervisors and to training of supervisors to achieve a higher rate of on-site inspections in a growing sector. - AML/CFT - Criminal laws should be consolidated, and powers presently available only in drug-related money-laundering cases should be extended to money laundering cases involving the proceeds of other crimes. - Proposed legislation on mutual legal assistance should be enacted. - Prosecutors and police should pursue cases as they arise to create a deterrent against misfeasance by professional service providers. - The FSC should update its AML Guidance Notes to reflect risks associated with terrorist financing. - Bureaux de change and money transmitters should be supervised for compliance. - The government should conduct risk assessments of designated non-financial businesses and professions not presently supervised and, as appropriate, extend authority for monitoring for compliance with AML/CFT requirements to them. *International Monetary Fund — Executive Summary of the assessment* ### 14. The provision of investment services to nonresident clients is the most important ### 14. The provision of investment services to nonresident clients is the most important ### Banking services to nonresident clients and wealth/asset management - The provision of investment services to nonresident clients is the most important function (in terms of value added) conducted by the banks in Gibraltar. - Banks provide various related services for wealth/asset management. - Business origination channels: - Independent asset managers located in Gibraltar or overseas. - Parent offices. - Gibraltar-based marketing efforts. - Fiduciary deposits from parent banks are a common feature of the banking industry in Gibraltar. - Client base: mostly European nationals who reside in the region for part of the year and are interested in owning property in the region. - Mortgage lending to nonresidents: - Some banks provide mortgage lending for properties located in southern Spain and Portugal, in addition to asset management functions. - For various tax reasons some banks book such activity out of their parent offices (e.g., in the United Kingdom). - Gibraltar banks provide all administration services associated with such lending activity, and it remains an important source of revenue for the Gibraltar banks. ### Insurance sector developments and cross-border passporting - The insurance sector has been growing in recent years. - A key reason for growth: ability of firms licensed in Gibraltar to passport their services to EU member states. - As of March 2006: - 50 insurance companies licensed in Gibraltar. - Seven had notified that they would be passporting their services by establishing a branch in other EEA states. - Forty-two of the Gibraltar companies had notified that they would provide services to other EEA states. - Nine companies licensed in other EU states provide services in Gibraltar. - Insurance managers who manage many of the companies licensed in Gibraltar also provide some brokering and accounting services. - Two locally incorporated firms provide insurance services to Gibraltar residents. - Gibraltar residents can purchase insurance through branches or agencies of EEA companies. ### Non-bank investment firms and collective investment schemes - Most investment services are provided by banks, but there are a number of non-bank investment firms that provide similar services. - Majority of non-bank investment firms provide portfolio management services (discretionary or non-discretionary). - A few serve as securities brokers (investment dealers). - At least one firm provides spread betting services. - Collective investment schemes (CIS): - 48 CIS registered, of which only five are domiciled in Gibraltar and supervised directly by the FSC. - Forty-three are recognized as UCITS or U.K. registered funds. - Under the Financial Services (Experienced Investor Funds) Regulations (2005), six experienced investor funds have been established. - Note on experienced investor fund eligibility: Investment in such funds are limited to high net worth individuals or bodies with a minimum net worth/assets of Euro 1 million or a participant who invests a minimum of Euro 100,000. ### Company and trust service providers; other intermediaries - Number of company and trust service providers has been fairly stable in recent years. - Sector composition: large international firms and domestic firms including professional accountancy firms, legal firms, and pure company management firms. - 14 bureaux de change and one money transmission agent outside the banking system. ### Online gaming and gambling sector - Significant growth in the online gaming industry in Gibraltar. - Fifteen licenses have been issued. - Employment in the sector increased from 550 to about 1,350 people. - Firms provide online gambling and sports betting services. - Several firms are listed on the London Stock Exchange and two firms are very large global players. - One land-based casino in Gibraltar with an annual turnover of about £ 6 million per year. ### Findings from earlier assessments and authorities’ response - The 2001 assessment covered banking, insurance, securities sectors, and trust and company service providers; it found supervision was generally effective. - 2001 assessment conclusions: - Gibraltar meets most international standards and is making good progress on principles where not yet fully compliant or observant. - Banking assessment: compliant or largely compliant with all principles. - Insurance assessment: materially nonobservant with only one principle; observant or largely observant for the rest. - Areas for improvement identified: supervisory resources, on-site inspections, legislative protection of FSC staff, monitoring banks’ country risk, licensing procedures, oversight of AML compliance. - Authorities’ implementation since 2001: - FSC has significantly increased the number of supervisory staff since 2001. - On-site supervision improved via adoption of a risk-based supervisory approach. - Some recommendations await enactment of legislation: - Revised FSC Ordinance would introduce protection of FSC staff from the cost of civil law suits. - Draft Approved Persons Regime (APR) provides power in certain instances to prevent select personnel from working in a licensed institution. - FSC view on civil monetary penalties: believes there are other measures equally or more effective; updated BCP assessment concurs. - Insurance: review of corporate governance is ongoing. - Securities: FSC does not consider the industry large enough to justify self-regulatory organizations. ### Statutory review and governance recommendations - 2005 Statutory Review of the FSC’s obligations to match UK supervisory standards: - Complementary of Gibraltar’s supervisory standards. - Recommended changes in organization and governance structure of the FSC. - Noted need to increase FSC staff and provide AML/CFT training focusing on vulnerabilities related to Gibraltar services. - Governance recommendations: set up traditional governance for the Commission; assign regulatory powers to the Commission rather than the Commissioner; appoint Chairman separate from Chief Executive. ### Legislative initiatives (cross-sector) - Legislative initiatives at various stages: - Modernization of the FSCO. - Draft money services business ordinance. - Ordinance on an approved persons regime. - Bill to strengthen powers to obtain and exchange information. - Authorities indicated legislative reforms needed to safeguard safety and soundness of the financial sector would be implemented promptly. ### Governance of the FSC - Current assignment of powers and responsibilities to the Commissioner and the FSC is unique and should be aligned with international best practices. - Current arrangements have been implemented effectively with checks and balances. - Recommendation to reform FSC governance concurrent with constitutional revisions to align with best international practice. - Independence of the FSC is critical to Gibraltar’s reputation as a well regulated financial center. - Recommendation: vest regulatory and supervisory powers in an independent and well-constituted FSC Board rather than the Commissioner. - Board appointment should be transparent and include experienced representatives from within Gibraltar and internationally. - FSC accountability should be clearly defined. - Further measures to bolster independence: - Provide FSC authority to set its own fees (FSC currently partly dependent on Government subventions and cannot fix fees which are main source of income). - Formalize indemnification of supervisory staff for costs defending litigation. ### Cross-border cooperation and information exchange - Gibraltar authorities have devoted resources to international cooperation; information shared through formal and informal channels with foreign supervisors. - EU constituency facilitates cooperation and information sharing with EU member states. - Gibraltar taking steps to further improve cooperation and information exchange mechanisms. - 2005: Gibraltar became a member of IOSCO and intends to sign IOSCO’s MMOU in 2007. - As a constituent of the EU, Gibraltar can provide full cooperation at early stages of criminal investigations to EU member states. - Recent legislation extends same privileges to non-EU states provided reciprocity; draft legislation would extend privileges automatically to states that ratified the UN Transnational Organized Crime Convention and would address limitations on foreign restraint and confiscation order enforcement in non-drug related cases. - Gibraltar FIU (GFIU): - Admitted to the Egmont Group in 2004. - Regularly shares information through the Egmont secure web system. - Has responded to all 40 requests received and initiated ten requests. - Has contributed to overseas investigations via close cooperation. - FSC information sharing: - Shares information with other international authorities subject to financial sector ordinances. - Commissioner may share information when satisfied confidentiality will continue. - FSC has concluded MOUs with several foreign supervisory authorities and shares information even without formal agreements where appropriate. - Proposed Financial Services (Information and Cooperation: Powers and Confidentiality) Ordinance would: - Consolidate powers related to cooperation and information exchange. - Permit information exchange with other domestic agencies. - Satisfy requirements to sign IOSCO’s MMOU. ### Sectoral assessments — Banking - High standard of compliance with the Basel Core Principles for bank supervision. - Prudential requirements are based on EU minimum requirements implemented via the Banking Ordinance 1992 and U.K. prudential rules as required by the FSC Ordinance. - Effectiveness of system for approving directors, managers, and key staff would be enhanced by adoption of the proposed Approved Persons Regime. - Risk-based supervision system (introduced in 2001 and recently enhanced) is well-designed: - Risk categorized into six groups: financial soundness and capital; environment; business plan; controls; organization; and management. - Risk profile obtained by calculating an impact score based on weighted risks for each risk group. - Supervisory intensity depends on final risk profile. - Observations on banking risks: - Credit risk is low and usually well secured. - Little market and liquidity risk as these are managed by head offices. - Credit concentrations are also low. ### Sectoral assessments — Insurance - Insurance supervision found compliant with the majority of the Insurance Core Principles. - Insurance supervisory authority has established policy and objectives effectively considered in supervision. - Legislation clearly defining insurance regulation and supervision is in place with detailed guidance notes. - Senior supervisors experienced in insurance and financial reporting. - Supervisors have adequate powers of intervention and enforcement which have been used when required. - EU Directives continually introduced and legislation updated. - Supervisory process for monitoring financial and statutory reporting is high standard; FSC implementing on-site inspections following a risk-based approach. - FSC is increasing number of supervisors and training to achieve higher rate of on-site inspections in a growing sector. - Recommendation: consider legislation to provide consumer protection to domestic insurance policy holders insured with Gibraltar insurers (consumer protection currently available to policy holders in Gibraltar insured with U.K. companies and to U.K. policy holders insured with Gibraltar insurers). ### Sectoral assessments — AML/CFT - Gibraltar authorities have done a good job implementing improvements to AML/CFT regime in banking to keep in line with evolving standards. - FSC making considerable progress enhancing preventative measures in other financial intermediation sectors. - Authorities focus resources on effective international cooperation. - Principal AML risk: - Lodged in the professional sector, exposed to layering and integration of proceeds of crime. - Some placement-stage risk related to drug trafficking, migrant smuggling, and organized crime in southern Spain. - Most money laundering cases involving Gibraltar arise from investigations into international fraud schemes; traditional organized crime and drug-related cases are a minority. - Professional sector (lawyers and accountants) often introduce clients to Gibraltar financial institutions. - Recommended legal and regulatory steps to reflect revised FATF 40 plus 9 Recommendations: - Consolidate criminal laws on money laundering. - Extend powers presently available only in drug-related cases to money laundering cases involving proceeds of other crimes. - Prosecutors and police should pursue cases to create deterrence against misfeasance by professional service providers. - Enact proposed mutual legal assistance legislation. - Update Financial Service Commission’s Anti-Money Laundering Guidance Notes to reflect risks associated with terrorist financing and reflect key provisions in law or regulation. - Supervise bureaux de change and money transmitters (non-bank) for AML/CFT compliance. - Government to conduct risk assessments of designated non-financial businesses and professions not supervised by the FSC or GRA and, as appropriate, extend monitoring authority for AML/CFT compliance to them. - Note: Since the assessment, legislation to amend the Financial Services (Investment and Fiduciary Services) Act 1989 has been drafted to make the FSC responsible for licensing and supervision of bureaux de change and money transmission services. ### Key statistics from Table 1 (Gibraltar: Financial System, 2001–06; as of end-March, unless otherwise specified) - Banking: - Number of banks (2001–2006): 19, 19, 18, 17, 18, 18 - Branches: 9, 8, 8, 6, 7, 7 - Subsidiaries: 10, 11, 11, 11, 11, 11 - Total assets (end-December; in billions of £): 5.2, 5.6, 4.9, 4.8, 5.7, 8.4 - Assets under management (in billions of £): 5.9, 5.5, 5.2, 5.2, 5.2, 6.5 - Insurance: - Companies (2001–2006): 17, 22, 31, 39, 46, 50 - Life: 1, 2, 2, 2, 3, 3 - Non-life: 6, 10, 16, 24, 30, 33 - Reinsurance: 4, 4, 3, 1, 3, 3 - Captives: 6, 6, 10, 12, 10, 11 - Total assets (in billions of £): ... , ... , 0.9, 1.4, 2.0, ... - Intermediaries (number): 27, 29, 27, 28, 29, 30 - Of which: Life: ... , ... , 20, 20, 20, 20 - Managers (number): 7, 7, 7, 6, 8, 8 - Investment: - Investment firms: 24, 26, 23, 22, 25, 26 - Dealers: 6, 8, 6, 4, 5, 5 - Managers: 18, 18, 17, 18, 20, 20 - Principal dealer: 0, 0, 0, 0, 0, 1 - Funds under management (in billions of £): 1.2, 1.4, 1.0, 1.0, 1.4, 3.7 - Collective Investment Schemes (CIS): - CIS (recognized; UCITS/FSA): 44, 44, 44, 42, 42, 43 - CIS (authorized): 1, 1, 2, 4, 4, 5 - Total assets (in millions of £): 20.8, 11.9, 12.4, 162.3, 221.8, ... - Experienced investor funds: n.a, n.a, n.a, n.a, n.a, 6 - CIS operator: 1, 3, 2, 3, 2, 1 - CIS administrator: n.a, n.a, 0, 1, 2, 4 - Trust and company service providers: 83, 78, 78, 80, 82, 82 *Source: IMF assessment report.* ### APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES ### APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES ### Basel Core Principles for Effective Banking Supervision — General and Methodology - The assessment of the Basel Core Principles (BCP) was carried out in March 2006 as part of a Module 2 assessment of the regulation and supervision of the Gibraltar financial sector at the request of the Gibraltar government. - The assessment was based principally on the Financial Services Commission Ordinance, 1992 (FSCO), the Banking Ordinance, 1992, Administrative Notices, Guidance Notes, Newsletters, and other written material supplied by the Commissioner and staff of the Financial Services Commission (FSC). - The assessment followed a qualitative approach based on the Core Principles Methodology document of October 1999 and examined essential criteria and, where necessary, additional criteria. - A separate IMF team assessed compliance with the FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT); that assessment amplifies CP 15. ### Institutional and Market Structure — Banking - Banking sector composition and scale: - 18 banks with total assets of £8.4 billion as of end-2006. - Most banks are subsidiaries or branches of banks from other European countries; the United Kingdom accounts for eight subsidiaries/branches in Gibraltar. - Only one bank is not foreign-bank-owned; its shareholders are in the investment business in a major European financial centre. - Business profile: - No licensing distinction between banks conducting offshore and onshore business. - Majority of local market business is concentrated in two banking groups. - Major portion of offshore banking: private banking services (mainly asset management to Swiss-based customers and expatriates in Spain and Portugal), including residential mortgages for property purchases in the region. - Offshore services to nonresident trusts and companies benefit from exemption from Gibraltar’s corporate tax rate of 35 percent. - Principal risks identified: - Reputational risk due to bulk assets managed off balance sheet with investment risk carried by clients. - Credit risk largely limited to residential mortgage lending; heightened by recent rapid price rises in Southern Spain and Gibraltar. - Banks report low loan/value ratios in cross-border mortgages (typically 60-70 percent) and claim large managed asset portfolios for borrowers. - Market and liquidity risks are low: no recognized trading books in Gibraltar and most treasury functions managed at head office. - Competitive and regulatory environment: - Gibraltar banks use EU “passport” arrangements to provide services throughout the EU. - Offshore tax-exempt company and trust business is generally introduced by local law firms and service providers. - The tax exemption is due to be phased out to comply with EU state aid rules; business believed able to survive if a new unified corporate tax rate were not more than 10–15 percent. - The FSC is a unified regulator supervising banks, insurance companies, investment firms, collective investment schemes, and trust and company service providers. - Under FSCO, Gibraltar must ensure supervision complies with EU Directives and matches U.K. supervisory standards where required. ### General Preconditions for Effective Supervision - Gibraltar has implemented EU directives in financial legislation as a member of the EU since 1973. - All except one bank are branches or subsidiaries of major international banking groups subject to consolidated supervision by home authorities. - International Financial Reporting Standards (IFRS) were adopted for all EU listed companies effective January 2005; some subsidiaries of listed companies still use older accounting standards. - Limited liability companies must submit audited financial statements to the Registrar of Companies; these are publicly available. - Company law, accounting, and auditing arrangements are generally based on EU requirements and U.K. law and practice. - Judicial system is good and banks report little difficulty enforcing security; credit culture reported as strong with exceptionally low incidence of default in the local market. ### Main Findings — Banking Supervision (high-level) - Overall assessment: high standard of compliance with BCP; risk-based approach to supervision is well designed and implemented. - Objectives, Autonomy, Powers, and Resources (CP 1): - FSC supervises all financial institutions in Gibraltar, has established and publicized supervisory objectives and principles. - FSC is effectively independent operationally but partly dependent on Government subventions and cannot fix fees payable to it (these fees are its main source of income). - Legal framework is based on EU requirements and is up to date; FSC has sufficient powers and authority to ensure compliance and safety and soundness. - Supervisors are protected from litigation though no formal indemnification for staff defending litigation; FSC can share information with other supervisory authorities. - Licensing and Structure (CPs 2–5): - Only authorized banks may take deposits; licensing process is thorough. - Effectiveness of approval for directors, managers, and key staff will be enhanced by a proposed “approved persons” regime. - FSC has sufficient powers to ensure banks have reputable shareholders; nearly all banks are part of major international groups. - Prudential Regulations and Requirements (CPs 6–15): - Prudential requirements follow EU minimums and U.K. prudential rules; FSC required to match U.K. standards. - Risk-based supervision system introduced in 2001 and recently enhanced; recognizes Gibraltar’s banking attributes and risks. - Credit risk is low and usually well secured; little market and liquidity risk; credit concentrations low. - Methods of Ongoing Supervision (CPs 16–20): - FSC relies less on reporting accountants and has supplemented off-site supervision with structured on-site work. - Infrequent on-site inspections reflect low-risk banking business; frequent and ordered contact with bank management. - Reporting system comprehensive and validated through internal and external audit and FSC visits. - FSC has powers for consolidated supervision but has not needed to use them to date. - Information Requirement (CP 21): - High accounting standards; most banks belong to groups subject to IFRS; external auditors practice to International Standards for Auditing and are large international firms. - Formal Powers of Supervisors (CP 22): - FSC cannot levy civil money penalties but has a wide range of other powers and has not experienced difficulty achieving compliance. - Cross-Border Banking (CPs 23–25): - Gibraltar banks have no offices in other jurisdictions; all have foreign owners and FSC has adequate powers to exchange information with home supervisors. - In some cases formal MOUs exist; cooperation has not been impeded. - A 2003 Court of Appeal case criticized internal processes regarding disclosure in a particular instance but confirmed FSC’s powers of cooperation; internal processes have been improved. - A proposed new cooperation ordinance should consolidate and simplify existing powers. ### Recommended Action Plan to Improve Compliance (selected items from Table 2) - Objectives, autonomy, powers and resources (CP 1): - Enshrine the FSC’s objectives and responsibilities in law by amendment to the FSCO. - Fix the level of fees payable to the FSC so fees are set by the FSC. - Establish the term of office of the Commissioner and members of the Commission in the FSCO. - Introduce the FSC’s proposed amendment to FSCO Section 18 requiring the FSC to indemnify staff for costs that arise in defending themselves against legal action. - Other risks (CP 13): - Require banks that the FSC assesses as having a high potential liquidity risk to meet their liquidity mismatch ratio or provide information about liquidity positions on a daily basis and duly report whenever a breach occurs. ### Authorities’ Response - The FSC welcomed the IMF's assessment of BCP compliance, thanking the IMF for its skill and diligence. - The FSC stated the assessment validates its supervisory work, highlighting pride in the Risk Assessment Framework methodology designed and implemented by FSC staff and deployed across supervisory functions. --- ### IAIS Insurance Core Principles — General and Methodology - The IAIS core principles assessment in Gibraltar was conducted during a Module 2 assessment mission during March 6–17, 2006 and reflects practices and circumstances at that time. - Purpose: measure application of the IAIS insurance core principles adopted in 2003 to Gibraltar’s insurance industry and ensure legislation provides supervisory authority with enforcement powers sufficient to meet IAIS standards. - Information sources: supervised insurance managers, brokers, agents, auditors, insurance supervision staff, and private sector industry members; considerable assistance from the FSC. - Guidance notes exist relating to the majority of reporting functions for licensed insurers and intermediaries; sample files were tested for application processes, financial returns, and off-site monitoring. ### Institutional and Market Structure — Insurance - Market composition and scale: - Domestic sector is small: two locally incorporated insurance companies plus one agent of an EU member state operating in the domestic sector. - A majority of licensed insurers are “open market insurers” operating in the United Kingdom with head office facilities provided by independent insurance managers. - Some licensed insurers have an operational office facility. - Foreign establishments operating in Gibraltar are EU based and covered by the EU directive on freedom of establishment. - There are eleven substantial single parent captive insurers licensed. - Supervisory staffing: - Insurance supervision department operational staff of four, including the head of insurance supervision and the insurance manager (an accountant with considerable tenure at the FSC). - Two other regulators recruited within the past two years are undertaking a structured training program. ### Main Findings — Insurance Supervision - Industry growth and scale: - Presently 50 active insurers; an increase of over 100 percent since 2002. - Majority of Gibraltar licensed companies provide insurance to other EU countries, mainly the United Kingdom. - Growth attributed to ability of Gibraltar-based companies to “passport” into other EU countries under EU single market legislation. - Legislative and supervisory alignment: - All EU directives issued have been incorporated into law. - A proposed “Approved Persons Regime” to strengthen corporate governance is awaiting consideration by the Gibraltar Legislative Assembly. - A recent review comparing Gibraltar regulation and supervision with U.K. standards recommended attention to Capital adequacy and Solvency. - Capital Adequacy requirement in Gibraltar already exceeds the EU directive minimum. - Operational observations: - Gibraltar benefits as an offshore center from EU membership; passporting is the main source of insurer growth. - Application process efficiency, supervisor accessibility, and operating costs contribute to attractiveness. - Infrastructure is small but effective; experienced Commission management has used sanctions and custodial management effectively. - Resourcing and capacity: - Senior insurance supervisors are experienced, but with fast portfolio growth attention must be given to training and increasing regulator numbers. - Existing team unlikely to complete the cycle of on-site inspections in the immediate future. ### Organization of the Insurance Supervisor - FSC has established policy and objectives effectively considered in all aspects of supervision. - Legislation clearly defines insurance supervision objectives; reporting processes supported by guidelines for each reporting function and the initial application process. - Supervisory authority is independent with adequate intervention and enforcement powers that have been used when required. - Structure: supervision of insurance companies and intermediaries by the insurance supervisory authority; intermediaries also supervised by the investment division. - Supervisory authority conducts functions transparently, publishes rules and procedures and an annual report on its web site, and can share information with other supervisors subject to confidentiality considerations. *Source: IMF assessment (APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES).* ### 61. The requirements for licensing are clearly set out in guidelines issued by the ### Licensing, Corporate Governance, Market Conduct, Monitoring, and AML/CFT Assessment ### Licensing and Approved Persons Regime - Requirements for licensing are set out in guidelines issued by the authority. - Business plans must include: risk management systems, reinsurance programs, internal controls, IT systems policies, and underwriting and claims guidelines. - Detailed checks on beneficial owners, senior managers and controllers are required and take place before approval is considered. - Supervisors are committed to detail and scrutiny of applications and to scrutiny of changes in control. - The supervisory authority ensures compliance with all criteria in ICP 6. - The FSC is in the process of introducing an “Approved Persons Regime” this year. - All changes in control of companies are treated in exactly the same way as that of a new application. ### Corporate Governance and Internal Controls - The insurance supervisory authority considers the Guideline on Criteria for Sound and Prudent Management and newsletter issued in 1998 sufficient for compliance with international standards. - Draft legislation currently with the government covers an Approved Persons Regime which will incorporate Corporate Governance principles into Law. - Corporate Governance was a particular focus in the initial on-site inspection program. - The self assessment questionnaire and aide-mémoire provide clear guidance to supervisory requirements. - The scope of on-site inspections programmed for the current year has been increased to be compliant with various ICPs, which depend on verification of practical application. - The supervisor requires detailed information regarding controls, systems and operational management relating to underwriting procedures, claims management, reinsurance and risk management at the time of application. - The absence of verification increases the risk of non observance in practice. ### Market Conduct - The domestic market in Gibraltar is small in relative standards. - General insurance is concentrated in motor and personal lines and supervised by the insurance supervisory division of the FSC. - Intermediaries, predominantly involved in life insurance and related business, are supervised by the investment division of the FSC because conduct of business requirements are covered by the wider rules governing investment business. - The Association of Gibraltar Insurers and Managers represents the industry but has not yet produced a Code of Conduct. ### Monitoring, Inspections, and Reporting - Requirements for submission of financial, statistical and other reporting statements are set out in the Insurance Company Ordinance and the Insurance Accounts and Statements Regulations. Guidelines and Valuation of Assets and Liabilities Regulations all apply. - Returns are closely scrutinized by the Supervisors and action is taken when required. - The reporting time for annual accounts is at present six months after year end and the U.K. reviewers recommended shortening this period; this is being considered by the FSC. - Additional and more frequent reporting is required from newly licensed insurers during the first two years of operation. - As a follow up to off-site monitoring supervisors are required to carry out an on site investigation. - The FSC has recently commenced on-site inspections undertaken on a risk-based approach; a complete review of insurance companies will take some time. - Inspections of five insurance managers were carried out in 2005 and a further nine were undertaken in 2006. - Detailed self Assessment questionnaires and aide-mémoires have been produced to assist in the proposed on-site inspection. - Initial on-site inspections focused on Corporate Governance; the program has been extended to include a wide range of management risks. - All of the criteria for preventative and corrective measures are covered by the Insurance Companies Ordinance. - There have been instances where appropriate enforcement procedures have been taken. ### Cross-border Cooperation and Confidentiality - Sufficient gateways exist to permit the insurance supervisory authority to share information with other supervisors either informally or by agreement. - Safeguards apply to ensure that confidentiality from the other supervisors must be agreed and in place. ### Recommended Action Plan (Selected IAIS Insurance Core Principles) - Suitability of Persons (CP 7): Legislation relating to the “Approved Persons Regime” should be introduced without delay. - Corporate Governance (CP 9): Legislation relating to the “Approved Persons Regime” should be introduced without delay. - Internal Control (CP 10): It is recommended that legal requirements should be strengthened in relation to internal controls and the annual submission of detailed business plans. - Market analysis (CP 11): Recommended that complete market statistics and detailed analysis should be compiled by the FSC and attention should be paid in detail to market analysis and trends both in Gibraltar and EU states, particularly the United Kingdom. - Reporting to supervisors and off-site monitoring (CP 12): It is recommended that reporting time, for the submission of annual financial returns, should be reduced to four months. - Insurance activity (CP 19): It is recommended that the cycle of on site inspections be completed as soon as possible to confirm application of approved underwriting procedures and operational risk control. - Liabilities (CP 20): It is recommended that the cycle of on site inspections be completed as soon as possible to confirm practical application of declared policies on technical provisioning. - Anti-money laundering (CP 28): It is recommended that the cycle of on site inspections be completed as soon as possible to confirm that approved AML/CFT procedures are applied in practice. ### Authorities’ Response - The FSC welcomes the findings of the IMF assessment of compliance with IAIS standards, has actioned the recommendations made, and accepts them. - The FSC notes recognition of a high level of compliance with the standards and remains committed to applying new standards as they evolve. ### FATF 40+9 AML/CFT Assessment — Introduction and Methodology - The Report on the Observance of Standards and Codes for the FATF 40 Recommendations 2003 for Anti-Money Laundering (AML) and the 9 Special Recommendations on Combating the Financing of Terrorism (CFT) was prepared by an IMF staff team using the AML/CFT Methodology 2004. - The assessment team reviewed the institutional framework; relevant AML/CFT laws, regulations, guidelines and other requirements; regulatory and other systems to deter and detect money laundering and the financing of terrorism—through financial institutions and designated nonfinancial businesses and professions (DNFBPs); and examined capacity, implementation, and effectiveness. - The assessment is based on information available at the time of the on-site visit from March 1 to 17, 2006 and immediately thereafter. ### Main Findings — General - Gibraltar authorities have done good work to implement improvements to their AML/CFT regime to keep abreast of evolving standards in AML/CFT. - Gibraltar’s financial center, though relatively small in absolute terms, is important to Gibraltar’s overall economy and is a high priority to maintain reputation as a well regulated center. - Gibraltar has welcomed multiple external reviews of its system by the Offshore Group of Banking Supervisors (OGBS), the IMF, and the United Kingdom. - Gibraltar authorities take a practical approach to implementing AML/CFT controls and focus much attention on providing effective international cooperation. - The principal AML risk to Gibraltar is lodged in its professional sector (lawyers, accountants and TCSPs), likely to be involved in layering and integration of proceeds of crime. - There is some risk at the placement stage connected with drug trafficking, migrant smuggling, and organized crime in southern Spain. - Most money laundering cases involving Gibraltar arise out of investigations into international fraud schemes; traditional organized crime and drug related cases comprise a minority. ### Legal Systems and Related Institutional Measures - Gibraltar’s ML legal framework is divided into the Drug Trafficking Ordinance and the Criminal Justice Ordinance; a terrorism ordinance also applies. - After the House of Lords decision in Montilla (2005) and adverse local rulings, the Attorney General concluded he cannot go forward with domestic money laundering prosecutions without clear and convincing proof of the underlying offense; since most predicates occur abroad this limits prosecutions. - Mutual legal assistance is available but full cooperation is limited because legal assistance to countries outside the EU during the investigative stage prior to formal commencement of "proceedings" is available only in drug-related cases. - Recommendations include consolidating CJO and DTOO provisions into a single statute to extend powers available only in drug-related ML cases, creating one offense with a series of indictable proceeds-generating predicate offenses. - Given two money laundering cases from Gibraltar overturned on appeal, arranging training for the bench and bar on international developments in ML law may be advisable. - Gibraltar implemented UK terrorism orders promptly after September 11, 2001, including targeted freeze action against two separate terrorist financing suspects. - Gibraltar enacted a domestic Terrorism Ordinance 2005, giving broad powers to prosecute suspected supporters of terrorism and to confiscate assets. - The domestic confiscation regime is split between drugs-related and nondrug-related schemes, causing practical difficulties (e.g., detaining suspected cash at the border requires proof it represents proceeds of a specific offense). - Gibraltar has a small police-style FIU embedded in the Gibraltar Coordinating Centre for Criminal Intelligence and Drugs (GCID); the FIU is a member of the Egmont Group and functions effectively but would benefit from a clearer public explanation of its authority and functions, especially regarding STRs related to terrorism. - The government should consider whether to promulgate explicit freezing authority to the GFIU and/or GCID in light of the questionable legal basis for freezing accounts on the basis of “nonconsent” letters. ### Preventive Measures — Financial Institutions - Gibraltar has established a robust, risk-based regulatory and supervisory framework for financial institutions for AML; progress has continued since the 2001 assessment. - The FSC has issued Anti-Money Laundering Guidance Notes requiring customer due diligence, ongoing monitoring, designation of a Money Laundering Reporting Officer, and reporting of suspicious transactions. - The Guidance Notes will be strengthened to better capture financing of terrorism considerations. - The FSC conducts on-site inspections and off-site analysis, can compel production of any record, and can impose sanctions for noncompliance. - The FSC supervises banks and building societies, investment businesses, insurance companies, and controlled activities (including investment services, company management, professional trusteeship, insurance management and insurance intermediation). - Outside FSC scope are the Gibraltar Savings Bank (subject to oversight by the Treasury and government auditors), bureaux de change, and (nonbank) money transmitters. ### Preventive Measures — Bureaux de Change and Money Transmitters - Current weaknesses stem from limited and ineffective oversight of bureaux de change and the complete lack of oversight of the single money transmission agent. - Bureaux de change are licensed by a government committee, the Bureaux de Change Committee, headed by the Financial and Development Secretary, and are subject to the FSC Anti-Money Laundering Guidance Notes. - Oversight is provided by a single customs investigating officer with no remit to check for compliance and very limited powers to sanction. - The Bureaux de Change Committee can suspend or cancel a license but cannot impose conditions or directions to ensure corrective action. - These weaknesses were identified during an OGBS AML review in 2001; three bureaux de change were closed in connection with a UK money-laundering investigation in 1998, yet risks persist. - There is currently only one money transmitter in Gibraltar outside the banking industry; as a stand-alone entity it is not subject to licensing, registration, regulation, or supervision. - A draft Money Services Business Ordinance has been developed but not finalized; it would capture bureaux de change and money transmitters under oversight by a government committee, proposed to be headed by the FSC commissioner. ### Preventive Measures — DNFBPs and Nonprofit Organizations - Gibraltar has been a pioneer in establishing strong AML controls for trust and company service providers (TCSPs); TCSPs are licensed, regulated, supervised by the FSC and subject to regular inspections and significant regulatory requirements. - Other DNFBPs are not matched by the same oversight; the internet-based gambling industry is subject to a limited and transitioning oversight regime in response to the Gambling Ordinance 2005. - The new gambling system will comprise a commissioner, a regulatory team and an ombudsman. - Both TCSPs and the internet-based gambling sector are subject to the Anti-Money Laundering Guidance Notes, but only TCSPs are actually supervised against them. *Source: IMF assessment and FATF 40+9 AML/CFT Report (on-site visit March 1–17, 2006) conducted for Gibraltar authorities.* ### 82. The remainder of the DNFBPs, including lawyers, notaries, accountants, high ### cr07154 - 82. The remainder of the DNFBPs, including lawyers, notaries, accountants, high ### DNFBPs: scope, obligations, and oversight - The remainder of the DNFBPs, including lawyers, notaries, accountants, high value goods dealers, and real estate agents are subject to the Criminal Justice Ordinance and thus to STR requirements. - No further rules or regulations on AML/CFT have been promulgated in Gibraltar for DNFBPs, although the Government of Gibraltar has issued non enforceable guidance for the high value goods dealers. - There is no oversight by competent authorities of these industries to ensure that systems and controls are in place to combat money laundering and the financing of terrorism. - Lawyers are required by local law to comply with English AML regulations, but there is no local monitoring of compliance with these requirements. ### Charities supervision and risks - The Charities Ordinance provides a solid framework for supervision of charities by the Charities Board (the “Board”). - Registration requirements, including application and disclosure of material information, indicate the Board is fulfilling a gatekeeper role. - The blanket exception granted to religious charities under Section 6(4) of the Charities Ordinance should be reviewed. - Adequate legal provisions exist for ongoing supervision, investigation, and intervention regarding charities to prevent abuse. - In practice, all charities are required to file annual audited accounts with the Supreme Court registry and these accounts are reviewed by the Board. - Adequate legal provisions exist for the Board to undertake immediate and effective actions to halt terrorist financing should clandestine diversion of funds be discovered. ### Legal persons, arrangements, and corporate services - Gibraltar requires that only persons licensed under the Financial Services Ordinance can form and manage companies in Gibraltar; such licensees are subject to preventive measures and oversight on the same terms as banks and other traditional financial service providers. - The FSC has applied a risk-based supervisory system to the fiduciary services industry; the industry appears generally to be compliant. - The government should repeal legislation allowing share warrants to bearer, as it promised in negotiations with the OECD. - Companies House’s data base should be searchable by all relevant fields. ### National and international cooperation; treaty extensions - The United Kingdom has not extended the Vienna, Palermo, or International Convention on Financing of Terrorism to Gibraltar. - Gibraltar has legislated a number of key provisions that mirror some provisions in those conventions. - The mission recommends that the United Kingdom move swiftly to extend the provisions of these conventions to Gibraltar. - Gibraltar provides full cooperation at the investigative stage to other EU member states as a member of the EU. - Legislation was enacted last year to extend the same investigative-stage privileges to non-EU member states, provided such states agree to reciprocity. - Recently published draft legislation would: - extend such privileges automatically to all states that have ratified the UN Transnational Organized Crime Convention, and - solve a limitation in Gibraltar’s current law concerning non-drug-related money laundering cases where foreign states are not permitted to obtain restraint orders or register and enforce their confiscation orders in Gibraltar. ### Financial Intelligence Unit (GFIU) and FSC information-sharing - Since being admitted to the Egmont Group in 2004, the GFIU regularly shares information with other FIUs through the Egmont secure web system. - The GFIU has responded to every request it has received and has initiated requests; in several cases it has contributed to overseas investigations by cooperating closely with other Egmont Group members. - The FSC regularly shares information with other international competent authorities. - Judicial guidance (Queen (on the application of a Gibraltar company, X, Y, and Z and other respondents) (2003)) requires the commissioner to satisfy himself that the requesting body performs a similar function, disclosure is necessary to assist the requester, and disclosure is in the interests of the public of Gibraltar before sharing information with foreign supervisors. - Foreign supervisors advised the mission that the FSC has, in fact, shared information. ### Ratings: summary findings vis-à-vis FATF 40+9 Recommendations (selected items and factors) - Legal systems - 1. ML offence — PC - Migrant smuggling is not an indictable offense and so is not a predicate offence for money laundering; very few cases of money laundering have been charged in the eleven years since the offense was enacted; only 17 arrests in the last four years, no prosecutions, no convictions and only one case currently under investigation. - 2. ML offence–mental element — C (fully met) - 3. Confiscation and provisional measures — LC - Authorities’ power to seize suspect cash at the border is limited in non-drug related cases; the post-conviction burden to show that proceeds were legitimate shifts only in drug-related cases. - Preventive measures - 4. Secrecy laws consistent with the Recommendations — C - 5. Customer due diligence — PC - Several criteria have not been appropriately addressed in law or regulation; they are instead part of the Guidance Notes. - 6. Politically exposed persons — LC - Bureaux de change, the Gibraltar Savings Bank, and money transmitters (outside of banks) are weak as to implementation of requirements. - 7. Correspondent banking — LC - Need to ensure that information has been gathered on respondents. - 8. New technologies & non-face-to-face business — PC - Implementation of new language on non-face-to-face and new technologies for all institutions and lack of oversight for bureaux de change, the Gibraltar Savings Bank, and money transmitters on these issues. - 9. Third parties and introducers — PC - Controls relative to reliance on intermediaries have not been established. - 10. Record keeping — PC - Two criteria need to be addressed in law or regulation and policies and procedures of the bureaux de change and stand-alone money transmitter must be reviewed to ensure requirements are being followed. - 11. Unusual transactions — LC - Standards do not provide for review and retention of records on all cases involving large, unusual or complex transactions, but do cover those where there are concerns or suspicions. - 12. DNFBP–R.5, 6, 8–11 — PC - Numerous deficiencies in requirements for DNFBPs on CDD, PEPs, etc; two key areas (TCSP and internet based gambling) are subject to more robust standards through the AMLGNs. - 13. Suspicious transaction reporting — LC - Some confusion over who to report to; STRs on attempted transactions are not explicitly required. - 14. Protection & no tipping-off — C - 15. Internal controls, compliance & audit — LC - Need to extend consideration of TF issues to controls and training and ensure all licensees have an internal audit program. - 16. DNFBP–R.13–15 & 21 — PC - Reporting requirements and tipping off provisions are in place, but significant attention needed on requirements for audit and dealing with clients from outside Gibraltar. - Lack of effective oversight of most DNFBPs (other than FSC-supervised TCSP sector) creates inability to assess effectiveness; limited sanctioning powers restrict corrective action. - 17. Sanctions — LC - Bureaux de Change and money transmitters are not subject to adequate sanctions. - A range of supervisory sanctions apply for the TCSP and internet based gambling sector, but few for the land based casino or other DNFBP entities. - 18. Shell banks — C - 19. Other forms of reporting — C - Authorities considered and rejected threshold based reporting based on valid reasons. - 20. Other NFBP & secure transaction techniques — C - 21. Special attention for higher risk countries — LC - Efforts by bureaux de change and stand-alone money transmitter need review; extend to include TF. - 22. Foreign branches & subsidiaries — C - 23. Regulation, supervision and monitoring — PC - No supervision for bureaux de change or the non-bank money remitter; no specific standards that prohibit criminals or associates from holding key ownership or management positions in financial institutions. - 24. DNFBP—regulation, supervision and monitoring — PC - Effective monitoring arrangement exists for high risk TCSP sector. - Placing the new Gambling Ordinance into effect and resourcing of the GRA will provide opportunity and mechanism to monitor compliance of the gambling sector; until that occurs, effective monitoring is low. - Disciplinary action exists for lawyers, but process for addressing non-compliance with AML/CFT obligations is unclear. - No process to determine appropriate level of monitoring for remaining DNFBP sectors; no authority designated responsibility for such monitoring. - 25. Guidelines & Feedback — PC - Existing guidance does not address techniques or methods associated with terrorist financing; no feedback or guidance for bureaux de change and stand-alone money transmitter. - Existing guidance must be fully extended to cover TF issues. - Little guidance exists to assist DNFBP categories outside TCSPs, internet gambling and high value dealers; no efforts to address TF outside FSC's AMLGNs (which apply only to TCSPs and internet based gambling). - Little general feedback to DNFBPs outside FSC regulated TCSPs and car dealers; GFIU has had minimal contact with them. - Institutional and other measures - 26. The FIU — LC - A clear public record of GFIU’s functions should be issued. - The recently enacted Gambling Ordinance, if implemented, requires disclosures to be made to the Gambling Commissioner and provide a copy to the GFIU; the GO currently allows the Gambling Commissioner, not the GFIU, to decide to disseminate disclosures to law enforcement. - Legal requirements for STRs relating to financing of terrorism are confusing; March 2006 amendment to the AMLGNs partly addresses this for the FSC-regulated sector. - The circumstance and extent to which the GFIU can and will obtain additional information from reporting businesses are not clear. - 27. Law enforcement authorities — C - Dedicated, specialized law enforcement resources for ML and TF cases; authorities work closely with foreign counterparts and have discretion to postpone or waive arrests or seizures. - Authorities use special investigative techniques and keep abreast of trends and techniques. - 28. Powers of competent authorities — C - Through production orders and search warrants, authorities may obtain relevant documents held by financial institutions and others; witness statements may be obtained. - 29. Supervisors — LC - No oversight of bureaux de change or money transmitters. - 30. Resources, integrity and training — LC - Royal Gibraltar Police, Customs, and GFIU are adequately staffed by qualified, specialized professionals. - Independence of police is ensured by reporting to the governor. - Customs is a major revenue source for the Government. - As a police-style body, the FIU is integrated into police and customs framework but could benefit from formal clarification of its role. - Compliant for FSC; inadequate resources for oversight of bureaux de change and money transmitters. - 31. National cooperation — LC - DNFBP oversight authorities (excluding FSC with respect to TCSPs) are not represented in the Enforcement Group. - 32. Statistics — PC - No statistics kept by the attorney general on prosecutions and convictions; police have statistics on number of money-laundering charges laid. - Authorities can construct tables from records but do not keep consolidated statistics readily available. - FSC has no information on level of compliance in financial sector with UN Security Council Resolutions. - Statistics regarding disclosures are comprehensive but may understate suspect activity due to limited education of real estate, internet gaming, legal/accounting sectors, and High Value Dealers. - GFIU produces statistics on STR disclosures and usefulness of disseminations. - Authorities maintain information about narcotics-related cash seizures and forfeitures (partially relevant). - Agencies should keep more detailed statistics. - Authorities maintain reliable records on mutual legal assistance and extradition requests related to ML, predicate offenses, and other international investigations, though assessors had some difficulty obtaining consistent information promptly. - Gibraltar maintains records on extradition requests and international arrest warrants but did not have statistics readily available for the assessors. - 33. Legal persons–beneficial owners — LC - Share to warrants should be abolished and Companies House registry should be searchable by multiple fields. - 34. Legal arrangements – beneficial owners — LC - Continued existence of asset protection trusts and flee clauses. - Competent law enforcement authorities may not have access in a timely fashion to adequate, accurate and current information on beneficial ownership and control. - International cooperation - 35. Conventions — PC - The Vienna Convention has not been extended to Gibraltar. - 36. Mutual legal assistance (MLA) — LC - Gibraltar authorities’ willingness to provide full cooperation on MLA is limited by the fact that legal assistance during the investigative stage prior to formal commencement of “proceedings” is available only in drug related cases with respect to countries outside the EU. - 37. Dual criminality — C - Except in limited circumstances involving extradition and the issuance of physical search warrants, dual criminality is generally not a bar to obtaining mutual legal assistance from Gibraltar. - 38. MLA on confiscation and freezing — PC - Gibraltar’s general willingness to provide comprehensive MLA is limited by: - (1) except in drug-related cases, law provides no power to secure restraint or charging orders to secure proceeds of crime during pendency of proceedings, or to detain suspect cash detected at the border; and - (2) although authority was provided in the CJO more than ten years ago, the governor has failed to promulgate an order listing countries whose non-drug related confiscation orders may be registered and enforced in Gibraltar. - 39. Extradition — PC - Money-laundering is an extraditable offense; Gibraltar can extradite its own nationals for money laundering and may extradite within the EU based on the EU arrest warrant. - In the only money-laundering extradition request on record, authorities were unable to respond positively due to evidentiary requirements imposed by English case law. - Authorities have not elaborated specific procedures for processing requests. - 40. Other forms of co-operation — C ### Nine Special Recommendations (selected ratings and issues) - SR.I Implementation of UN instruments — PC - The ICSFT has not been extended to Gibraltar but Gibraltar has implemented UNSCRs 1267, 1373 and successor resolutions by UN Order 2001 and the Al-Qaida and Taliban (UN Measures) (Overseas Territories) Order 2002. - SR.II Criminalize terrorist financing — C - Fully met. While there have been no charges of terrorist financing, two accounts have been frozen on the suspicion they are terrorist funds. - SR.III Freeze and confiscate terrorist Assets — LC - Broad legal authorities have been applied by law enforcement in two cases, but there is disconnection in the financial community concerning affirmative obligations under UNSCR 1267 and EU regulations. - SR.IV Suspicious transaction reporting — LC - Filing procedures under various overlapping laws should be clarified; guidance on TF has not been included in the AMLGNs. - SR.V International cooperation — LC - Terrorist financing is an extraditable offense and nothing in law or practice would prevent full cooperation in extradition, but lack of specific experience prevents a fully compliant rating under FATF methodology. - SR.VI AML/CFT requirements for money/value transfer services — PC - Only one stand-alone money transmitter so risk is low, but lack of overall framework is a significant issue. - SR.VII Wire transfer rules — LC - Application of standards by the stand-alone money transmission agent is unknown given the lack of overall regulatory framework. - SR.VIII Non-profit organizations — LC - Conduct a review to ensure terrorist financing risks are fully addressed, particularly regarding exempt religious charities. - SR.IX Cash border declaration and disclosure — NC - No declaration or disclosure system is in place. - Partial measures for seizure and confiscation of currency suspected to be related to drug trafficking are ineffective with respect to proceeds of unknown origin. *Source: The mission report.* ### 90. The table below summarizes recommended actions in areas related to the FATF 40+9 ### cr07154 - 90. The table below summarizes recommended actions in areas related to the FATF 40+9 Recommendations ### 1. General - No text required. ### 2. Legal System and Related Institutional Measures - Criminalization of Money Laundering (R.1, 2 & 32) - Consolidate the ML offences laid out in the DTOO and the CJO into one consolidated ordinance to avoid two-track approach to the ML offence, as indicated by the Chief Minister. - Criminalize migrant smuggling as an indictable offence so that it may be considered a predicate offence for money laundering. - Consider criminalizing the export of cigarettes as an indictable offence (rather than a summary conviction only offence) in order that it becomes a predicate crime for money laundering as part of the required category of offences for “illicit trafficking in stolen and other goods.” - Consider charging domestic persons in the financial industry with money laundering when a mutual legal assistance request reveals complicity in money laundering by Gibraltar residents. - Hold seminars for the bench and bar on money laundering prosecutions. - Maintain statistics on the number of charges laid, the number of prosecutions brought and the number of convictions for money laundering offences. - Criminalization of Terrorist Financing (SR.II & R.32) - (No specific action lines provided in the excerpt.) - Confiscation, freezing and seizing of proceeds of crime (R.3 & 32) - Consolidate the asset forfeiture provisions of the CJO and DTOO, and in doing so take advantage of the best features of each. Thus, reversal of burden of proof provisions should be extended beyond drug-related confiscation to all crimes, and cash seized at the border should be allowed to be detained on a suspicion that it is proceeds of or intended to be used in any crime, not just drug trafficking. - Enact the proposed legislation extending to all states that are parties to the UNTOC the ability to enforce external confiscation orders. - Clarify the authority of the GFIU to issue “nonconsent” letters and provide guidelines for their use. - Maintain consolidated asset confiscation and forfeiture statistics. - Freezing of funds used for terrorist financing (SR.III & R.32) - Develop and publish procedures for delisting requests and the unfreezing of funds. - The FSC should issue guidance to the financial services community concerning affirmative obligations to freeze assets of persons listed by the UNSCR 1267 Committee and the EU. These affirmative obligations should include incorporating the information into their AML/CFT compliance programs, and reporting to authorities on any transactions that may be connected to terrorist financing. - The Financial Intelligence Unit and its functions (R.26, 30 & 32) - Provide clearer public explanations of the roles and responsibilities of the GFIU vis-à-vis the GCID and the police particularly with respect to TF. - Clarify implications, if any, on the GFIU of legal requirements that suspicious transactions related to terrorism be reported variously to the Governor and the police. - Amend Sections 33(2) and (3) of the GO to require holders of gambling licenses to report disclosures of suspected money laundering to the GFIU instead of the gambling commissioner. - Analyze possible relationships between observed trends in disclosures and other criminal intelligence. - Consider providing the FSC, the GRA and any other authority having AML/CFT oversight responsibility with numerical only statistical data on the reporting performance of specific individual businesses to assist supervisory programs. - Give priority to establishing contact with sectors not regulated by the FSC to provide education and guidance on reporting obligations and procedures for making disclosures to the GFIU and to foster sharing of information on potential ML/TF risks. - Document internal procedures for all GFIU functions. - Consider ways to clarify the circumstances and extent to which the GFIU can and will obtain access to further information from reporting businesses. - Law enforcement, prosecution and other competent authorities (R.27, 28, 30 & 32) - Update production order and warrant statutes to make them more effective in nondrug related financial investigations: specify types of documents that may be made available, include provisions protecting information retained on computers, and authority for police and customs to enter premises to execute production orders. Use Schedule 10 of the Companies Ordinance as a model. - Clarify and document the roles and responsibilities of the GFIU within the GCID vis-à-vis the private sector. ### 3. Preventive Measures – Financial Institutions - Risk of money laundering or terrorist financing - (No discrete action lines in the excerpt.) - Customer due diligence, including enhanced or reduced measures (R.5–8) - Prohibit anonymous and fictitious accounts in law or regulation. - Address, in law or regulation, the need to undertake customer due diligence when: carrying out occasional transactions that are wire transfers; there is a suspicion of money laundering or terrorist financing; and the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. - Require through law or regulation that the financial institution determine the natural person who ultimately owns or controls the customer, when the customer is a legal person or arrangement. - Address, in law or regulation, the requirement for financial institutions to conduct ongoing due diligence on its business relationships. - Determine if institutions, having refused business because full “know your customer” information was not provided, have provided STR reports to the GFIU. - Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are subject to and implementing PEP requirements. - Review existing correspondent banking arrangements to ensure that the institution has gathered sufficient information on the reputation and supervisory arrangements for the respondent. - Ensure that bureaux de change, the Gibraltar Savings Bank, and money transmitters are looking at the risks associated with new technologies. - Ensure effective implementation of the new language in the AMLGNs requiring that institutions carefully consider the risks associated with new technologies. - Generally review the AMLGNs for language and tone that may read as permissive or informational in places. - Third parties and introduced business (R.9) - Require financial institutions relying on intermediaries to immediately obtain from that intermediary information on the identity of the customer, and beneficial owner of the account and the legal status of legal persons or arrangements. Beneficial ownership requirements should be included in law or regulation. - Require that financial institutions have access, without delay, to the identification or other relevant documentation housed with the intermediaries. - Require that institutions have processes to assess whether or not an institution within the EU may be accepted as an intermediary. - Determine to what extent the industry has been allowing intermediaries under the fourth scenario of the AMLGNs (paragraph 4-85) and ensure that all institutions are now obtaining the appropriate due diligence information. - Ensure that the ultimate responsibility for customer identification and verification remains with the financial institution relying on the third party. - Financial institution secrecy or confidentiality (R.4) - (No specific action lines provided in the excerpt.) - Record keeping and wire transfer rules (R.10 & SR.VII) - Address the confusion related to Section 17(2) of the CJO, ideally through repeal of the passage. - Address, in law or regulation, that business correspondence must also be retained (in addition to the requirements for identification and transaction records). - Address, in law or regulation, the requirement that institutions maintain their records in a way that they are able to provide information to the appropriate authorities on a timely basis when appropriately authorized to do so. - Verify that bureaux de change and the stand-alone money transmitter are effectively implementing the record keeping requirements. - Monitoring of transactions and relationships (R.11 & 21) - Ensure that bureaux de change and the stand-alone money transmitter are applying risk-based procedures for relationships and transactions coming from persons outside of Gibraltar, who may not be subject to equivalent AML/CFT requirements. - Extend the discussion on equivalency to include considerations related to TF. - Suspicious transaction reports and other reporting (R.13, 14, 19, 25 & SR.IV) - Clarify the reporting obligations for the suspicious transaction reports related to money laundering (GFIU vs. GCID vs. “customs and police”). - Clarify, through law or regulation, where reporting entities should file suspicious transaction reports related to TF in Gibraltar. - Ensure that there are requirements in place to report suspicions on attempted transactions. - Cross Border Declaration or disclosure (SR IX) - Amend laws to require disclosure of cross-border movements of currency and bearer negotiable instruments. Such a system could apply only above a certain threshold. - Amend laws to enable customs and police officers to detain currency and negotiable instruments that are falsely disclosed or that are suspected of being related to terrorist financing or money laundering. - Amend laws to enable authorities to confiscate such seized currency and negotiable instruments under appropriate circumstances consistent with Special Recommendation IX. - Internal controls, compliance, audit and foreign branches (R.15 & 22) - Extend AMLGNs to include TF in the areas of controls and training. - Ensure that financial institutions have an internal audit or other mechanism to check compliance with the AMLGNs in place, including bureaux de change and the stand-alone money transmitter. - Extend the standards for hiring to insurance firms, bureaux de change, and money transmitters. - Shell banks (R.18) - (No specific action lines provided in the excerpt.) - The supervisory and oversight system – competent authorities and SROs - Role, functions, duties and powers (including sanctions) (R.23, 30, 29, 17, 25 & 32) - Address the lack of “effective, proportionate, and dissuasive” sanction regime for both bureaux de change and nonbank money transmitters in the area of AML/CFT. - Address the lack of effective oversight for bureaux de change. - Ensure that all financial institutions are subject to requirements that prohibit criminals or their associates from holding or being the beneficial owner of a significant or controlling interest or holding a management function in a financial institution. - Extend the AMLGNs to focus not only on ML, but also on TF. - Ensure that authority responsible for bureaux de change and money transmitters (non-bank) is given appropriate regulatory powers and resources so that the authority can effectively conduct oversight, compel records, require remediation, and, where necessary, issue sanctions. - Money value transfer services (SR.VI) - Close the gap in the financial services area by ensuring that all entities that provide money or value transfer services are licensed and supervised. - Require that principals keep lists of all agents of money and value transfer service providers. - Develop a mechanism to ensure that money and value transfer service providers can be sanctioned. ### 4. Preventive Measures – Nonfinancial Businesses and Professions - Customer due diligence and record-keeping (R.12) - Develop and apply strong requirements for customer due diligence for all categories of DNFBPs not subject to the requirements of the FSC issued AMLGNs. This should include provisions requiring ongoing monitoring; obtaining information on the purpose and intended nature of the business relationship; performing enhanced due diligence on higher risk customers or business relationships; and prohibiting the opening of an account or commencing business relationships when an entity cannot provide appropriate CDD information. - Address criteria 5.1, 5.2(c), 5.2(d), 5.2(e), 5.5.2(b), and 5.7 in law or regulation. - Ensure that DNFBPs are subject to adequate requirements for PEP clients or business relationships. - Address the risks associated with new technologies and nonface-to-face business. - Develop requirements for DNFBPs in the area of large, complex or unusual transactions to ensure that these are reviewed, with findings set in writing and kept for five years. - Address the lack of sanctioning ability for DNFBPs, other than TCSP, in the area of conducting appropriate customer due diligence. - Finalize the development and release of the regulations for the Conduct of Business (Fiduciary Services). - Finalize the new licensing agreement for the sole land based casino and include specific observance to the need to comply with the AMLGNs. - Afford priority to the implementation of the new gambling Ordinance and resourcing of the GRA. The GRA should also give priority to releasing a Code of Conduct under its powers specifying the GRA's expectations for license holders to meet the legal AML/CFT obligations. Furthermore reference to, and adherence with, such a Code of Conduct should be mandatory in all licensing agreements for the gambling sector. - Suspicious transaction reporting (R.16) - Consider specifying time limits on consent and non consent letters to assist disclosing businesses to avoid inadvertent tipping off to customers. - Remove the current s 33(1)(2) requirement in the new gambling ordinance that requires gambling licensees to in the first place make disclosures of the alleged money laundering to the gambling commissioner as opposed to the GFIU. This is necessary to maintain continued integrity and confidence in the confidentiality of the disclosure system. - Regulation, supervision, monitoring, and sanctions (R.17, 24 & 25) - Extend, in law or regulation, the provisions for internal control systems to cover the financing of terrorism in addition to AML. - Address the need for an audit function to test compliance with policies, procedures, and controls in DNFBP entities not subject to the FSC issued AMLGNs. - Require screening procedures in DNFBP entities not subject to the FSC issued AMLGNs, to ensure high standards when hiring employees. - Extend the requirements related to dealing with clients in jurisdictions that do not or insufficiently apply the FATF Recommendations to all DNFBPs. - Consider a more proportional level of regulatory sanction for the non gambling and non-TCSP categories of the DNFBP sector. - Determine, implement and publicly declare the appropriate monitoring and sanctioning authority to be responsible for monitoring compliance with AML/CFT obligations by those categories of the DNFBP sector not subject to supervision by the FSC, the Financial & Development Secretary or future GRA. - Make mandatory the requirement for the gambling Licensing Authority to include in any license agreement that compliance with the AMLGNs and any subsequent Codes of Conduct that may be issued by the gambling commissioner is a condition of license. - Amend the Schedule 1, Section 4, of Gambling Ordinance 2005 to make mandatory requirements identified in subsection (a) through (k) and also that compliance with the AMLGNs and future codes of conduct issued by the GRA is an explicit condition of license. - Implement Gambling Ordinance 2005 as a priority. - Ensure that the GRA is allocated appropriate budget, staffing and other resources to properly meet the requirements established under the new gambling ordinance. - Develop sector-specific guidelines on AML/CFT for DNFBP entities not covered by the AMLGNs and the High-Value Dealers Guidance Notes, which cover both AML and CFT. - Ensure that the FIU provides guidance to all sectors regarding reporting requirements and typologies. - Identify and designate an appropriate authority to monitor DNFBPs (other than TCSP and the gambling sector) in the area of AML/CFT. Given the size of the jurisdiction consideration to using the FSC's expertise may be appropriate. - Ensure that designated competent authorities (once designated) for DNFBPs are represented on the domestic Enforcement Committee. - Other designated nonfinancial businesses and professions (R.20) - (No specific action lines provided in the excerpt.) ### 5. Legal Persons and Arrangements & Nonprofit Organizations - Legal Persons – Access to beneficial ownership and control information (R.33) - Repeal legislation allowing share warrants to bearer. - Ensure that Companies House’s data base is searchable by all relevant fields. - Provide the FSC complete access to information on file at Companies House. - Allow police and customs to compel production of client information required to be maintained by licensees under customer identification requirements in domestic and international criminal investigations. Use schedule 10 of the Companies Ordinance as a model. - Legal Arrangements – Access to beneficial ownership and control information (R.34) - Abolish or limit asset protection trusts, or failing that require disclosure of the name and address of the settlor in addition to the other information required in the registration application. - Amend trust legislation to restrict the use of “flee clauses.” - Consider requiring trusts that hold shares in corporations to disclose the trust settlor, beneficiaries, and/or trustees. - Nonprofit organizations (SR.VIII) - Review the current legislation and approval and monitoring process in light of the FATF documents that the assessors provided to the Board. - Review, in particular, the current policy of granting a blanket exemption from registration to religious charities. ### 6. National and International Cooperation - National cooperation and coordination (R.31 & 32) - (No specific action lines provided in the excerpt.) - The Conventions and UN Special Resolutions (R.35 & SR.I) - Request that the Vienna and ICSFT Conventions be extended to it at the earliest possible occasion. - Mutual Legal Assistance (R.36, 37, 38, SR.V & 32) - Gibraltar and U.K. authorities should move swiftly to conclude agreements to implement the MLA (International) Ordinance, in order to improve the ability of Gibraltar to provide mutual legal assistance to non-Schengen countries. - Gibraltar should amend the CJO to enable local authorities to secure restraint and charging orders in connection with nondrug related criminal investigations being conducted abroad. - Customs and police should have the authority to seize and detain suspicious cash and bearer negotiable instruments whose provenance is unknown, on the same terms as that provided by the DTO for seizure of cash suspected to be related to drug trafficking. - The governor should issue an order, pursuant to the terms of the CJO, promulgating a list of countries whose authorities are entitled to register and enforce nondrug related confiscation orders in Gibraltar. - Gibraltar authorities should clarify the authority of the GFIU to issue “nonconsent” letters, and issue guidelines for their use. - Gibraltar authorities should compile in one location more detailed statistics on mutual legal assistance requests and responses. - Extradition (R. 39, 37, SR.V & R.32) - Consider elaborating procedures—including for example form response letters for requesters, checklists for dealing with HM Foreign Service, etc.—for responding to extradition requests in money laundering and terrorist financing cases. - Other Forms of Cooperation (R. 40, SR.V & R.32) - (No specific action lines provided in the excerpt.) ### 7. Other Issues - Other relevant AML/CFT measures or issues - (No specific action lines provided in the excerpt.) ### Authorities’ response - The Government welcomes the recognition given by the IMF to the efforts of the Gibraltar financial services industry and the regulator to ensuring that strong preventative and deterrent measures against the threats of money laundering and terrorist financing are effective. This has enabled both the industry and the Gibraltar FSC to apply an AML/CFT regime that addresses the real risks facing a small international financial services centre. - The Government has recognized that in order for these measures to continue to be effective, the regulatory requirements here, as elsewhere, always need to develop and has already embarked on a major revision to the framework and methodologies for systems of control operated by the industry. - These changes when combined with the legislative amendments, to be implemented by the Government of Gibraltar to give effect to the 3rd Money Laundering Directive, will ensure that Gibraltar's AML/CFT regime for the regulated financial services sector will continue to be at the forefront of international best practice. --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/cr07154.pdf_