## 1. Detailed Assessment of Compliance of the Basel Core Principles

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### Assessment context and methodology
- Assessment carried out in March 2006 by Peter Hayward (consultant, formerly Bank of England and International Monetary Fund (IMF)) and Jorge Mogrovejo (consultant, Superintendency of Banks and Insurance, Peru) as part of a Module 2 assessment of the regulation and supervision of the Gibraltar financial sector at the request of the Gibraltar government.
- Assessment based on the law applicable to the supervision of banks by the Gibraltar Financial Services Commission (FSC), principally the Financial Services Commission Ordinance (FSCO), 1992 and the Banking Ordinance, 1992 (BO), Administrative Notices, Guidance Notes, Newsletters, and other written material supplied by the Commissioner and his staff.
- Assessors reviewed a previous BCP assessment from 2001 and the statutory review published in January 2005; FSC staff prepared a self-assessment of compliance with the BCP.
- Assessment follows a qualitative approach based on the Core Principles Methodology Document of October 1999, examining observance of essential criteria and, where necessary, additional criteria.
- Compliance gradations used: Compliant; Largely compliant; Materially non-compliant; Non-compliant; Not applicable.

### Institutional setting and market structure
- Banking sector composition and activity:
  - 18 banks with total assets of £6.7 billion ($11.7 billion) as of end-2005.
  - Most banks are subsidiaries or branches of banks from other European countries; United Kingdom dominates with eight subsidiaries/branches in Gibraltar.
  - Only one bank is not foreign bank owned.
  - No licensing distinction between banks conducting cross-border and local business.
  - Majority of local market business concentrated in two banking groups.
- Main business lines and risks:
  - Significant cross-border private banking services (asset management) to Swiss-based customers and expatriate community in Spain and Portugal, including residential mortgages for property purchases in the region.
  - Services to nonresident trusts and companies benefit from exemption from Gibraltar’s corporate tax rate of 35 percent.
  - Principal risks identified: reputational risk; credit risk mainly from residential mortgage lending; price risk heightened by rapid rise in property prices in Southern Spain and Gibraltar.
  - Reported loan/value ratios: typically 60-70 percent for Spanish exposures; recent domestic lending has produced higher loan value ratios; in Gibraltar loan to value ratios approaching 100 percent are not uncommon for some exposures.
  - No recognized trading book in Gibraltar; most treasury functions and liquidity management carried out at head office. Market risks and liquidity risk considered low for most banks.
- Competitive and regulatory environment:
  - Banks may provide services throughout the EU using “passport” arrangements.
  - Private banking and asset management are profitable and expanding.
  - Tax exemption for many non-resident companies/trusts due to 35 percent corporate tax rate is scheduled to be phased out to comply with EU state aid rules; business could survive if unified corporate tax rate is not more than 10-15 percent.
  - FSC is a unified regulatory and supervisory authority for banks, insurance, investment firms, collective investment schemes, and trust and company service providers.
  - Under FSCO, Gibraltar is treated as part of the United Kingdom for EU obligations; supervision must comply with EU Directives and match U.K. standards where applicable.
  - Commissioner appointed by the Governor subject to approval of the U.K. Secretary of State for Foreign and Commonwealth Affairs; other Commission members appointed similarly after consultation with the Commissioner.

### Preconditions, accounting, and disclosure
- Preconditions and reporting framework:
  - Gibraltar has adopted EU directives since membership in the EU in 1973.
  - All except one bank are branches or subsidiaries of international banking groups subject to consolidated supervision by home authorities.
- Accounting and disclosure:
  - International Financial Reporting Standards (IFRS) adopted for all EU listed companies effective January 2005; some subsidiaries of listed companies still use older accounting standards even though consolidated group accounts use IFRS.
  - Limited liability companies required to submit audited financial statements to the Registrar of Companies; such statements are publicly available.
- Legal, law enforcement, and credit culture:
  - Company law, accounting, and auditing arrangements generally based on EU requirements and U.K. law and practice.
  - Law enforcement reported as generally good; banks do not have difficulty enforcing security when required.
  - Credit culture reported as strong with incidence of default reported as being exceptionally low.

### Objectives, autonomy, powers, and resources (Principle 1)
- Principle 1 summary: supervisory agencies should have clear responsibilities and objectives, operational independence, adequate resources, a suitable legal framework for authorization and ongoing supervision, powers to address compliance and safety and soundness concerns, legal protection for supervisors, and arrangements for information sharing and confidentiality.
- Key findings and assessments:
  - Legal foundation and responsibilities:
    - FSC established by Financial Services Commission Ordinance 1989 (FSCO); Commissioner (Chairman and chief executive) and seven independent part-time members (FSCO Section 3).
    - Commissioner responsible for supervision and ensuring compliance with EU obligations and U.K. standards (FSCO Section 8).
    - Banking Ordinance 1992 (BO) empowers Commissioner to license and supervise banks; Administrative Notices give effect to EU legislation; continuous licensing requirements in BO Sections 22 and 23.
    - Assessment: Compliant.
  - Operational independence and resources:
    - Agency operationally independent of the Government of Gibraltar; U.K. government approves appointment but has no supervisory authority over Gibraltar.
    - FSC financed in part by Government subvention; fees payable by supervised institutions are determined by Government.
    - FSC has reserves sufficient to continue activities in a crisis; staff have finance sector backgrounds and relevant qualifications; FSC can hire external expertise.
    - No statutory fixed term of office for FSC members including the Commissioner; grounds for removal not exhaustively specified in law.
    - Assessment: Largely compliant.
  - Legal framework for authorization and ongoing supervision:
    - BO governs authorization and supervision; Commissioner empowered to issue and withdraw licenses (BO Sections 24 and 65).
    - Detailed prudential requirements contained in Administrative Notices.
    - Assessment: Compliant.
  - Powers to address noncompliance and legal protection:
    - Commissioner may impose conditions, enter premises, inspect records, issue directions, and revoke licenses (BO Sections 25(2), 29–31, 62–66, 78).
    - FSCO Section 18 and BO Section 14 provide protection against civil liability unless bad faith shown.
    - Assessment: Compliant (powers); Largely compliant (legal protection).
  - Information sharing and confidentiality:
    - BO Section 82 (10) (i) permits sharing with other supervisors for supervisory purposes subject to confidentiality; Schedule 3 to the BO includes EU Banking Consolidation Directive exchange rules.
    - FSC has MOUs with several foreign authorities and has shared information without formal agreements when appropriate.
    - Assessment: Compliant.

### Permissible activities, licensing, ownership and investment (Principles 2, 3, 4, 5)
- Permissible activities and use of the term “bank”:
  - “Credit institution” defined by BO Section 2 by reference to the BCD; Schedule 1 lists permissible activities by reference to the BCD.
  - Use of term “bank” restricted to authorized institutions (BO Section 74 and BO Section 7).
  - Assessment: Compliant.
- Licensing criteria and entry requirements:
  - Part IV of the BO governs licensing; BO Sections 22 and 23 set criteria which must be continuously satisfied (BO Section 25(2)).
  - BO Section 23(3)(e) requires shareholders controlling more than 10 percent of voting shares to be “fit and proper.”
  - AN 8 implements the EU “Post BCCI” directive; Commissioner assesses source of capital in practice though not explicitly required by BO.
  - Minimum initial capital for a newly licensed bank: €5 million.
  - Banks must maintain a minimum ratio of capital to risk assets (see CP 6).
  - Assessment: Compliant.
- Ownership and change of control:
  - Notification/approval required at control thresholds of 10 percent, and similar requirements at 20, 33, and 50 percent (BO Section 53).
  - Commissioner empowered to object and to require divestiture or deprive voting rights where necessary (BO Sections 54, 56, 36(3)).
  - Assessment: Compliant.
- Investment criteria:
  - BO Section 40 limits a bank from owning financial interests in any business in excess of 15 percent of the bank’s capital in aggregate.
  - Investments reported in quarterly prudential returns.
  - Assessment: Compliant.

### Capital adequacy and prudential limits (Principles 6, 9, 10)
- Capital adequacy (Principle 6):
  - Gibraltar implemented EU law following Basel Committee standards.
  - Legal minimum capital ratio: 8 percent.
  - Legal minimum capital amount: banks must exceed a minimum capital of €5 million at all times.
  - Prudential requirements set out in Administrative Notices AN 1 and AN 2.
  - Banks report capital ratios quarterly and are set “target” and “trigger” ratios above 8 percent; breach of trigger triggers regulatory action.
  - Commissioner can require consolidated capital adequacy.
  - Assessment: Compliant.
- Large exposure limits (Principle 9):
  - Large exposure defined as exposure in excess of 10 percent of the bank’s capital (AN 3 Annex 1).
  - Aggregate of all large exposures must not exceed 800 percent of capital.
  - Amount of any exposure limited to 25 percent of capital.
  - Exemptions replicate EU directive exemptions; large exposures reported quarterly.
  - Assessment: Compliant.
- Connected lending (Principle 10):
  - Comprehensive definition of “connected” exposures (AN 3 Annex 1 paragraph 15); lending to connected parties must be at arm’s length (AN 3 paragraph 16).
  - Loans to connected parties must be reported quarterly and in aggregate must not exceed 25 percent of the bank’s capital.
  - Commissioner may deduct connected lending from capital where appropriate.
  - Assessment: Compliant.

### Credit, loan evaluation, provisioning, and country risk (Principles 7, 8, 11)
- Credit policies and supervision (Principle 7):
  - FSC risk assessment process includes on-site assessment of credit risk; boards must approve policy documents for major risk areas; implementation tested on-site.
  - All credit decisions must be taken in Gibraltar even if policies set by head office.
  - Reporting requirements include quarterly reporting of large exposures (exposures in excess of 10 percent of capital) and the ten largest exposures.
  - Assessment: Compliant.
- Loan evaluation and loan-loss provisioning (Principle 8):
  - BO Section 23(3)(d) requires adequate provision for bad and doubtful debts.
  - FSC does not prescribe a standardized classification/provisioning scheme; GN 4 sets FSC expectations based on U.K. practices; provisioning based on estimated recoverability (IFRS/U.K. practices).
  - Commissioner can require policy improvements or impose directions.
  - Assessment: Compliant.
- Country risk (Principle 11):
  - From the last quarter of 2005 FSC introduced a Supplementary Quarterly Return with assets and liabilities breakdown by country.
  - GN 4 and the risk-based framework include country and transfer risk considerations.
  - Assessment: Compliant.

### Market, liquidity, interest rate and operational risk (Principles 12, 13)
- Market risk (Principle 12):
  - Trading books are minimal or nonexistent for most Gibraltar banks; AN 7 implements EEC Directive on capital requirements for market risks in trading activities.
  - Assessment: Compliant.
- Liquidity, interest rate and operational risk (Principle 13):
  - FSC monitors liquidity via Quarterly Returns and a maturities schedule; no across-the-board liquidity ratio norms but case-by-case monitoring of mismatch ratios.
  - FSC can impose conditions under BO Sections 29 and 30 where persistent mismatches exist.
  - Interest rate risk in trading book and banking book addressed via AN 7 and the risk framework.
  - Operational risk included in the risk-based framework covering processes/systems, change, firm structure, management, risk appetite and mitigation.
  - Assessment: Largely compliant.
  - Recommended action: FSC should require banks assessed as having high potential liquidity risk to meet agreed liquidity mismatch ratios or provide daily liquidity position information and reporting of breaches.

### Internal control, audit, accounting, disclosure, and AML (Principles 14, 15, 21)
- Internal control and internal audit (Principle 14):
  - Section 23(3)(h) requires banks to maintain adequate accounting records and systems of control.
  - GN 6 addresses the internal audit function and communication with external auditors and the FSC.
  - Internal audit frequently provided from head office; reporting accountants used for focused examinations.
  - Assessment: Compliant.
- Anti‑Money Laundering (Principle 15):
  - Banks must comply with EEC Directive 91/308/EEC and local AML Guidance Notes (AMLGN); obligations transposed into Gibraltar law via the Drug Trafficking Offences Ordinance and the Criminal Justice Ordinance (CJO).
  - AMLGN parts set KYC, record retention, recognition and reporting of suspicious transactions requirements; banks must appoint a Money Laundering Reporting Officer.
  - Section 20 of the CJO obliges the FSC to make disclosures to GFIU of suspicious transactions.
  - Assessment: Compliant.
- Accounting standards and disclosure (Principle 21):
  - Quarterly returns due within 14 days of period end; EU-listed companies required to report using IFRS.
  - Banking (Accounts Directive) Regulations 1997 require banks to publish audited financial statements; BO Sections 46, 46A and 47 establish auditors’ immunity enabling communication with FSC.
  - FSC publishes abstracts of key banking statistics from quarterly returns.
  - Assessment: Compliant.

### Supervision, on‑site/off‑site activities, validation, and consolidated supervision (Principles 16–20, 23–25)
- Risk‑based supervision framework and on‑site/off‑site supervision (Principles 16, 17, 18):
  - Four supervisory phases: pre-assessment, assessment, formal feedback and risk mitigation.
  - Six Risk Groups graded 1–5; grades weighted and multiplied by impact score to obtain final risk profile determining supervisory intensity.
  - On‑site visits follow Self Assessment Questionnaire; FSC may rely on reporting accountants under BO Section 60.
  - Off‑site supervision based on quarterly returns, annual reports, management letters, internal audit reports; FSC attained ISO 9001:2000 certification for quality management.
  - Assessment (CP16): Compliant. Assessment (CP17): Compliant. Assessment (CP18): Compliant.
- Validation of supervisory information (Principle 19):
  - FSC includes on‑site validation and can require examination by reporting accountants; appointment of external auditors subject to Commissioner approval.
  - Assessment: Compliant.
- Consolidated and global supervision (Principles 20 and 23):
  - FSC has legal authority to supervise on a consolidated basis (AN 4 and AN 8 implementing EU directives); AN 4 section 24 permits data requests when consolidation inappropriate.
  - Assessment (CP20): Compliant. Assessment (CP23): Compliant.
- Host country and supervision over foreign bank establishments (Principles 24 and 25):
  - BO Section 18 requires consultation with relevant home supervisors for European institutions and satisfaction regarding home supervision for non‑EEA applicants.
  - FSC prepared to act as home supervisor where required and has developed extensive contacts with home supervisory authorities.
  - Assessment (CP24): Compliant. Assessment (CP25): Compliant.

### Remedial measures, penalties, and enforcement (Principle 22)
- Remedial measures and powers:
  - Commissioner’s remedial powers include oral or written requests, orders to refrain from actions (BO Section 62(1)), varying license conditions (BO Sections 29 and 30), and cancelling licenses (BO Section 64).
  - FSC lacks statutory powers to impose civil financial penalties on banks or individuals; a draft Approved Persons Regime has been prepared to provide powers to apply sanctions to individuals.
  - Assessment: Compliant.
- Comments: Absence of a penalties regime has not so far constrained supervisory effectiveness, but proposed legal changes would broaden enforcement options including actions against individuals.

### Summary compliance and recommended action plan
- Overall:
  - The assessment rates individual Basel Core Principles as Compliant or Largely compliant across the supervisory framework, with specific Largely compliant findings for aspects of governance, resources, legal protection, and other risks.
- Selected recommended actions:
  - Objectives, autonomy, powers and resources (CP 1):
    - Enshrine FSC’s objectives and responsibilities in law by amendment to the FSCO.
    - Enable FSC to fix the level of fees payable to the FSC.
    - Establish the term of office of the Commissioner and members of the Commission in FSCO.
    - Introduce the FSC-proposed amendment to FSCO Section 18 requiring the FSC to indemnify staff for costs incurred in defending legal actions.
  - Other risks (CP 13):
    - Require banks assessed as having a high potential liquidity risk to meet liquidity mismatch ratios or provide daily liquidity position information and report any breaches.
- Authorities’ response:
  - The FSC welcomes the IMF assessment of compliance against the BCP, validates the FSC’s supervisory work, and highlights the Risk Assessment Framework methodology designed and implemented by FSC staff.

*Assessment of Compliance of the Basel Core Principles, Detailed Assessment (IMF Module 2 assessment), March 2006.*

### 1. Detailed Assessment of Compliance of the Basel Core Principles........................................7

### 1. Detailed Assessment of Compliance of the Basel Core Principles

### Assessment context and methodology
- Assessment carried out in March 2006 by Peter Hayward (consultant, formerly Bank of England and International Monetary Fund (IMF)) and Jorge Mogrovejo (consultant, Superintendency of Banks and Insurance, Peru) as part of a Module 2 assessment of the regulation and supervision of the Gibraltar financial sector at the request of the Gibraltar government.
- Assessment based on the law applicable to the supervision of banks by the Gibraltar Financial Services Commission (FSC), principally the Financial Services Commission Ordinance (FSCO), 1992 and the Banking Ordinance, 1992 (BO), Administrative Notices, Guidance Notes, Newsletters, and other written material supplied by the Commissioner and his staff.
- Assessors reviewed a previous BCP assessment from 2001 and the statutory review published in January 2005; FSC staff prepared a self-assessment of compliance with the BCP.
- Assessment follows a qualitative approach based on the Core Principles Methodology Document of October 1999, examining observance of essential criteria and, where necessary, additional criteria.
- Compliance gradations defined as: Compliant; Largely compliant; Materially non-compliant; Non-compliant; Not applicable.

### Institutional setting and market structure
- Banking sector composition and activity:
  - 18 banks with total assets of £6.7 billion ($11.7 billion) as of end-2005.
  - Most banks are subsidiaries or branches of banks from other European countries; United Kingdom dominates with eight subsidiaries/branches in Gibraltar.
  - Only one bank is not foreign bank owned; that bank has shareholders in the investment business in a major European financial centre.
  - No licensing distinction between banks conducting cross-border and local business.
  - Majority of local market business concentrated in two banking groups.
- Main business lines and risks:
  - Significant cross-border private banking services (asset management) to Swiss-based customers and expatriate community in Spain and Portugal, including residential mortgages for property purchases in the region.
  - Services to nonresident trusts and companies benefit from exemption from Gibraltar’s corporate tax rate of 35 percent.
  - Principal risks identified: reputational risk; credit risk mainly from residential mortgage lending; price risk heightened by rapid rise in property prices in Southern Spain and Gibraltar.
  - Banks report loan/value ratios typically 60-70 percent for Spanish exposures; recent domestic lending has produced higher loan value ratios.
  - No recognized trading book in Gibraltar; most treasury functions and liquidity management carried out at head office. Market risks and liquidity risk considered low.
- Competitive and regulatory environment:
  - Banks can provide services throughout the EU using “passport” arrangements.
  - Local banks handle money transmission and general banking services; private banking and asset management remain profitable and expanding.
  - Tax exemption for many non-resident companies/trusts due to 35 percent corporate tax rate is scheduled to be phased out to comply with EU state aid rules; business could survive if unified corporate tax rate is not more than 10-15 percent.
  - FSC is a unified regulatory and supervisory authority for banks, insurance, investment firms, collective investment schemes, and trust and company service providers.
  - Under FSCO, Gibraltar is treated as part of the United Kingdom for EU obligations; supervision must comply with EU Directives and match U.K. standards where applicable.
  - Commissioner appointed by the Governor subject to approval of the U.K. Secretary of State for Foreign and Commonwealth Affairs; other Commission members appointed similarly after consultation with the Commissioner.

### Preconditions and reporting frameworks
- Preconditions for effective supervision stated as in place:
  - Gibraltar has adopted EU directives since membership in the EU in 1973.
  - All except one bank are branches or subsidiaries of international banking groups subject to consolidated supervision by home authorities.
- Accounting and disclosure:
  - International Financial Reporting Standards (IFRS) adopted for all EU listed companies effective January 2005; some subsidiaries of listed companies still use older accounting standards even though consolidated group accounts use IFRS.
  - Limited liability companies required to submit audited financial statements to the Registrar of Companies; such statements are publicly available.
- Legal, law enforcement, and credit culture:
  - Company law, accounting, and auditing arrangements generally based on EU requirements and U.K. law and practice.
  - Law enforcement reported as generally good; banks do not have difficulty enforcing security when required.
  - Credit culture reported as strong with incidence of default, especially in the local market, reported as being exceptionally low.

### Detailed findings: Principle 1 (Objectives, Autonomy, Powers, and Resources)
- Principle 1 summary: supervisory agencies should have clear responsibilities and objectives, operational independence, adequate resources, a suitable legal framework for authorization and ongoing supervision, powers to address compliance and safety and soundness concerns, legal protection for supervisors, and arrangements for information sharing and confidentiality.
- Principle 1(1) — Clear responsibilities and objectives:
  - FSC established by Financial Services Commission Ordinance 1989 (FSCO); consists of the Commissioner (Chairman and chief executive) and seven independent part-time members; appointments by Governor with U.K. Secretary of State approval in the case of independent members after consultation with the Commissioner (FSCO Section 3).
  - Commissioner responsible for supervision of institutions licensed to provide financial services and ensuring supervision complies with EU obligations and meets standards matching those required by legislation and supervisory practices within the United Kingdom (FSCO Section 8).
  - Separate laws for licensing and supervision include the Banking Ordinance 1992 (BO) empowering the Commissioner to license and supervise banks; Administrative Notices (AN) under BO Section 16 give effect to EU legislation; BO Sections 22 and 23 set continuous licensing requirements.
  - Commissioner has powers under BO Sections 64–66 to cancel a license and issue directions; may apply to the Supreme Court for winding-up procedures (BO Section 78) governed by the Companies Ordinance.
  - FSC statutory obligation (FSCO Section 8) to monitor developments; FSC publishes regulatory objectives and principles and has ISO 9001:2000 recognition.
  - Assessment: Compliant.
  - Comment: Government has proposed and Assembly passed legislation to keep legal framework up to date; Commissioner has proposed amendments to FSCO to set objectives, responsibilities and functions in law; FSC has published a line-by-line assessment of compliance with the U.K.’s Combined Code on Corporate Governance. FSC’s corporate governance has acknowledged inconsistencies with modern practice; assessors found no evidence that independence of supervisory process has been compromised.
- Principle 1(2) — Operational independence and adequate resources:
  - Agency operationally independent of the Government of Gibraltar; Government has no formal role in appointment of FSC members; U.K. government approves appointment of Commissioners but has no supervisory authority over Gibraltar.
  - FSC financed in part by Government subvention, but reliance now minor; fees payable by supervised institutions determined by Government, limiting FSC influence on revenue.
  - FSC has built reserves sufficient to continue activities in the event of a crisis without external support.
  - Government support for FSC functions appears consistent; no evidence of Government interference or improper bank influence.
  - FSC emphasizes rigorous accounting, publishes supervisory material, and has published self-assessment of compliance with the U.K. Combined Code.
  - Staff background: all professional staff have finance sector backgrounds and relevant qualifications; FSC devotes resources to training and professional qualification; salaries and conditions align with industry; low turnover. FSC has powers to hire external expertise where needed.
  - FSC has invested significantly in IT systems and publicizes operations.
  - No statutory fixed term of office for FSC members including the Commissioner; in practice appointments made for fixed terms published in the Gibraltar Gazette. Grounds for removal are not exhaustively specified in law although FSCO Section 3 contains grounds for dismissal; no statutory requirement to specify reasons for dismissal.
  - Assessment: Largely compliant.
  - Comment: FSC should have responsibility for its own finances, which would be facilitated if it had powers to fix fees payable by authorized institutions. Specifying term of office and reasons for dismissal in law would align with modern corporate governance practice, though current appointment process reduces likelihood of politically motivated dismissal.
- Principle 1(3) — Legal framework for authorization and ongoing supervision:
  - BO governs authorization and supervision; Commissioner empowered by BO Section 24 to issue licenses and by BO Section 65 to withdraw them.
  - Detailed prudential requirements are contained in Administrative Notices issued under BO.

*Assessment of Compliance of the Basel Core Principles, Detailed Assessment (IMF Module 2 assessment), March 2006.*

### Section 16. These are “admissible in evidence in any action commenced in exercise of the

### Section 16

### Legal framework and supervisory powers (Principle 1(4) and 1(5))
- Findings:
  - BO Section 25(2) requires banks to observe continuously the essential licensing criteria in BO Sections 22 and 23.
  - If it “appears to” the Commissioner that the criteria are not being observed or if the bank is engaged in actions likely to damage the interests of depositors or the reputation of Gibraltar, the Commissioner may impose conditions on the license or revoke it (BO Sections 29 to 31).
  - The Commissioner may issue conditions under BO Section 62.
  - BO Sections 62 and 63 give the Commissioner and those authorized by him the right to enter premises and inspect records as necessary.
  - Where remedial action is necessary the Commissioner may issue directions under BO Section 29, and in cases of urgency, impose conditions under BO Section 30.
  - BO Section 65 gives the Commissioner powers to revoke a license where a bank had failed to meet the licensing criteria.
  - These formal powers have never needed to be used, though their existence has been referenced.
  - FSCO Section 18 and BO Section 14 provide protection against civil liability for the Commissioner or any person authorized by him in the discharge or purported discharge of his functions under law unless it can be shown he acted in bad faith.
- Assessments:
  - Assessment: Compliant (for powers to address compliance, safety and soundness) — reflected in practice and available statutory powers.
  - Assessment: Largely compliant (legal protection for supervisors) — limited by absence of a statutory indemnification requirement.
- Comments and proposals:
  - There are proposals for an “approved persons” regime to give the Commissioner powers to act directly against an individual as well as a bank; such persons would have rights of redress not currently available if the FSC acts against an institution as a corporate entity.
  - The Commissioner has no powers to impose civil financial penalties on banks or individuals, but this absence has not so far constrained supervisory effectiveness.
  - The FSC has proposed an addition to FSCO Section 18 which would require the FSC to indemnify any existing or former member of the FSC’s staff against costs of defending suits.

### Information sharing and confidentiality (Principle 1(6))
- Findings:
  - The Commissioner is the sole regulator and supervisor of financial entities; therefore domestic powers to share information between supervisors are not required.
  - BO Section 82 (10) (i) permits the Commissioner to share information with another supervisor where the latter has a need for the information for supervisory purposes and where the Commissioner is satisfied that the information will continue to be subject to confidentiality requirements.
  - The FSC has concluded memoranda of understanding (MOUs) with several foreign supervisory authorities and has shared information with other authorities without formal agreements, including authorities responsible for banks or parents or affiliates of banks authorized in Gibraltar.
  - Where a request for information is not covered by one of the “gateways” in the BO the Commissioner cannot accede to such a request.
  - Detailed rules on the exchange of information in paragraph 30 of the EU Banking Consolidation Directive (BCD) are included in Schedule 3 to the BO.
- Assessment:
  - Assessment: Compliant.
- Comments and developments:
  - A Court of Appeal case in 2003 criticized internal processes used regarding disclosure in a particular instance but confirmed the FSC’s powers of cooperation; internal processes have since been improved.
  - The FSC has proposed a new Financial Services (Information and Co-operation: Powers and Confidentiality) Ordinance to consolidate and clarify existing powers across various ordinances.

### Permissible activities and use of the term “bank” (Principle 2)
- Findings:
  - “Credit institution” is defined in BO Section 2 by reference to the definition in the BCD.
  - BO Section 4 defines “deposit”, BO Section 5 defines a “deposit-taking business”, and BO Section 7 restricts the business of taking deposits to licensed institutions.
  - Schedule 1 lists permissible activities of institutions authorized under the BO by reference to the activities listed in the BCD.
  - BO Section 74 restricts the use of the term “bank” to institutions authorized under the BO or EU institutions authorized as such by other EU member states; BO Section 7 prohibits unauthorized use of the term “bank.”
  - The Gibraltar Savings Bank, regulated by the Government of Gibraltar under separate law, is specifically exempted.
- Assessment:
  - Assessment: Compliant.

### Licensing criteria and entry requirements (Principle 3)
- Findings:
  - Part IV of the BO governs licensing of banks; BO Sections 22 and 23 contain the main criteria which an applicant must satisfy and must continue to satisfy while the license is retained (BO Section 25(2)).
  - Failure to satisfy the Commissioner on any of the criteria is grounds for rejecting the application.
  - BO Section 2A incorporates requirements that legal and management structures not be such as to hinder effective supervision.
  - BO Section 23(3)(e) requires that all shareholders that control more than 10 percent of the voting shares are judged “fit and proper” to exercise such control.
  - The provisions of AN 8 implement the EU “Post BCCI” directive and empower the Commissioner to reject an application where a close link between a credit institution and another undertaking or individual prevents effective exercise of supervisory functions.
  - Although not required by the BO, the Commissioner satisfies himself as to the source of proposed capital of the applicant.
  - A newly licensed bank is required to have an initial capital of at least €5 million.
  - Banks must maintain a minimum ratio of their capital to their risk assets (see CP 6).
  - Under BO Section 23(3)(e) controllers, shareholders, directors, and managers must be ‘fit and proper’; BO Section 23(5) requires regard to competence, probity, diligence, soundness of judgment, and the interests of depositors generally.
  - “Probity” is defined with reference to criminal record and evidence of unsound business practices and judgment, incompetence, and malpractice.
  - The FSC issued a newsletter in 2002 with further guidance on fit and proper tests.
  - Applications must be accompanied by financial projections, business plans, and proposed staffing and governance arrangements; ongoing supervisory requirements require appropriate internal controls and operating policies and procedures.
  - The BO allows the Commissioner to require additional information at any stage; a licence can be cancelled if information provided in connection with an application proves to be misleading or untrue.
- Assessment:
  - Assessment: Compliant.
- Comments:
  - Although no new banks have recently been licensed, changes of control and applications from new shareholders have been subject to enforcement of licensing requirements.

*Source: cr07155 - Section 16*

### Section 64(1)). It is the practice of the Commissioner to request letters of comfort from

### cr07155 - Section 64(1)). It is the practice of the Commissioner to request letters of comfort from

### Authorization and fit-and-proper controls
- It is practice of the Commissioner to request letters of comfort from shareholders indicating preparedness to provide additional capital support if necessary.
- EU banks: right under EU legislation (BCD enacted in Gibraltar by the BO) to establish within Gibraltar without additional authorization by the FSC; home supervisory authority must notify the FSC where an EU bank wishes to establish in Gibraltar.
- Non-EU banks: BO Section 18(4) requires the Commissioner to assure himself that the home supervisor is content and to ensure the home supervisor exercises effective supervision over the applicant.
- BO Section 18 does not explicitly require the consent of home supervisor of subsidiaries of non-EU banks, but the Commissioner’s practice is to obtain it.
- BO Section 23 (3) (f) requires at least two persons to direct the business of a bank (the “four eyes” requirement) to ensure directors and managers are competent.
- All banks are subject to continuous supervision; new entrants are particularly closely monitored.
- Assessment: Compliant
- Comments: Proposal for a more extensive “approved persons” regime would apply “fit and proper” tests more widely and allow appeal by affected persons, making the Commissioner’s judgment more readily defensible.

### Principle 4. Ownership
- BO Section 53: no person may become a “controller” (BO Section 2) unless notified to the Commissioner and the Commissioner has indicated no objection; applies to control of more than 10 percent of voting power.
- Similar notification/approval requirements at 20, 33, and 50 percent thresholds.
- BO Section 54: empowers Commissioner to object to a potential shareholder controller.
- BO Section 56: empowers Commissioner to object to an existing controller if no longer fit and proper.
- If a person becomes controller despite objections, he may be deprived of voting rights; Commissioner may seek a court order requiring sale of the shareholding.
- BO Section 36 (3): licensed institutions must notify the Commissioner at least once a year of the names of each controller and of any close links as defined in AN 8.
- Assessment: Compliant

### Principle 5. Investment Criteria
- BO Section 40: prevents a bank from owning financial interests in any business in excess of 15 percent of the bank’s capital in aggregate; no approval required for acquisitions within this limit.
- AN 8: prevents a bank from forming close links with any company such as to prevent effective supervision.
- Investments must be reported in the bank’s quarterly prudential returns.
- Assessment: Compliant
- Comments: Commissioner has no power to vet acquisitions within the 15 percent limit; tight limits on non-banking business; the 15 percent limit reduces risk of inappropriate investments.

### Principle 6. Capital Adequacy
- Gibraltar implemented minimum capital adequacy requirements in EU law in BCD, following Basel Committee standards for definition of capital and risk weights.
- Legal minimum capital ratio: 8 percent.
- Legal requirements set out in AN 1 and AN 2.
- Commissioner can apply capital adequacy ratios on a consolidated basis.
- If a bank fails to maintain the required minimum ratio, Commissioner may impose conditions under BO Section 29 or 30; in severe cases could revoke the license under BO Section 64.
- Banks are required to report their capital ratios quarterly.
- Banks are set “target” and “trigger” ratios above 8 percent that vary by bank; banks must maintain capital above the trigger at all times and aim to exceed the target; breach of the trigger triggers regulatory action.
- Banks are required to exceed a minimum capital of €5 million at all times.
- Assessment: Compliant
- Comments: In practice, Gibraltar banks often have ratios substantially in excess of those required; regulatory action in this area is rare.

### Principle 7. Credit Policies
- FSC risk assessment process sets supervisory strategy based on preliminary risk determination, including on-site assessment of credit risk.
- FSC requires board-approved policy documents for all major risk areas including credit; implementation tested on-site, including examination of individual exposures, security, classification, and provisioning.
- Gibraltar banks typically part of foreign-controlled groups; subject to head office/parent credit policies and monitoring; internal audit functions review controls.
- Main lending: residential mortgages and lending in connection with security transactions, typically secured by mortgage or charge over marketable securities.
- Commissioner can commission work by reporting accountants; has power to require production of all relevant documentation.
- All credit decisions must be taken in Gibraltar even if credit policies set by head office.
- Banks must report quarterly large exposures (exposures in excess of 10 percent of capital) and the ten largest exposures.
- Assessment: Compliant
- Comments: Credit risk generally modest due to wealth management focus; some banks significantly exposed to real estate markets in Southern Spain, Portugal, and Gibraltar; reported maximum acceptable loan to value ratios in Spain are 60-70 percent, while in Gibraltar loan to value ratios approaching 100 percent are not uncommon; main lending banks are well capitalized and exposures are small relative to group capital.

### Principle 8. Loan Evaluation and Loan-Loss Provisioning
- BO Section 23(3)(d): requires banks to make adequate provision for bad and doubtful debts.
- FSC does not prescribe loan classification and provisioning rules; banks must have board-approved policy statements; GN 4 sets out FSC expectations (based on U.K. practices).
- On-site assessments review policy application; external auditors apply IFRS or U.K. practice as set out in U.K. statements of standard accounting practice.
- Provisioning policies should include all exposures, including off-balance sheet exposures.
- Commissioner can require policy improvements or impose directions (e.g., limiting credit extension) where policies are inadequate.
- No standardized classification/provisioning scheme; no standardized reporting; Commissioner reviews annual audited financial statements and assesses implementation during on-site visits.
- GN 4 requires adequate policies for valuation and taking of security; standard accounting rules prescribe collateral be valued at net realisable value.
- No requirement that loans in arrears by specified days be treated in specified ways; provisioning policies expected to cover treatment of arrears.
- Assessment: Compliant
- Comments: Loan quality rarely an issue; directives adopting Basel II expected to require more extensive loan quality reporting; Gibraltar follows U.K. practice: classification and provisioning determined by estimated recoverability rather than mandatory days-in-arrears thresholds.

### Principle 9. Large Exposure Limits
- AN 3 Annex 1: large exposure defined as exposure in excess of 10 percent of the bank’s capital.
- Exposures to two or more “closely related” borrowers (AN 3, paragraph 13) are treated as a single exposure; “closely related” includes cases where financial soundness of one affects the other.
- Aggregate of all large exposures must not exceed 800 percent of capital.
- Amount of any exposure limited to 25 percent of capital.
- Exemptions replicate EU directive exemptions, including exposures to other banks and exposures collateralized by cash or securities issued by OECD governments.
- All large exposures must be reported quarterly to the FSC.
- AN 3 requires limits be observed on a consolidated basis.
- Banks report exposures to individual countries and a broad sectoral breakdown of credit exposure.
- Commissioner’s power to waive limits has never been used.
- Assessment: Compliant

### Principle 10. Connected Lending
- AN 3 Annex 1 paragraph 15: comprehensive definition of “connected” exposure including affiliated companies, shareholders, directors, management, staff, close family, and others with connections.
- BO Section 2 defines “associate” broadly; GN 2 indicates Commissioner may deem a connection to exist even if not covered formally.
- AN 3 paragraph 16: lending to connected parties must be at arm’s length and not on more favorable terms than available to other borrowers.
- GN 2: banks must have policies for lending to connected borrowers; compliance tested on-site.
- No specific requirement that connected loans above a threshold be board-approved.
- Commissioner (AN 3, paragraph 18) may deduct connected lending from capital where the loan is for capital purposes or not at arm’s length.
- Loans to connected parties must be reported quarterly and in aggregate must not exceed 25 percent of the bank’s capital.
- Assessment: Compliant
- Comments: Definition of connected party is wide; Commissioner has discretion to deem a connection where not formally defined; no specific requirement barring potential beneficiaries or their associates from participating in approval process, though bank policies are expected to cover this.

### Principle 11. Country Risk
- From the last quarter of 2005: FSC established a Supplementary Quarterly Return requiring banks to submit an assets and liabilities breakdown by countries, differentiating exposures to banks and nonbanks.
- Prior Quarterly Returns only had a regional breakdown of loans.
- GN 4 “Provisioning Policy Statements” (December 2001) includes country or transfer risk as an issue to consider.
- FSC risk based supervision framework explicitly draws attention to country and transfer risk.
- Assessment: Compliant
- Comments: Gibraltar banks’ relevant exposures are mainly to countries with low transfer and country risk.

### Principle 12. Market Risks
- Gibraltar banks do not generally have active treasuries or sophisticated products; trading books are minimal or nonexistent.
- All banks, except one, are subsidiaries or branches of well-known bank groups with competent home country supervision; head offices provide services/products with substantial market risk.
- FSC risk based framework treats market risk as a risk element; risk management element includes identification, measuring, monitoring, and control.
- Framework assesses positions in foreign exchange and bank-set limits.
- AN 7 implemented EEC Directive 93/6/EEC (amended by 98/31/EC and 98/33EC) on minimum capital requirements for market and other risks associated with trading activities.
- Assessment: Compliant

### Principle 13. Other Risks (Liquidity, Interest Rate, Operational)
- FSC risk based framework assesses risk management, quality management, and corporate governance.
- Quarterly Returns include a maturities schedule with net positions accumulated by time period; FSC does not impose across-the-board liquidity ratio norms but monitors specific mismatch ratios on a case-by-case basis.
- Where persistent and excessive mismatches exist, FSC could impose conditions under BO Sections 29 and 30 (powers never used historically).
- Liquidity risk reported quarterly; many Gibraltar banks manage liquidity at head office; banks with higher liquidity risk should have internal daily reporting and scenario testing; FSC should verify these processes.
- AN 7 addresses interest rate risk in the trading book and capital allocation for this exposure.
- FSC risk framework includes interest rate risk in the banking book.
- Operational risk included as a risk element covering processes/systems, change, firm structure, management/employees, risk appetite, and risk mitigation.
- Assessment: Largely compliant
- Comments: FSC should ensure banks with high potential liquidity risk meet agreed limits or provide daily liquidity position information that can be verified by the Commissioner.

### Principle 14. Internal Control and Audit
- Most banks in Gibraltar are branches or subsidiaries of major banking organisations with recognised corporate governance and internal controls.
- Internal auditors frequently come from head office; external audit firms are often group firms; back office functions are often performed at head offices.
- Companies Ordinance and common law establish directors’ responsibilities.
- Assessment details not provided in excerpt.

*Source: cr07155.*

### Section 23 (3) (h) of the BO  requires a bank to maintain at all times adequate accounting

### cr07155 - Section 23 (3) (h) of the BO  requires a bank to maintain at all times adequate accounting

### Internal audit, internal control, and governance
- Section 23 (3) (h) of the BO requires a bank to maintain at all times adequate accounting records and adequate systems of control of the business and records.
- GN 6 addresses the internal audit function in banks and communications between the internal audit function, the external auditors, and the FSC.
- The FSC risk-based framework has internal audit and quality of management as risk elements to be considered in the pre-assessment and in the assessment conducted by the FSC after an on-site visit.
- The Risk Based Self Assessment Questionnaire includes questions about internal control systems, management and organization.
- Section 23 (3) (f) of the BO 1992 introduces the concept of the four eyes principle, requiring that the business will be effectively directed by no fewer than 2 individuals.
- An ordinance for an Approved Persons Regime that deals with the approval and removal of key individuals (i.e., directors and managers) has been prepared.
- FSC has in past years called on Reporting Accountants to conduct focused reports on High Level Controls.
- Assessment: Compliant
- Comments: Boards would normally include local members with executive functions but also non resident members from head office without connection with the business being taken in Gibraltar, which gives them a certain level of independence. Internal audit is normally based in head office or parent which would have an internal audit committee overseeing all the operations of the group including those in Gibraltar.

### Anti‑Money Laundering (Principle 15)
- Banks must comply with the EEC Directive (91/308/EEC) and with the Anti-money laundering Guidance Notes (AMLGN) part II on the prevention of the use of the financial system for criminal purposes.
- The directive was transposed into Gibraltar Law by virtue of the Drug Trafficking Offences Ordinance and the Criminal Justice Ordinance (CJO).
- The FSC risk-based framework considers Anti-Money Laundering Controls as a risk element to be assessed off-site and on-site.
- FSC can appoint reporting accountants to do a more focused exam.
- AMLGN part IV sets the requirements in relation to KYC and record retention; AMLGN part VI deals with recognition and reporting of suspicious transactions.
- Banks must appoint a Money Laundering Reporting Officer; the role is described in AMLGN part VI.
- Bank managements must inform the FSC of any material failings that could pose a threat to depositors; this would include fraud or other misfeasance.
- Section 2(3) and 3(5) of the CJO exempts the person making a disclosure of suspicious transactions from any liability.
- The CJO and AMLGN require that institutions have training programs for their staff; FSC verifies existence of these programs during on-site visits and via the self assessment risk questionnaire.
- Section 20 of the CJO imposes an obligation upon the FSC to make disclosures to GFIU of suspicious transactions.
- Assessment: Compliant
- Comments: Concurrently compliance with the FATF 40 plus 9 was assessed by a specialist team.

### Risk‑based supervision framework and on‑site / off‑site supervision (Principles 16, 17, 18)
- During 2003 FSC launched a revised version of the risk based supervision framework originally introduced in 2001.
- Each supervisory period has four phases: pre-assessment, assessment, formal feedback and risk mitigation.
- The grading methodology uses six evaluation factors known as “Risk Groups”: Financial Soundness and Capital, Environment, Business Plan, Controls, Organization and Management.
- Each risk group is graded (from 1 to 5); the grades are multiplied by fixed weights and by the impact score for the bank to obtain the final risk profile. The result of the assessment determines the intensity of the supervisory program.
- On-site visits are part of the assessment phase after the bank completes a Self Assessment Questionnaire and the preliminary assessment. A visit normally consists of meetings with senior management and heads of significant units; discussions focus on controls, strategy, organization structure and risk management. Sample testing is conducted if not adequately covered by internal audit.
- The FSC can rely on reporting accountants (BO Section 60), normally the external auditors, to conduct on-site examinations (money laundering, credit risk, information technology, private banking, high level controls). A trilateral meeting is held between the bank management, the reporting accountants, and the FSC to discuss findings.
- Off-site supervision is conducted based on analysis of quarterly reports, annual financial reports, management letters, internal audit reports etc.; off-site reports include trend analysis and peer group reviews.
- The FSC has attained ISO 9001:2000 certification for its quality management process.
- BO 1992 Section 60 enables the FSC to gain access to all types of records and information within a bank including reports submitted to the board by the internal and external auditors.
- BO 1992 Section 86A imposes confidentiality provisions on the information obtained under the ordinance but provides for suitable gateways for disclosure.
- Assessment (Principle 16): Compliant
- Assessment (Principle 17): Compliant
- Comments (Principle 17): Regular “prudential” visits occur about every nine months with licensed institutions and once a year for EU branches.

### Off‑site reporting and analytical systems (Principle 18)
- The Banking (Accounts Directive) Regulation 1997 specifies the method of accounting on both a solo and consolidated basis, complying with EU directives.
- Banking Supervisory Returns are submitted quarterly to the FSC within 14 days of the end of the period to which it relates. The Return is required to be signed by a Senior Manager and another authorized official.
- The FSC can commission a reporting accountants report on control systems including the completion of reports or impose conditions on the license if a pattern of reporting errors is detected.
- Quarterly returns include information from the balance sheet, income statements, non performing loans, provisions and supervisory ratios.
- BO Section 59 (b) and AN 7 (the Post BCCI Directive: Close Links) enable FSC to seek information about related companies and subsidiaries.
- The FSC has an analytical system for processing the information contained in the quarterly returns; the data has the same reporting date and is in GBP enabling cross referencing across the banking system.
- Assessment: Compliant

### Validation of supervisory information (Principle 19)
- The FSC risk-based framework explicitly includes an on-site visit focused on significant assessed areas.
- FSC can require examination by reporting accountants; normally reporting accountants are the external auditors.
- Appointment of external auditors for auditing financial statements is subject to approval by the Commissioner.
- BO Section 60 covers the power to obtain information and require production of documents.
- The FSC discusses auditing and supervision matters with the Gibraltar Society of Chartered and Certified Accountancy Bodies (GSCCAB).
- Assessment: Compliant

### Consolidated and global supervision (Principles 20 and 23)
- None of the banks licensed in Gibraltar have overseas operations or subsidiaries; FSC is not Home Supervisor of a banking group in any case.
- FSC has legal authority to supervise banks on a consolidated basis; AN 4 implements Banking Consolidated Directive (2000/12/EC) and AN8 implements Post-BCCI directive (95/26/EC).
- AN 4 section 24 permits the Commissioner to require parent institution and subsidiaries to supply data when consolidation would be inappropriate for supervision.
- BO Section 59 extends FSC powers to subsidiaries, parents or other undertakings or persons falling under Article 56 of Directive 2000/12/EC.
- Assessment (Principle 20): Compliant
- Assessment (Principle 23): Compliant

### Host country and supervision over foreign bank establishments (Principles 24 and 25)
- FSC has not had the need so far to establish contact with other supervisors as a home supervisor of a Gibraltar bank, but is legally prepared to act as home supervisor, including capacity to refuse or cancel a license where close links prevent exercise of supervisory functions.
- BO Section 18 requires the Commissioner to consult relevant supervisory authority of a European institution when an applicant is a subsidiary or controlled by a controller of a European institution.
- For applicants with head office outside the EEA, the Commissioner must be satisfied as to the nature and scope of supervision exercised by the home authority; the home authority must inform the Commissioner it is satisfied with prudent management and overall financial soundness.
- The FSC as host supervisor allows supervisory authorities of EEA states to exercise powers similar to the Commissioner for prudential supervision of Gibraltar banks that are part of an EEA-supervised conglomerate.
- In practice, the FSC has developed extensive contacts with home supervisory authorities responsible for banking groups operating in Gibraltar.
- Assessment (Principle 24): Compliant
- Assessment (Principle 25): Compliant
- Comments: In practice, the FSC has developed extensive contacts with home supervisory authorities.

### Accounting standards and disclosure (Principle 21)
- BO Section 23 (3) (g) and (h) impose as licensing and ongoing requirements that each bank maintains all proper accounts and records as well as adequate systems of controls over its business and records.
- Quarterly returns to the FSC are due within 14 days of the period end, but FSC has no capacity to apply penalties for late returns.
- EU-listed companies are required to report using IFRS; this applies to most Gibraltar banks, though some Gibraltar subsidiaries may still use earlier U.K. accounting standards.
- The Banking (Accounts Directive) Regulations 1997, section 13, require banks to publish audited financial statements.
- BO Sections 46, 46A and 47 establish auditors’ immunity from civil liability, enabling the auditor to communicate freely with the FSC.
- The Banking (Accounts Directive) Regulations 1997 Schedule 1, Chapter 1, Part III covers valuation rules for bank financial statements, following EU directives.
- BO Section 62 (2) gives the Commissioner power to appoint and retain an auditor.
- The FSC regularly publishes an abstract of key banking statistics obtained from quarterly returns.
- Assessment: Compliant

### Remedial measures and powers (Principle 22)
- The Commissioner can take remedial actions ranging from an oral request, a formal written request, an order to refrain from some action (BO Section 62 (1)), varying a license by imposing, amending or revoking any condition (BO Sections 29 and 30), and cancelling the license (BO Section 64).
- The absence of a regime of penalties, including fines on banking officers, has not so far constrained the FSC’s ability to ensure compliance with supervisory requirements.
- The Government of Gibraltar has prepared a draft ordinance establishing an Approved Persons Regime to deal with approval and removal of key individuals (i.e., directors and managers), and give the Commissioner power to apply sanctions to individuals.
- Assessment: Compliant

### Summary compliance and recommended action plan
- Table 2: All 25 Basel Core Principles are assessed; the summary indicates the FSC’s compliance status across principles (C: Compliant; LC: Largely compliant; MNC: Materially non-compliant; NC: Non-compliant; NA: Not applicable).
- Recommended action plan excerpts:
  - Objectives, autonomy, powers and resources (CP 1): The FSC’s objectives and responsibilities should be enshrined in law by amendment to the FSCO; the level of fees payable to the FSC should be fixed by the FSC; the term of office of the Commissioner and members of the Commission should be established in the FSCO; the amendment proposed by the FSC to FSCO Section 18 requiring the FSC to indemnify staff for costs that arise in defending themselves against legal action should be introduced.
  - Other risks (CP 13): The FSC should require banks that FSC assesses as having a high potential liquidity risk meet their liquidity mismatch ratio or provide information about liquidity positions on a daily basis and duly report whenever a breach occurs.
- Authorities’ response highlights:
  - The FSC welcomes the IMF's assessment of its compliance against the BCP and thanks them for their skill and diligence.
  - The assessment validates the FSC’s supervisory work, particularly the Risk Assessment Framework methodology designed and implemented by its staff and deployed across supervisory functions.

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_Source: https://www.imf.org/-/media/files/publications/ofca/english/cr07155.pdf_