## _cr07154 - Executive Summary ## Source details **Canonical URL:** [_cr07154 - Executive Summary](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07154.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07154.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07154.pdf.json) --- ### Executive Summary — Key Findings - Gibraltar has a well-regulated financial sector and the Gibraltar authorities are concerned with protecting the reputation and integrity of Gibraltar as a financial center. - Gibraltar has a good reputation internationally for cooperation and information sharing. - The Financial Services Commission (FSC) has been assigned significant additional resources and has developed a well structured approach to the management of its resources that includes a risk-based approach to supervision. - Maintaining the independence of the FSC is central to the reputation of Gibraltar as a financial center; steps to implement a governance structure of the FSC that would bring it into line with best international practice should be helpful. - Banking supervision demonstrates 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. - The risk-based supervision system introduced in 2001, and recently enhanced, is well-designed. - Insurance supervision is compliant with the majority of the Insurance Core Principles. - On site inspections are being undertaken on a risk-based approach. - The FSC has confirmed that attention is being given to increasing the number of supervisors to achieve a higher rate of on-site inspections in a growing sector. - Gibraltar authorities have improved their AML/CFT regime and take a practical approach to implementing AML/CFT controls, focusing resources on providing effective international cooperation. - Despite progress, Gibraltar needs to take a number of steps to reflect the revised FATF 40 + 9 Recommendations: - The criminal laws on money laundering should be consolidated, and proposed legislation on mutual legal assistance should be enacted. - The FSC’s Anti-Money Laundering Guidance Notes need to be updated to cover terrorist financing, and some key provisions currently in the guidance notes need to be reflected in law or regulation. - Bureaux de change and money transmitters should be supervised for AML/CFT compliance. - The Government needs to conduct risk assessments of a number of designated non-financial businesses and professions and, as appropriate, extend AML/CFT supervision to them. ### Priority Recommendations (summary) - Governance of the FSC - Adopt a governance structure in line with best international practice to help maintain FSC independence. - Grant the 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 the number of supervisors and training to achieve a higher rate of on-site inspections. - AML/CFT - Consolidate criminal laws on money laundering; extend powers presently available only in drug-related money-laundering cases to other crimes. - Enact proposed mutual legal assistance legislation. - Prosecutors and police should pursue cases as they arise to create deterrence against misfeasance by professional service providers. - Update the FSC’s AML Guidance Notes to reflect terrorist financing risks. - Supervise bureaux de change and money transmitters for compliance. - Conduct risk assessments of designated non-financial businesses and professions not presently supervised and extend monitoring authority as appropriate. ### Scope, context, and institutional framework - Assessment scope: - Basel Core Principles for Effective Banking Supervision (BCP); - IAIS insurance core principles (ICP); - FATF 40+9 Recommendations on AML/CFT. - The assessment is a follow-up to the 2001 IMF assessment under the offshore financial center program and uses revised standards (2003 FATF, 2003 ICP). - Financial Services Commission (FSC): - Supervises banks and building societies, investment businesses, insurance companies, investment services, company management, professional trusteeship, insurance management, and insurance mediation. - Established under the FSC Ordinance (FSCO) 1989. - Governor of Gibraltar appoints an eight member Commission with the Commissioner as Chairman (subject to U.K. Foreign and Commonwealth Secretary approval). - Key powers also vested in the Commissioner through the Banking Ordinance (1992) and the Insurance Companies Ordinance (1987). - AML/CFT legal framework: - Money laundering legal framework divided into the Drug Trafficking Offences Ordinance (1995) (DTOO) and the Criminal Justice Ordinance (1995) (CJO). - Terrorism financing addressed by the Terrorism Ordinance (2005) and U.K. Terrorist Orders (2001 and 2002). - Gibraltar FIU (GFIU) embedded in the Gibraltar Criminal Intelligence Division (GCID) and is a member of the Egmont Group. - The FSC has issued Anti-Money Laundering Guidance Notes (AMLGNs). ### Financial system structure and key activities - Financial sector composition: - Primarily branches or subsidiaries of international firms; most firms provide services to nonresidents. - Banking (nonresident services): - Investment services to nonresident clients are the most important function by value added. - Banks provide wealth/asset management, fiduciary deposits from parent banks common, mortgage lending for properties in southern Spain and Portugal provided by some banks. - Credit risk is low and usually well secured; little market and liquidity risk. - Insurance sector developments: - Sector growing; as of March 2006, 50 insurance companies licensed in Gibraltar. - Seven had notified they would be passporting 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. - Two locally incorporated firms provide insurance services to Gibraltar residents. - Recommendation: consider legislation to provide protection to domestic insurance policy holders insured with Gibraltar insurers. - Investment firms and CIS: - Majority of investment services provided by banks; several non-bank investment firms also active. - 48 CIS registered; only five domiciled in Gibraltar and supervised directly by the FSC. - Under Financial Services (Experienced Investor Funds) Regulations (2005) six experienced investor funds established with investor thresholds: minimum net worth/assets of Euro 1 million or minimum investment of Euro 100,000. - Trust and company service providers and intermediaries: - Sector stable; includes large international firms and domestic firms. - 14 bureaux de change and one money transmission agent outside the banking system. - Legislation drafted to make the FSC responsible for licensing and supervision of bureaux de change and money transmission services. - Online gaming: - Fifteen licenses issued. - Employment increased from 550 to about 1,350 people. - One land-based casino with annual turnover of about £ 6 million per year. ### Main findings and cross-sector recommendations - Legislative initiatives underway: modernization of the FSCO, draft money services business ordinance, Approved Persons Regime (APR), bill to strengthen powers to obtain and exchange information. - FSC governance: - Recommendation to vest regulatory and supervisory powers in an independent and well constituted FSC Board rather than the Commissioner. - Board appointments should be transparent and include experienced local and international representatives. - FSC independence could be bolstered by authority to set its own fees; FSC presently partly dependent on Government subventions and cannot fix fees. - Formalize indemnification for supervisory staff defending litigation. - Cross-border cooperation: - Gibraltar became a member of IOSCO in 2005 and intends to sign IOSCO’s MMOU in 2007. - Since 2004 admission to the Egmont Group, the GFIU has responded to all 40 requests received and initiated ten requests. - Proposed Financial Services (Information and Cooperation: Powers and Confidentiality) Ordinance would consolidate cooperation powers and permit domestic agency exchange. ### Sectoral assessments — Banking - High standard of compliance with the Basel Core Principles. - Prudential requirements based on EU minimum requirements and U.K. prudential rules; FSC required to match U.K. standards. - Proposed Approved Persons Regime would enhance effectiveness of approvals for directors, managers, and key staff. - Risk-based supervision system (introduced 2001, enhanced recently) is well designed with risk categories and an impact score to derive supervisory intensity. - FSC lacks power to levy civil money penalties but has a wide range of other powers and achieves compliance. ### Sectoral assessments — Insurance - Insurance supervision compliant with the majority of the Insurance Core Principles. - Legislative framework in place; detailed guidance notes prepared. - Senior supervisors experienced; supervisors have adequate powers of intervention and enforcement. - On-site inspections increasing via a risk-based approach; inspections: five insurance managers in 2005 and nine in 2006. - Staffing: operational insurance supervision staff of four, with two regulators recruited within past two years and undergoing structured training. - Recommendations include introduction of the Approved Persons Regime and completion of the on-site inspection cycle to confirm application of underwriting procedures, operational risk control, provisioning, and AML/CFT procedures. - Reporting time for annual accounts is six months after year end; recommendation to reduce to four months. ### AML/CFT assessment — principal deficiencies and recommendations - Principal AML risk lodged in the professional sector (lawyers, accountants and TCSPs) for layering and integration of proceeds of crime. - Legal and institutional deficiencies: - Money laundering offense split between DTOO and CJO hampers prosecutions; recommendation to consolidate into a single statute. - Mutual legal assistance limited for investigative-stage assistance to non-EU countries outside drug cases; proposed MLA legislation should be enacted. - Some placement risk related to drug trafficking, migrant smuggling, and organized crime in southern Spain. - FSC’s AML Guidance Notes need updating to reflect terrorist financing; key provisions should be reflected in law or regulation. - Bureaux de change and the single nonbank money transmitter are not effectively supervised; remedy via Money Services Business Ordinance and supervisory powers recommended. - The GFIU functions need clearer public explanation; consider clarifying authority to issue “nonconsent” letters and freezing authority. - DNFBPs (lawyers, notaries, accountants, high value goods dealers, real estate agents) are subject to STR requirements under the CJO but lack oversight and local monitoring; no authority designated to monitor them. - FATF ratings highlights (selected): - Recommendation 1. ML offence — PC. - Recommendation 5. Customer due diligence — PC. - Recommendation 12. DNFBP–R.5, 6, 8–11 — PC. - Recommendation 23. Regulation, supervision and monitoring — PC (no supervision for bureaux de change or the non-bank money remitter). - Recommendation 28. DNFBP—regulation, supervision and monitoring — PC. - SR.IX Cash border declaration and disclosure — NC (no declaration or disclosure system in place). - Recommended AML/CFT reforms (summary actions): - Consolidate ML offences (DTOO and CJO) and expand predicate offences (e.g., criminalize migrant smuggling as indictable). - Consolidate and strengthen asset forfeiture and seizure powers (extend powers beyond drug-related cases; allow detention of suspect cash at border). - Enact proposed MLA legislation and promulgate orders to register/enforce external confiscation orders. - Provide clearer public explanations and documented procedures for GFIU functions; amend gambling laws to require reporting to GFIU. - Subject bureaux de change and money transmitters to licensing, supervision, and sanctioning powers; ensure money/value transfer services agents lists maintained. - Strengthen CDD, recordkeeping, STR procedures, PEP treatment, and wire-transfer rules in law or regulation rather than guidance alone. - Extend AML/CFT oversight, guidance, and sanctions to DNFBPs not currently supervised and ensure designated competent authorities are represented in the Enforcement Group. - Repeal legislation allowing share warrants to bearer and ensure Companies House database searchable by relevant fields; consider limiting asset protection trusts and “flee clauses.” ### Key statistics (Table 1: Gibraltar: Financial System, 2001–06; figures as presented) - Banking - Number (banks): 19 (2001), 19 (2002), 18 (2003), 17 (2004), 18 (2005), 18 (2006) - Branches: 9 (2001), 8 (2002), 8 (2003), 6 (2004), 7 (2005), 7 (2006) - Subsidiaries: 10 (2001), 11 (2002), 11 (2003), 11 (2004), 11 (2005), 11 (2006) - Total assets (end-December; in billions of £): 5.2 (2001), 5.6 (2002), 4.9 (2003), 4.8 (2004), 5.7 (2005), 8.4 (2006) - Assets under management (in billions of £): 5.9 (2001), 5.5 (2002), 5.2 (2003), 5.2 (2004), 5.2 (2005), 6.5 (2006) - Insurance - Companies (number): 17 (2001), 22 (2002), 31 (2003), 39 (2004), 46 (2005), 50 (2006) - Life: 1 (2001), 2 (2002), 2 (2003), 2 (2004), 3 (2005), 3 (2006) - Non-life: 6 (2001), 10 (2002), 16 (2003), 24 (2004), 30 (2005), 33 (2006) - Reinsurance: 4 (2001), 4 (2002), 3 (2003), 1 (2004), 3 (2005), 3 (2006) - Captives: 6 (2001), 6 (2002), 10 (2003), 12 (2004), 10 (2005), 11 (2006) - Total assets (in billions of £): ... (2001), ... (2002), 0.9 (2003), 1.4 (2004), 2.0 (2005), ... (2006) - Intermediaries (number): 27 (2001), 29 (2002), 27 (2003), 28 (2004), 29 (2005), 30 (2006) - Of which: Life: ... (2001), ... (2002), 20 (2003), 20 (2004), 20 (2005), 20 (2006) - Managers (number): 7 (2001), 7 (2002), 7 (2003), 6 (2004), 8 (2005), 8 (2006) - Investment - Investment firms: 24 (2001), 26 (2002), 23 (2003), 22 (2004), 25 (2005), 26 (2006) - Dealers: 6 (2001), 8 (2002), 6 (2003), 4 (2004), 5 (2005), 5 (2006) - Managers: 18 (2001), 18 (2002), 17 (2003), 18 (2004), 20 (2005), 20 (2006) - Principal dealer: 0 (2001), 0 (2002), 0 (2003), 0 (2004), 0 (2005), 1 (2006) - Funds under management (in billions of £): 1.2 (2001), 1.4 (2002), 1.0 (2003), 1.0 (2004), 1.4 (2005), 3.7 (2006) - Collective Investment Schemes (CIS) - CIS (recognized; UCITS/FSA): 44 (2001), 44 (2002), 44 (2003), 42 (2004), 42 (2005), 43 (2006) - CIS (authorized): 1 (2001), 1 (2002), 2 (2003), 4 (2004), 4 (2005), 5 (2006) - Total assets (in millions of £): 20.8 (2001), 11.9 (2002), 12.4 (2003), 162.3 (2004), 221.8 (2005), ... (2006) - Experienced investor funds: n.a (2001), n.a (2002), n.a (2003), n.a (2004), n.a (2005), 6 (2006) - Fund related activity: - CIS operator: 1 (2001), 3 (2002), 2 (2003), 3 (2004), 2 (2005), 1 (2006) - CIS administrator: n.a (2001), n.a (2002), 0 (2003), 1 (2004), 2 (2005), 4 (2006) - Trust and company service providers: 83 (2001), 78 (2002), 78 (2003), 80 (2004), 82 (2005), 82 (2006) ### Implementation and authorities’ response - Authorities have implemented most 2001 recommendations: - FSC significantly increased supervisory staff since 2001. - Risk-based supervisory approach adopted and on-site supervision enhanced. - Some measures await enactment of legislation: revised FSC Ordinance (protection of FSC staff), draft Approved Persons Regime (APR). - Authorities welcome the IMF assessment and the FSC highlights validation of its Risk Assessment Framework methodology. - Government acknowledges need for further legislative amendments to give effect to the 3rd Money Laundering Directive and to maintain AML/CFT standards. *Source: IMF staff report — Executive Summary and SROSC assessment excerpts (content unit: _cr07154).* ### Executive Summary ...................................................................................................... ### _cr07154 - Executive Summary ### Executive Summary — Key Findings - Gibraltar has a well-regulated financial sector and the Gibraltar authorities are concerned with protecting the reputation and integrity of Gibraltar as a financial center. - Gibraltar has a good reputation internationally for cooperation and information sharing. - The Financial Services Commission (FSC) has been assigned significant additional resources and has developed a well structured approach to the management of its resources that includes a risk-based approach to supervision. - Maintaining the independence of the FSC is central to the reputation of Gibraltar as a financial center; steps to implement a governance structure of the FSC that would bring it into line with best international practice should be helpful. - Banking supervision demonstrates 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. - The risk-based supervision system introduced in 2001, and recently enhanced, is well-designed. - Insurance supervision is compliant with the majority of the Insurance Core Principles. - On site inspections are being undertaken on a risk-based approach. - The FSC has confirmed that attention is being given to increasing the number of supervisors to achieve a higher rate of on-site inspections in a growing sector. - Gibraltar authorities have improved their AML/CFT regime and take a practical approach to implementing AML/CFT controls, focusing resources on providing effective international cooperation. - Despite progress, Gibraltar needs to take a number of steps to reflect the revised FATF 40 + 9 Recommendations: - The criminal laws on money laundering should be consolidated, and proposed legislation on mutual legal assistance should be enacted. - The FSC’s Anti-Money Laundering Guidance Notes need to be updated to cover terrorist financing, and some key provisions currently in the guidance notes need to be reflected in law or regulation. - Bureaux de change and money transmitters should be supervised for AML/CFT compliance. - The Government needs to conduct risk assessments of a number of designated non-financial businesses and professions and, as appropriate, extend AML/CFT supervision to them. ### Priority Recommendations (Box 1) - 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. ### Introduction — Scope and Context - This report assesses 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. - The assessment is a follow-up to the 2001 IMF assessment under the offshore financial center (OFC) program and takes into account revisions in standards. - The AML/CFT assessment is based on the revised 2003 FATF 40+9 Recommendations and covers trust and company service providers and other designated nonfinancial business and professions. - The ICP were revised in 2003 and the insurance sector assessment used the updated standard and methodology. - Gibraltar has welcomed multiple external reviews by the Offshore Group of Banking Supervisors (OGBS), the IMF, and the United Kingdom (U.K.). ### Political, Economic, and Financial Context - Gibraltar is an overseas territory of the United Kingdom. - Gibraltar has been a constituent of the European Union (EU) since 1973 under the U.K. Treaty of Accession, but is excluded from the common external tariff, the common agricultural policy, and the requirement to levy value-added tax (VAT). - Gibraltar’s economy is dominated by three sectors: tourism, ports and shipping, and financial services. - The economy has transformed from services linked to the Ministry of Defense to one increasingly reliant on financial services; internet gambling firms have established operations in Gibraltar. - Demographics and income: - Population: about 30,000. - Per capita GDP: some £18,000 in 2002/03. - Fiscal and tax framework: - Since 1967 an exempt company regime has applied to corporate taxation; exempt companies are those that are not owned by Gibraltarians and do not do business domestically. - Effective corporate tax rates range from 20 to 35 percent. - There are no capital gains tax, wealth tax, inheritance tax, estate duty, VAT, or sales tax. - Personal income tax contributes the bulk of fiscal revenue. - The government plans to reform the tax regime to comply with the European Union’s state aid rules; 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 service sector benefits from EU “passporting”; the number of entities seeking to passport out of Gibraltar has been increasing, particularly in the insurance sector. ### Financial System Overview — Legal and Institutional Framework - The Financial Services Commission (FSC) is the unified regulatory and supervisory authority for financial services. - The FSC supervises banks and building societies, investment businesses, insurance companies, investment services, company management, professional trusteeship, insurance management, and insurance mediation. - The FSC was established under the FSC Ordinance (FSCO) 1989. - FSC governance: - The Governor of Gibraltar with the approval of the U.K. Foreign and Commonwealth Secretary appoints an eight member Commission with the Commissioner as Chairman. - Key implementation authorities are vested in the Commissioner through separate legislation such as the Banking Ordinance (1992) and the Insurance Companies Ordinance (1987). - Main statutory accountability is an obligation to undergo periodic reviews commissioned by the Governor of Gibraltar; the latest statutory review covered supervisory activities and was undertaken during 2004 with the report published in 2005. - Main legal instruments governing financial regulation include: - The Banking Ordinance (1992) (and subsequent amendments). - The Insurance Companies Ordinance (1987). - The Financial Services Ordinance (1989 and 1998) and the Financial Services (Collective Investment Schemes) Ordinance 2005. - A Protected Cell Companies Ordinance was enacted in 2001. - AML/CFT legal framework: - Money laundering legal framework is divided into the Drug Trafficking Offences Ordinance (1995) (DTOO) and the 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 (FIU) embedded in the Gibraltar Criminal Intelligence Division (GCID), which is a member of the Egmont Group. - The FSC is responsible for AML/CFT supervision of entities it supervises and has issued Anti-Money Laundering Guidance Notes (AMLGNs). ### Financial Institutions and Market — Structure and Characteristics - Gibraltar’s financial sector consists primarily of branches or subsidiaries of international firms. - Given the limited size of the domestic market, most firms provide services to nonresidents and have identified niche markets or products. - Banking composition: - Total banks: 18. - All except one of the 18 banks are branches or subsidiaries of international banks. - Seven banks provide retail services to the very small domestic market; for only two of these does retail business constitute a significant part of their business. - The remainder focus almost exclusively on nonresident clients. *Source: IMF staff report — Executive Summary (content unit: _cr07154 - Executive Summary).* ### 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 activities and nonresident services - Investment services to nonresident clients are the most important function (in terms of value added) conducted by the banks in Gibraltar. - Banks provide wealth/asset management and related services; business is sourced via independent asset managers (located in Gibraltar or overseas), parent offices, or Gibraltar based marketing efforts. - Fiduciary deposits from parent banks are a common feature. - 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 for properties in southern Spain and Portugal is an important nonresident service provided by some Gibraltar banks in addition to asset management. - For tax reasons some banks book such mortgage activity out of their parent offices (e.g., in the United Kingdom), while Gibraltar banks provide all associated administration services. - 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. ### Insurance sector developments - The insurance sector has been growing in recent years. - As of March 2006, there were 50 insurance companies licensed in Gibraltar. - Seven had notified they would be passporting 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. - Two locally incorporated firms provide insurance services to Gibraltar residents; Gibraltar residents can purchase insurance through branches or agencies of EEA companies. - Insurance managers also provide brokering and accounting services for many companies licensed in Gibraltar. - A review of corporate governance in insurance is ongoing. - Recommendation: consider introduction of legislation to provide protection to domestic insurance policy holders insured with Gibraltar insurers. ### Investment firms, collective investment schemes, and non-bank providers - Most investment services are provided by banks; several non-bank investment firms also provide similar services. - Investment firms (role distribution): - Majority provide portfolio management services on a discretionary or non discretionary basis. - A few serve as securities brokers (investment dealers). - At least one provides spread betting services. - Collective Investment Schemes (CIS): - 48 CIS registered; only five 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. - 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. - The FSC does not consider the securities industry large enough to justify introduction of self-regulatory organizations. ### Trust, company service providers, and other intermediaries - Number of company and trust service providers has been fairly stable in recent years; sector comprises large international firms and domestic firms including professional accountancy firms, legal firms, and pure company management firms. - There are 14 bureaux de change and one money transmission agent outside the banking system. - Since the assessment, legislation to amend the Financial Services (Investment and Fiduciary Services) Act 1989 has been drafted that would make the FSC responsible for licensing and supervision of bureaux de change and money transmission services. ### Online gaming sector - Significant growth in online gaming: - Fifteen licenses have been issued. - Employment 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 - 2001 assessment covered banking, insurance, securities sectors, trust and company service providers; found supervision generally effective. - Banking: compliant or largely compliant with all principles. - Insurance: materially nonobservant with only one principle; observant or largely observant with the rest. - Areas for improvement identified: supervisory resources, on-site inspections, legislative protection of FSC staff, monitoring banks’ country risk, licensing procedures, oversight of compliance with AML procedures. - Authorities have implemented most 2001 recommendations: - FSC significantly increased supervisory staff since 2001. - On-site supervision addressed via adoption of a risk-based supervisory approach. - Some recommendations await enactment of legislation: revised FSC Ordinance (protection of FSC staff), draft Approved Persons Regime (APR). - FSC’s view: other measures may be equally or more effective than civil monetary penalties; updated BCP assessment concurs. - In securities, FSC considers industry not large enough to merit self-regulatory organizations. ### Main findings and recommendations — Cross-sector issues - Legislative initiatives underway at various stages: - Modernization of the FSCO, draft money services business ordinance, ordinance on an approved persons regime, and a bill to strengthen powers to obtain and exchange information. - Authorities indicated reforms to safeguard safety and soundness will be implemented promptly. - Governance of the FSC: - Current assignment of powers to the Commissioner and the FSC is unique and should be aligned with international best practices. - Recommendation: vest regulatory and supervisory powers in an independent and well constituted FSC Board rather than the Commissioner. - Board appointments should be transparent and include experienced representatives from within Gibraltar and internationally; FSC accountability should be clearly defined. - Independence bolstered by authority to set its own fees; currently FSC is partly dependent on Government subventions and cannot fix fees. - Protection of supervisory staff should be strengthened by formalizing indemnification for costs in defending litigation. - Cross-border cooperation and information exchange: - Gibraltar authorities devote resources to international cooperation; information shared through formal and informal channels. - Gibraltar became a member of IOSCO in 2005 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 that agree to reciprocity. - Draft legislation would extend privileges automatically to states that have ratified the UN Transnational Organized Crime Convention and address limitations on restraint orders and enforcement of confiscation orders in non-drug related money laundering cases. - Since 2004 admission to the Egmont Group, the Gibraltar FIU (GFIU) has responded to all 40 requests received and initiated ten requests. - FSC shares information subject to relevant ordinances; proposed Financial Services (Information and Cooperation: Powers and Confidentiality) Ordinance would consolidate cooperation powers, permit domestic agency exchange, and satisfy requirements to sign IOSCO’s MMOU. ### Sectoral assessments — Banking, Insurance, AML/CFT - Banking: - High standard of compliance with the Basel Core Principles for bank supervision. - Prudential requirements based on EU minimum requirements implemented via the Banking Ordinance 1992 and U.K. prudential rules as required by the FSC Ordinance. - Effectiveness of approvals for directors, managers, and key staff would be enhanced by adopting the proposed Approved Persons Regime. - Risk-based supervision (introduced 2001, recently enhanced) is well-designed; risk categories: financial soundness and capital; environment; business plan; controls; organization; management. Impact score calculated from weighted risks to derive supervisory intensity. - Insurance: - Insurance supervision compliant with the majority of the Insurance Core Principles. - Legislation clearly defining insurance regulation and supervision is in place; detailed guidance notes prepared. - Senior supervisors experienced in insurance and financial reporting; supervisors have adequate powers of intervention and enforcement and are increasing on-site inspections via risk-based approach. - Recommendation: consider legislation to provide protection to domestic insurance policy holders insured with Gibraltar insurers. - AML/CFT: - Authorities have implemented improvements in banking AML/CFT to align with evolving standards; FSC making progress in other sectors. - Principal AML risk lodged in the professional sector, exposed to layering and integration of proceeds of crime. - Some placement risk related to drug trafficking, migrant smuggling, and organized crime in southern Spain. - Most money laundering cases involving Gibraltar arise from international fraud investigations; traditional organized crime and drug-related cases are a minority. - Recommendations: - Consolidate criminal laws on money laundering; extend powers available in drug-related cases to money laundering 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 terrorist financing risks and incorporate key provisions into 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. ### Key statistics from Table 1. Gibraltar: Financial System, 2001–06 (as of end-March, unless otherwise specified) - Banking - Number (banks): 19 (2001), 19 (2002), 18 (2003), 17 (2004), 18 (2005), 18 (2006) - Branches: 9 (2001), 8 (2002), 8 (2003), 6 (2004), 7 (2005), 7 (2006) - Subsidiaries: 10 (2001), 11 (2002), 11 (2003), 11 (2004), 11 (2005), 11 (2006) - Total assets (end-December; in billions of £): 5.2 (2001), 5.6 (2002), 4.9 (2003), 4.8 (2004), 5.7 (2005), 8.4 (2006) - Assets under management (in billions of £): 5.9 (2001), 5.5 (2002), 5.2 (2003), 5.2 (2004), 5.2 (2005), 6.5 (2006) - Insurance - Companies (number): 17 (2001), 22 (2002), 31 (2003), 39 (2004), 46 (2005), 50 (2006) - Life: 1 (2001), 2 (2002), 2 (2003), 2 (2004), 3 (2005), 3 (2006) - Non-life: 6 (2001), 10 (2002), 16 (2003), 24 (2004), 30 (2005), 33 (2006) - Reinsurance: 4 (2001), 4 (2002), 3 (2003), 1 (2004), 3 (2005), 3 (2006) - Captives: 6 (2001), 6 (2002), 10 (2003), 12 (2004), 10 (2005), 11 (2006) - Total assets (in billions of £): ... (2001), ... (2002), 0.9 (2003), 1.4 (2004), 2.0 (2005), ... (2006) - Intermediaries (number): 27 (2001), 29 (2002), 27 (2003), 28 (2004), 29 (2005), 30 (2006) - Of which: Life: ... (2001), ... (2002), 20 (2003), 20 (2004), 20 (2005), 20 (2006) - Managers (number): 7 (2001), 7 (2002), 7 (2003), 6 (2004), 8 (2005), 8 (2006) - Investment - Investment firms: 24 (2001), 26 (2002), 23 (2003), 22 (2004), 25 (2005), 26 (2006) - Dealers: 6 (2001), 8 (2002), 6 (2003), 4 (2004), 5 (2005), 5 (2006) - Managers: 18 (2001), 18 (2002), 17 (2003), 18 (2004), 20 (2005), 20 (2006) - Principal dealer: 0 (2001), 0 (2002), 0 (2003), 0 (2004), 0 (2005), 1 (2006) - Funds under management (in billions of £): 1.2 (2001), 1.4 (2002), 1.0 (2003), 1.0 (2004), 1.4 (2005), 3.7 (2006) - Collective Investment Schemes (CIS) - CIS (recognized; UCITS/FSA): 44 (2001), 44 (2002), 44 (2003), 42 (2004), 42 (2005), 43 (2006) - CIS (authorized): 1 (2001), 1 (2002), 2 (2003), 4 (2004), 4 (2005), 5 (2006) - Total assets (in millions of £): 20.8 (2001), 11.9 (2002), 12.4 (2003), 162.3 (2004), 221.8 (2005), ... (2006) - Experienced investor funds: n.a (2001), n.a (2002), n.a (2003), n.a (2004), n.a (2005), 6 (2006) - Fund related activity: - CIS operator: 1 (2001), 3 (2002), 2 (2003), 3 (2004), 2 (2005), 1 (2006) - CIS administrator: n.a (2001), n.a (2002), 0 (2003), 1 (2004), 2 (2005), 4 (2006) - Trust and company service providers: 83 (2001), 78 (2002), 78 (2003), 80 (2004), 82 (2005), 82 (2006) *Source: Gibraltar FSC* ### APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES ### APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES ### General (BCP assessment) - Assessment 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. - Assessment team: Peter Hayward and Jorge Mogrovejo. - Legal and documentary basis: Financial Services Commission Ordinance, 1992 (FSCO); Banking Ordinance, 1992; Administrative Notices; Guidance Notes; Newsletters; previous BCP assessment (2001); statutory review published January 2005; FSC self-assessment. - Methodology: qualitative assessment based on the Core Principles Methodology document of October 1999, examining essential criteria and, where necessary, additional criteria. - A separate IMF team assessed compliance with FATF Recommendations for AML/CFT; that assessment amplifies CP 15 (1999 Basel methodology). ### Institutional and market structure — overview - Banking sector: - 18 banks with total assets of £8.4 billion as of end-2006. - Dominated by foreign ownership; the United Kingdom has 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. - No licensing distinction between banks conducting offshore and onshore business. - Majority of local market business done by two banking groups. - Offshore banking business: private banking services, mainly asset management to Swiss based customers and to the expatriate community in Spain and Portugal; includes 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: - Reputational risk (bulk of assets managed off balance sheet; investment risk carried by client). - Credit risk largely limited to residential mortgage lending; heightened by recent rapid rise in prices in Southern Spain and Gibraltar. - Banks report typical loan/value ratios of 60-70 percent for Spanish mortgages and substantial asset portfolios managed for borrowers. - In small domestic market, competition has led to higher loan value ratios for recent lending. - No recognized trading books in Gibraltar; treasury functions and liquidity management largely at head office — market and liquidity risk judged low. - Competitive position: - Gibraltar banks can provide services throughout the EU using “passport” arrangements. - Local Spanish and Portuguese banks provide money transmission and general banking services to expatriates but have not significantly competed in asset management/private banking. - Offshore business for tax-exempt companies and trusts is typically introduced by local law firms and service providers. - Tax exemption is due to be phased out to comply with EU state aid rules; business believed able to survive if unified corporate tax rate is not more than 10–15 percent. - A potential EU Court of Justice case could require Gibraltar to replicate the U.K. tax system (regarded locally as extremely unlikely). ### Institutional setup for supervision - The Financial Services Commission (FSC) is a unified regulatory and supervisory authority for banks, insurance companies, 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; Gibraltar must ensure supervision complies with EU Directives and matches U.K. supervisory standards where applicable. - Commissioner appointment: 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. ### General preconditions for effective banking supervision - Gibraltar has adopted and implemented EU directives in financial legislation as an EU member since 1973. - All except one bank are branches or subsidiaries of major international banking groups subject to consolidated supervision by home supervisors. - Accounting: - International Financial Reporting Standards (IFRS) adopted for all EU listed companies effective January 2005. - Some subsidiaries of listed companies continue to use older accounting standards despite consolidated group accounts using IFRS. - Limited liability companies must submit audited financial statements to the Registrar of Companies; statements are publicly available. - Company law, accounting, and auditing arrangements generally based on EU requirements and U.K. law and practice. - Judicial system judged good; credit culture strong with incidence of default reported as exceptionally low in local market. ### Main findings (BCP) - Overall: high standard of compliance with the Basel Core Principles; risk-based approach to supervision is well designed and implemented. - Key findings by principle (as summarized in the assessment): - Objectives, Autonomy, Powers, and Resources (CP 1): - FSC supervises all financial institutions and has established supervisory objectives and principles and has publicized them. - FSC is effectively independent from political and commercial pressure in operations, but partly dependent on Government subventions and cannot fix fees payable to it (the FSC’s main source of income). - Legal framework based on EU requirements and up to date. - FSC has sufficient powers and authority to ensure compliance and safety and soundness of the financial system. - Supervisors are protected from litigation although there is no formal indemnification of costs for staff defending litigation. - FSC can and does share information with other supervisory authorities, especially home supervisors. - Licensing and Structure (CPs 2–5): - Only authorized banks may take deposits in Gibraltar; licensing process is thorough. - Effectiveness of approvals for directors, managers, and key staff will be enhanced by adoption of proposed “approved persons” regime. - FSC has sufficient powers to ensure banks have reputable shareholders; nearly all banks are part of major international banking groups. - Prudential Regulations and Requirements (CPs 6–15): - Prudential requirements based on EU minimum requirements and U.K. prudential rules; FSC required to match U.K. standards. - Risk-based supervision system introduced in 2001 and recently enhanced; well designed and recognizes attributes of Gibraltar banking. - Credit risk is low and usually well secured; little market and liquidity risk (managed at head offices). - Credit concentrations are low. - Methods of Ongoing Supervision (CPs 16–20): - FSC has reduced reliance on reporting accountants and supplemented off-site supervision with structured on-site work by FSC staff. - Frequency of on-site work relatively infrequent reflecting low-risk banking business, but contact with bank management is frequent and ordered. - Reporting system is comprehensive and validated through reliance on internal and external audit and FSC staff visits. - FSC has powers for consolidated supervision but has not needed to use them so far. - Information Requirement (CP 21): - Accounting standards are high; most banks belong to groups subject to IFRS. - External auditors practice to International Standards for Auditing and belong to large international firms. - Formal Powers of Supervisors (CP 22): - FSC has no powers to 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): - Banks in Gibraltar have no offices in other jurisdictions; all banks have foreign owners. - FSC has adequate powers to exchange information with home supervisory authorities; some formal MOUs in place; cooperation not prevented in other circumstances. - A 2003 Court of Appeal case criticized internal disclosure processes in a particular instance but confirmed FSC’s cooperation powers; internal processes have been improved. - A proposed new co-operation ordinance should consolidate and simplify existing powers. ### Table 2 — Recommended Action Plan to Improve Compliance (summary) - 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 - The FSC welcomes the IMF assessment of its compliance against the BCP and thanks the IMF for their skill and diligence. - FSC highlights the assessment’s validation of its recent work in banking supervision, particularly the Risk Assessment Framework methodology designed and implemented by FSC staff and deployed across supervisory functions. --- ### Summary Assessment of Observance of the IAIS Insurance Core Principles General - Assessment conducted as part of Module 2 in IMF offshore financial centre assessment program. - Mission to Gibraltar during March 6–17, 2006; assessment reflects practices and circumstances at that time. - Assessor: William McCullough. - Purpose: measure application of IAIS insurance core principles adopted in 2003 to Gibraltar’s insurance industry and ensure legislation provides sufficient enforcement powers. - Information sources: supervised insurance managers, brokers, agents, auditors, insurance supervision staff, FSC; guidance notes and sample file testing for application processes, financial returns, and off-site monitoring. - Considerable assistance provided by the FSC; no limiting factors in discussions. Institutional and macroprudential setting — overview (insurance) - Domestic insurance market small: - Two locally incorporated insurance companies and one agent of an EU member state in the domestic sector. - 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 operational office facilities. - Foreign establishments operating in Gibraltar are EU based and covered by EU freedom of establishment directive. - There are eleven substantial single parent captive insurers also licensed. - Insurance supervision department staffing: - Operational staff of four, including head of insurance supervision and the insurance manager (an accountant), with many years of insurance experience. - Two other regulators recruited within the past two years and undertaking structured training program. Main findings (insurance) - Industry growth: - Insurance industry has been growing; new applications and inquiries up on last year. - 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 matters: - All EU directives have been incorporated into law. - Proposed “Approved Persons Regime” intended to strengthen corporate governance pending consideration by the Gibraltar Legislative Assembly. - Recent review compared Gibraltar regulation and supervision with U.K. standards; main recommendation related to Capital adequacy and Solvency. - Capital Adequacy requirement in Gibraltar already exceeds the minimum requirement of the EU directive on this issue. - Strengths and capacity needs: - Gibraltar benefits from EU membership for offshore insurance business (passporting is main growth driver). - Application process efficient; supervisor and Commissioner accessible for decision making; operating costs considered a factor. - Infrastructure small but effective; effective use of sanctions and custodial management demonstrated. - Senior insurance supervisors experienced with specific skills in insurance and financial reporting. - With fast regulatory portfolio growth, attention needed to training and increasing regulator numbers; current team unlikely to complete on-site inspections cycle in immediate future. Organization of supervisor (insurance) - FSC has established policy and objectives effectively considered in supervision. - Legislation clearly defines insurance supervision objectives; reporting processes supported by issued guidelines. - Supervisory authority is independent with adequate intervention and enforcement powers; powers have been used when required. - Structure defined: insurance companies and intermediaries supervised by insurance supervisory authority; intermediaries also covered by investment division. - Supervisory authority operates transparently and publishes rules, procedures, and annual report on its web site. - Supervisors can share information with other supervisors, taking confidentiality into consideration. *Source: APPENDIX I. REPORTS ON THE OBSERVANCE OF STANDARDS AND CODES (assessment material as provided).* ### 61. The requirements for licensing are clearly set out in guidelines issued by the ### _cr07154 - 61. The requirements for licensing are clearly set out in guidelines issued by the ### Licensing, approvals, and suitability of persons - Licensing requirements 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 detailed scrutiny of applications and changes in control; all changes in control are treated the same as new applications. - The FSC is in the process of introducing an “Approved Persons Regime” this year to facilitate these controls. ### 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 covering an Approved Persons Regime will incorporate Corporate Governance principles into Law. - Corporate Governance was a particular focus in the initial on-site inspection program. - A 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; however, 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 sanctions - Submission requirements for 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 Supervisors and action is taken when required. - Reporting time for annual accounts is presently six months after year end; U.K. reviewers recommended shortening this period and the FSC is considering this. - 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: 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 proposed on-site inspections. - The initial on-site inspections focused on Corporate Governance; the program has been extended to include a wide range of management risks. - All 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. ### Table 3 — Selected Recommended Action Plan items (as presented) - 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 welcome the findings of the IMF assessment of compliance with IAIS standards and have already actioned the recommendations made. - The FSC accepts the findings, recognizes high level of compliance, and remains committed to applying new standards as they evolve. ### FATF 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 a team composed of IMF staff and using the AML/CFT Methodology 2004. - The report summarizes observance with the Financial Action Task Force (FATF) 40+9 recommendations and provides recommendations to strengthen observance. - The assessment reviewed institutional framework; relevant AML/CFT laws, regulations, guidelines, and other requirements; regulatory and other systems to deter and detect money laundering (ML) and the financing of terrorism (FT) through financial institutions and designated nonfinancial businesses and professions (DNFBPs); and examined capacity, implementation, and effectiveness of these systems. - 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 observations and risks - Gibraltar authorities have implemented improvements to their AML/CFT regime to keep abreast of evolving standards. - Gibraltar’s financial center is important to the economy and authorities prioritize maintaining its reputation as a well regulated center. - Gibraltar has welcomed multiple external reviews by OGBS, the IMF, and the United Kingdom. - The principal AML risk is lodged in the professional sector (lawyers, accountants and TCSPs), likely to be involved in layering and integration of proceeds of crime. - Some risk exists at the placement stage connected with 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 comprise a minority. ### Legal systems and institutional measures — key deficiencies and recommendations - The money laundering offense is split between two statutes: the Drug Trafficking Ordinance and the Criminal Justice Ordinance; this split hampers prosecutions because the government must prove the connection between a specific predicate offense and the ML offense. - Mutual legal assistance 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. - The Financial Services Commission's Anti-Money Laundering Guidance Notes need updating to reflect risks associated with terrorist financing; some key provisions should be reflected in law or regulation; bureaux de change and non-bank money transmitters need supervision for AML/CFT compliance. - Recommendation: consolidate the provisions of the CJO and the DTOO into a single statute so there is one money laundering offense with a series of indictable predicate offenses; this would strengthen prosecutorial powers and follow-up on suspicions, particularly involving professional advisors. - Given two money laundering cases from Gibraltar that were overturned on appeal, training for the bench and bar on international developments in money laundering law may be advisable. - Gibraltar implemented U.K. terrorism orders post-September 11, 2001, and 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, producing practical difficulties (for example, inability to detain suspect cash at border unless it can be proved to represent 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 clearer public explanation of its authority and functions, especially regarding STRs related to terrorism. - The government should consider promulgating explicit freezing authority to the GFIU and/or GCID in light of the questionable legal basis for the practice of freezing accounts on the basis of “nonconsent” letters. ### Preventive measures — financial institutions - Gibraltar authorities have established a robust, risk-based regulatory and supervisory framework for AML; the FSC has taken the lead and 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 further strengthened to better capture financing of terrorism considerations. - The FSC conducts on-site inspections and off-site analysis, can compel production of records, and can impose sanctions for noncompliance. - The FSC supervises banks and building societies, investment businesses, insurance companies, and controlled activities (investment services, company management, professional trusteeship, insurance management and insurance intermediation). - Outside FSC supervisory scope: the Gibraltar Savings Bank (state-bank), bureaux de change, and (nonbank) money transmitters. The Gibraltar Savings Bank is subject to oversight by the Treasury and government auditors. ### Preventive measures — weaknesses in bureaux de change and money transmitters - Weak oversight and ineffective supervision of bureaux de change and the single nonbank money transmitter are current weaknesses. - Bureaux de change are licensed by the Bureaux de Change Committee headed by the Financial and Development Secretary; they are subject to the FSC Guidance Notes but oversight is limited to a single customs investigating officer with no remit to check compliance and very limited sanctioning powers. - 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 in an OGBS review in 2001; three bureaux de change were closed in connection with a UK money-laundering investigation in 1998, but the risk remains unaddressed. - There is only one money transmitter in Gibraltar outside the banking industry; it is not licensed, registered, regulated or supervised. ### Policy actions underway for money services and DNFBPs - A draft Money Services Business Ordinance has been developed but not finalized; it would capture bureaux de change and money transmitters and subject them to oversight by a government committee. - The current proposal is that the FSC commissioner would head this Committee. - 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 equivalent oversight; the internet-based gambling industry is subject to limited oversight and is transitioning to a new system under the Gambling Ordinance 2005 involving a commissioner, regulatory team and an ombudsman. - Currently, 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. *Italic: Excerpt from IMF assessment text provided in content unit _cr07154* ### 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, legal framework, and supervision - 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. - The assessment team is not aware of any process that has been undertaken to determine the appropriate level of monitoring for the remaining DNFBP sectors. No authority has been designated responsibility for such monitoring. ### Charities supervision - The Charities Ordinance provides a framework for supervision of charities by the Charities Board (the “Board”). - Requirements for registration of charities with the Board 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; 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 and arrangements (trusteeship, company service providers) - Only persons licensed under the Financial Services Ordinance can form and manage companies in Gibraltar; they are subject to preventive measures and oversight on the same terms as banks and other traditional financial service providers. - The FSC has applied its 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 to do from years ago in negotiations with the OECD, and ensure that Companies House’s data base is searchable by all relevant fields. - Continued existence of asset protection trusts and flee clauses noted; competent law enforcement authorities may not have timely access to adequate, accurate and current information on beneficial ownership and control. ### National and international cooperation, conventions, and MLA - 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 of those in the conventions; the mission recommends that the United Kingdom move swiftly to extend the provisions of these conventions to Gibraltar. - Gibraltar enacted legislation extending investigative-stage cooperation privileges to non-EU states provided such states agree to reciprocity; draft legislation would extend privileges automatically to all states that have ratified the UN Transnational Organized Crime Convention and would address limitations on restraint orders and registration/enforcement of confiscation orders in nondrug-related money laundering cases. - Mutual legal assistance (MLA) limitations: 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. - Extradition: Money-laundering is an extraditable offense; Gibraltar can extradite its own nationals for money laundering; Gibraltar 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. ### Financial intelligence unit (GFIU) and information sharing - Since admission 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 received and has initiated requests; in several cases contributed to overseas investigations. - The FSC regularly shares information with other international competent authorities; court guidance requires the commissioner to satisfy conditions before sharing information with foreign supervisors. - 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 who would provide a copy to the GFIU; the GO currently allows the Gambling Commissioner—not the GFIU—to decide to disseminate disclosures to law enforcement authorities. - Legal requirements for STRs relating to financing of terrorism are confusing; the March 2006 amendment to the AMLGNs partly addresses this for the sector regulated by the FSC. - The circumstance and extent to which the GFIU can and will obtain additional information from reporting businesses are not clear. ### Law enforcement, supervisors, and resources - Dedicated, specialized law enforcement resources are responsible for ML and TF cases; authorities work closely with foreign counterparts and use special investigative techniques in ML and Financing of Terrorism cases. - Through production orders and search warrants authorities may obtain relevant documents held by financial institutions and others; witness statements may be obtained. - No oversight for bureaux de change or money transmitters. - The Royal Gibraltar Police, Customs, and GFIU are adequately staffed by qualified, specialized professionals; independence of police is ensured by their reporting to the governor. - Customs is a major revenue source for the Government. - The FIU, as a police style body integrated into police and customs framework, could benefit from formal clarification of their role. - Compliant for FSC; inadequate resources for oversight of bureaux de change and money transmitters. - DNFBP oversight authorities (excluding FSC with respect to TCSPs) are not represented in the Enforcement Group. ### Statistics, recordkeeping, and reporting - No statistics kept by the attorney general on prosecutions and convictions; the police have statistics on the number of money-laundering charges laid. - Authorities do not keep consolidated statistics readily available; agencies should keep more detailed statistics. - The FSC has no information on the level of compliance in the 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 or High Value Dealers. - GFIU produces statistics on STR disclosures and usefulness of disseminations to police and customs. - The authorities maintain reliable records on mutual legal assistance and extradition requests (including freezing, seizing, and confiscation) related to ML, predicate offenses, and international money-laundering investigations and prosecutions, though consistent information was not always promptly available to the assessment team. - Gibraltar maintains records on extradition requests and international arrest warrants, but did not have statistics readily available for the assessors. ### Ratings: FATF 40+9 Recommendations — summary findings and key deficiencies - The assessment follows the 2004 Methodology and rates compliance as: compliant (C), largely compliant (LC), partially compliant (PC), non-compliant (NC), or not applicable (NA) in exceptional cases. - Selected ratings and underlying factors (non-exhaustive summary): - Recommendation 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.” - Recommendation 2. ML offence–mental element — C - “This Recommendation is fully met.” - Recommendation 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 proceeds were legitimate shifts only in drug-related cases. - Recommendation 4. Secrecy laws consistent with the Recommendations — C - Recommendation 5. Customer due diligence — PC - Several criteria have not been appropriately addressed in law or regulation; they are instead part of the Guidance Notes. - Recommendation 6. Politically exposed persons — LC - Bureaux de change, the Gibraltar Savings Bank, and money transmitters (outside of banks) are weak as to implementation. - Recommendation 7. Correspondent banking — LC - Need to ensure that information has been gathered on respondents. - Recommendation 8. New technologies & non-face-to-face business — PC - Implementation of new language and lack of oversight for bureaux de change, the Gibraltar Savings Bank, and money transmitters. - Recommendation 9. Third parties and introducers — PC - Controls relative to reliance on intermediaries have not been established. - Recommendation 10. Record keeping — PC - Two criteria need to be addressed in law or regulation; policies and procedures of bureaux de change and stand-alone money transmitter must be reviewed. - Recommendation 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. - Recommendation 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) subject to more robust standards through the AMLGNs. - Recommendation 13. Suspicious transaction reporting — LC - Some confusion over who to report to; STRs on attempted transactions are not explicitly required. - Recommendation 14. Protection & no tipping-off — C - Recommendation 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. - Recommendation 16. DNFBP–R.13–15 & 21 — PC - Reporting requirements and tipping off provisions exist, but significant attention needed on audit and dealing with clients from outside Gibraltar; lack of effective oversight of most DNFBPs other than FSC supervised TCSP sector. - Recommendation 17. Sanctions — LC - Bureaux de Change and money transmitters are not subject to adequate sanctions; range of supervisory sanctions apply for the TCSP and internet based gambling sector, but few for the land based casino or other DNFBP entities. - Recommendation 18. Shell banks — C - Recommendation 19. Other forms of reporting — C - Authorities considered and rejected threshold based reporting based on valid reasons. - Recommendation 20. Other NFBP & secure transaction techniques — C - Recommendation 21. Special attention for higher risk countries — LC - Efforts by bureaux de change and stand-alone money transmitter need review; extend to include TF. - Recommendation 22. Foreign branches & subsidiaries — C - Recommendation 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. - Recommendation 24. DNFBP—regulation, supervision and monitoring — PC - Effective monitoring arrangement for high risk TCSP sector; Gambling Ordinance implementation and resourcing of the GRA would provide framework to monitor gambling sector, but until that occurs monitoring level is low. - Disciplinary action for lawyers exists but unclear how non-compliance with AML/CFT obligations would be brought to attention of relevant authorities. - Recommendation 25. Guidelines & Feedback — PC - Existing guidance does not address techniques/methods associated with terrorist financing; no feedback or guidance for bureaux de change and stand-alone money transmitters; little guidance for DNFBP categories outside TCSPs, internet gambling and high value dealers. - Recommendation 26. The FIU — LC - A clear public record of GFIU’s functions should be issued. - Gambling Ordinance implementation would affect disclosure flows to GFIU. - Legal requirements for STRs on TF are confusing; March 2006 amendment partly addresses sector regulated by FSC. - Recommendation 27. Law enforcement authorities — C - Recommendation 28. Powers of competent authorities — C - Recommendation 29. Supervisors — LC - No oversight of bureaux de change or money transmitters. - Recommendation 30. Resources, integrity and training — LC - Compliant for FSC; inadequate resources for oversight of bureaux de change and money transmitters. - Recommendation 31. National cooperation — LC - DNFBP oversight authorities (excluding FSC) are not represented in the Enforcement Group. - Recommendation 32. Statistics — PC - No AG statistics on prosecutions/convictions; police have ML charge statistics; agencies should keep more detailed statistics. - Recommendation 33. Legal persons–beneficial owners — LC - Share to warrants should be abolished and Companies House registry should be searchable by multiple fields. - Recommendation 34. Legal arrangements – beneficial owners — LC - Asset protection trusts and flee clauses remain; timely access to beneficial ownership/control information may be limited. - Recommendation 35. Conventions — PC - The Vienna Convention has not been extended to Gibraltar. - Recommendation 36. Mutual legal assistance — LC - General willingness to provide full cooperation limited by investigative-stage assistance restrictions for non-EU countries outside drug cases. - Recommendation 37. Dual criminality — C - Recommendation 38. MLA on confiscation and freezing — PC - Significant impediments: (1) except in drug-related cases, no power to secure restraint or charging orders during pendency of proceedings or to detain suspect cash at the border; (2) governor has not promulgated an order listing countries whose non-drug related confiscation orders may be registered and enforced in Gibraltar despite authority provided in the CJO over ten years ago. - Recommendation 39. Extradition — PC - Money-laundering extraditable; proven cooperation record; procedural/evidentiary limitations noted. - Recommendation 40. Other forms of co-operation — C ### Nine Special Recommendations (SR) — summary 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 - “This Recommendation is fully met. While there have been no charges of terrorist financing, two accounts have been frozen on the suspicion as they are terrorist funds.” - SR.III Freeze and confiscate terrorist Assets — LC - Broad legal authorities exist and have been applied in two cases; disconnection in the financial community concerning affirmative obligations under UNSCR 1267 and EU regulations. - SR.IV Suspicious transaction reporting — LC - Filing procedures under 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; full and effective cooperation in extradition would not be prevented by law or practice, but lack of specific experience prevents a fully compliant rating under the 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 significant. - SR.VII Wire transfer rules — LC - Application by the stand-alone money transmission agent is unknown given 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 is ineffective with respect to proceeds of unknown origin.” *Source: Excerpt from assessment document provided in the content unit.* ### 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 ### Summary of purpose - Table 5. Recommended Action Plan to Improve the AML/CFT System: 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. - 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) so 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 actions listed beyond heading.) - Confiscation, freezing and seizing of proceeds of crime (R.3 & 32) - Consolidate the asset forfeiture provisions of the CJO and DTOO, taking advantage of the best features of each; extend reversal of burden of proof beyond drug-related confiscation; allow cash seized at the border to be detained on suspicion it is proceeds of or intended to be used in any crime, not just drug trafficking. - Enact 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. - 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, including incorporation into AML/CFT compliance programs and reporting to authorities on transactions possibly 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. - GFIU to prioritize establishing contact with sectors not regulated by the FSC to provide education and guidance on reporting obligations and procedures 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 document types, protect computer-retained information, and authorize 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 specific actions listed beyond heading.) - 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 sufficient information on the reputation and supervisory arrangements for the respondent. - Ensure bureaux de change, the Gibraltar Savings Bank, and money transmitters consider 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, beneficial owner, and legal status of legal persons or arrangements; include beneficial ownership requirements in law or regulation. - Require financial institutions have access, without delay, to identification or other relevant documentation housed with intermediaries. - Require institutions have processes to assess whether an institution within the EU may be accepted as an intermediary. - Determine the extent industry has allowed intermediaries under the fourth scenario of the AMLGNs (paragraph 4-85) and ensure appropriate due diligence information is now obtained. - Ensure 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 actions listed beyond heading.) - Record keeping and wire transfer rules (R.10 & SR.VII) - Address 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. - Address in law or regulation the requirement that institutions maintain records in a way to provide information to appropriate authorities on a timely basis when authorized. - Verify bureaux de change and the stand-alone money transmitter are effectively implementing record keeping requirements. - Monitoring of transactions and relationships (R.11 & 21) - Ensure bureaux de change and the stand-alone money transmitter apply risk-based procedures for relationships and transactions from persons outside Gibraltar. - Extend discussion on equivalency to include considerations related to TF. - Suspicious transaction reports and other reporting (R.13, 14, 19, 25 & SR.IV) - Clarify reporting obligations for STRs related to money laundering (GFIU vs. GCID vs. “customs and police”). - Clarify by law or regulation where reporting entities should file STRs related to TF in Gibraltar. - Ensure requirements are 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, potentially above a threshold. - Amend laws to enable customs and police to detain currency and negotiable instruments that are falsely disclosed or suspected of being related to TF or ML. - Amend laws to enable authorities to confiscate such seized currency and negotiable instruments under appropriate circumstances consistent with SR IX. - Internal controls, compliance, audit and foreign branches (R.15 & 22) - Extend AMLGNs to include TF in controls and training. - Ensure financial institutions have internal audit or other mechanism to check compliance with the AMLGNs, including bureaux de change and the stand-alone money transmitter. - Extend hiring standards to insurance firms, bureaux de change, and money transmitters. - Shell banks (R.18) - (No specific actions listed beyond heading.) - The supervisory and oversight system – competent authorities and SROs - Role, functions, duties and powers (R.23, 30, 29, 17, 25 & 32) - Address lack of “effective, proportionate, and dissuasive” sanction regime for both bureaux de change and nonbank money transmitters in AML/CFT. - Address lack of effective oversight for bureaux de change. - Ensure all financial institutions are subject to requirements that prohibit criminals or their associates from holding or being beneficial owner of significant or controlling interest or holding a management function. - Extend the AMLGNs to focus on TF as well as ML. - Ensure authority responsible for bureaux de change and money transmitters is given appropriate regulatory powers and resources to conduct oversight, compel records, require remediation, and issue sanctions. - Money value transfer services (SR.VI) - Ensure all entities that provide money or value transfer services are licensed and supervised. - Require principals keep lists of all agents of money and value transfer service providers. - Develop mechanism to ensure 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 CDD requirements for all categories of DNFBPs not subject to the FSC issued AMLGNs, including ongoing monitoring; obtaining information on purpose and intended nature of the business relationship; performing enhanced due diligence on higher risk customers or relationships; prohibiting opening accounts or commencing relationships when appropriate CDD information not provided. - 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 DNFBPs are subject to adequate requirements for PEP clients or business relationships. - Address risks associated with new technologies and nonface-to-face business. - Develop requirements for DNFBPs on large, complex or unusual transactions to ensure review, written findings kept for five years. - Address lack of sanctioning ability for DNFBPs, other than TCSP, in conducting appropriate CDD. - Finalize development and release of the regulations for the Conduct of Business (Fiduciary Services). - Finalize new licensing agreement for the sole land based casino and include specific observance to need to comply with the AMLGNs. - Afford priority to implementation of the new gambling Ordinance and resourcing of the GRA; GRA to give priority to releasing a Code of Conduct specifying expectations for license holders to meet AML/CFT obligations; reference to and adherence with such 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. - Remove current s 33(1)(2) requirement in new gambling ordinance that requires gambling licensees first to make disclosures to the gambling commissioner instead of the GFIU to maintain confidentiality of the disclosure system. - Regulation, supervision, monitoring, and sanctions (R.17, 24 & 25) - Extend provisions for internal control systems to cover TF in addition to AML. - Address need for an audit function to test compliance in DNFBP entities not subject to FSC AMLGNs. - Require screening procedures in DNFBP entities not subject to FSC AMLGNs to ensure high standards when hiring employees. - Extend 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 non gambling and non-TCSP categories of the DNFBP sector. - Determine, implement and publicly declare appropriate monitoring and sanctioning authority for DNFBP categories not subject to FSC, Financial & Development Secretary or future GRA supervision. - Make mandatory requirement for gambling Licensing Authority to include in any license agreement that compliance with the AMLGNs and any subsequent Codes of Conduct is a condition of license. - Amend Schedule 1, Section 4, of Gambling Ordinance 2005 to make mandatory requirements identified in subsection (a) through (k) and that compliance with AMLGNs and future codes of conduct issued by the GRA is an explicit condition of license. - Implement Gambling Ordinance 2005 as a priority. - Ensure GRA is allocated appropriate budget, staffing and other resources to meet requirements under the new gambling ordinance. - Develop sector-specific AML/CFT guidelines for DNFBP entities not covered by AMLGNs and High-Value Dealers Guidance Notes. - Ensure 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); consider using the FSC’s expertise. - Ensure designated competent authorities for DNFBPs are represented on the domestic Enforcement Committee. - Other designated nonfinancial businesses and professions (R.20) - (No specific actions listed beyond heading.) ### 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 Companies House’s database 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 require disclosure of the name and address of the settlor in addition to 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 current legislation and approval and monitoring process in light of the FATF documents provided to the Board. - Review, in particular, 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 actions listed beyond heading.) - 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 to improve Gibraltar’s ability 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 authority to seize and detain suspicious cash and bearer negotiable instruments whose provenance is unknown, on the same terms as the DTO for seizure of cash suspected to be related to drug trafficking. - The governor should issue an order, pursuant to 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 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 (e.g., form response letters for requesters, checklists for dealing with HM Foreign Service) for responding to extradition requests in money laundering and terrorist financing cases. - Other Forms of Cooperation (R. 40, SR.V & R.32) - (No specific actions listed beyond heading.) ### 7. Other Issues - Other relevant AML/CFT measures or issues - (No specific actions listed beyond heading.) ### Authorities’ response (paragraphs 91–92) - The Government welcomes IMF recognition of efforts by the Gibraltar financial services industry and the regulator to ensure strong preventative and deterrent measures against money laundering and terrorist financing are effective. - The Government recognizes regulatory requirements must develop and has embarked on a major revision to the framework and methodologies for systems of control operated by the industry. - Planned legislative amendments to give effect to the 3rd Money Laundering Directive, combined with the industry changes, are expected to ensure Gibraltar's AML/CFT regime for the regulated financial services sector will continue to be at the forefront of international best practice. *Source: Table 5. Recommended Action Plan to Improve the AML/CFT System from the document provided.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2007/_cr07154.pdf_