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Gibraltar Briefing September 2009 “The Regulatory Environment”

Marcus KillickChief Executive Officer

Financial Services Commission

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Why do we exist?

""To supervise and regulate To supervise and regulate Gibraltar’s financial services to Gibraltar’s financial services to protect the public and enhance protect the public and enhance Gibraltar as a quality financial Gibraltar as a quality financial centre."centre."

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Our statutory objectives

To promote market confidence;

The reduction of systemic risk;

To promote public awareness;

To protect the reputation of Gibraltar;

The protection of consumers; and

The reduction of financial crime,

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Areas under FSC supervision

BankingInsuranceInvestments (including mutual funds)Company Management Professional TrusteeshipPension TrusteesMoney transmission servicesBureau de changeAuditors

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Banking

Total Subsidiaries Branches United Kingdom 8 3 5 Switzerland 5 5 Gibraltar 2 2 Denmark 1 1 France 1 1 Jersey 1 1 18 12 6

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Total external loans vis-à-vis non-banks

Denmark40%

Gibraltar23%

Virgin Islands, British8%

Others7%

Panama6%

United Kingdom6%

Bahamas, The3%

Cyprus3%

Brazil1%

Spain2%

Israel1%

Gibraltar bank geographic lending activity

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Gibraltar bank geographic deposit base

Total external deposits vis-à-vis non-banks

Gibraltar55%

Other11%

Virgin Islands, British9%

United Kingdom7%

Spain4%

Belize3%

Cayman Islands3%

Switzerland3%

Panama2%

Jersey2%

Bermuda1%

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Insurance

Insurance companies that operate in Gibraltar may manage their own business or have their business managed by a regulated insurance manager. Of the 61 insurers that are currently licensed 12 are totally self managed and 46 are managed, at least in part, by insurance managers.

The five largest general insurers each write annual premiums exceeding £100m. In total they represent 60% of total premiums written by Gibraltar insurers.

Many Gibraltar insurers are small and specialise in one main class of business. This includes motor, PPI, extended warranty, travel and legal expenses insurance.

In addition to the 61 insurers, there are 28 insurance intermediaries and 9 insurance managers licence holders.

All Gibraltar licensed insurers have their Head office in Gibraltar and must have “mind and management” located in Gibraltar;

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(Companies with financial periods ending during 2007)

Gross Premiums

Net Premiums Total Assets

(£millions) (£millions) (£millions)

Life 3 73 44 848Non-Life 38 1045 718 2001Reinsurers 0 0 0 0Captives 19 148 43 472Total 60 1266 805 3321

Companies by type

No of authorisations

Insurance Companies by type

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Growth in Gibraltar insurance Sector

Growth in insurance companies

0

10

20

30

40

50

60

70

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Number

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Location of business conducted by Gibraltar insurers

Of business written in other EU/EEA states: 78% was written on a services basis; 22% was written on a branch basis; 88% was written in UK, the majority being

motor business; and Other states with GWP >£10m (+/- 1% of

total are, in order, Republic of Ireland, Poland, Germany, Austria and Spain.

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Investment Services

There are currently 37 firms that hold an authorisation under the Financial Services (Markets in Financial Instruments) Act 2006 (MiFID). All of these firms are required to participate in the Gibraltar Investor Compensation Scheme (GICS)

Each MiFID authorisation is accompanied by a permitted business schedule which lists the core activities and ancillary services that can be offered by the authorised firm.

Depending on the type of activity offered, a MiFID authorisation would be classified as a Category 1, 2 or 3 firm (Category 1 firms being permitted to deal as principal having more onerous requirements). Each of these would carry differing licensing fees and differing levels of regulatory reporting and monitoring.

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Funds

There are a number of different fund structures available in Gibraltar however the most popular is that of the Experienced Investor Fund (EIF) which came into effect during 2005. This is a fund available only to experienced investors therefore is not a retail fund, and can not be offered to the general public.

As at 31 December 2008, the total value of assets of EIFs registered in the jurisdiction totalled £786 million. Whereas total value of assets managed (interpreted as in operating from within Gibraltar) reached £1,202 million.

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Growth of Gibraltar as a specialised fund centre

Experienced Investor Funds

0

5

10

15

20

25

30

35

40

45

50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Number

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(As at 31st March each year)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Number of 'Groups' conducting Company Management or Professional Trustee Services

82 84 83 78 78 82 82 82 86 72 67

Number of Licensees 331 358 351 345 354 418 434 448 504 551 486

Number of Trusts for which trustee are provided

1,815 2,021 2,309 2,887 3,019 3,265 2,972 3,954 4,079 3,745 4,203

Number of companies for which company managerial services are provided

27,627 29,211 32,762 34,352 34,499 36,560 35,136 42,543 41,596 40,807 40,307

Number of directorships provided18,088 19,821 21,853 25,441 23,848 22,266 18,860 24,223 25,087 25,130 29,974

Number of shareholders provided19,203 28,752 23,308 25,202 23,581 23,392 18,659 25,702 25,986 25,120 24,086

No of registered offices 32,922 31,403 30,356 30,730 28,295 27,459 No of secretarial services provided

32,920 30,799 38,248 37,348 35,171 34,934

Information not

previously collected

Company Management & Trusteeships

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FSC and Transparency

Regulatory transparency is key to trust

FSC has placed a line by line assessment of its compliance with the “Combined Code of Corporate Governance “on its website

All external assessments and the FSC’s response/action is on our website

All policy/consultation papers contain the objective we are trying to achieve as well as our proposals

Quarterly publication of adherence to service standards

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International standards

FSC seeks to comply with relevant international standards established in;

Insurance Banking Investments Anti Money laundering

We are members of; International Association of Insurance Supervisors Offshore Group of Insurance Supervisors International Organisation of Securities Commissions

The FSC is required by statute to advise the Minister if, at any time, it considers it to be unable to supervise and regulate financial services business carried on in or from Gibraltar to internationally accepted standards

Our adherence to these standards is independently verified

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International StandardsEU Requirements

As an EU jurisdiction we are required to apply all Directives and Regulations made under the Financial Services Action Plan

This gives us full passporting rights throughout the EU and, via the Gibraltar Order, the UK

In respect of EU legislation the FSC is required by statue to establish and implement standards and supervisory practices which match the standards and supervisory practices governing the provision of financial services within the United Kingdom.

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Independent reviews Reviews undertaken include:

First statutory review 1998

Second Statutory review 1999

IMF Assessment 2001

Assessment against FATF standards 2002

Third Statutory review 2004

Second IMF assessment 2006

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2006 IMF Review

Covered; Banking

Insurance

AML/CFT

Designed to assess compliance with international standards

Gibraltar was the first jurisdiction to volunteer for the initial review

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IMF Findings

“Gibraltar has a well-regulated financial sector”

The assessment found a high standard of compliance with the Basel Core Principles and the Insurance Core Principles.

The reputation of Gibraltar as a financial center will depend on maintaining the independence of the Financial Services Commission (FSC).

In the area of Banking Supervision Gibraltar was fully compliant with 27 and largely compliant with 3 out of the 30 applicable international standards.  This was matched with 24 observed and 3 largely observed out of 28 applicable standards for Insurance Supervision.

These levels of compliance are amongst the highest achieved in an IMF review of any country.

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The year ahead

Impact of Global economic crisis and local regulatory response

G20 and EU post credit crisis developments

Changes to Depositor Guarantee Scheme

Implementation of revisions to our onsite and offsite monitoring programmes

Implementation of Payment Services Directive

Approved persons regime?

Regulation of Mortgages?

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The End

For further Information please contact

Mkillick@fsc.gi

00 350 20040283