The FSC was brought into effect on the 16 January 1991. This is a short history of the FSC's first 16 years of existence.
When it was commenced it consisted of a small office 'borrowed' from the Government of Gibraltar. It employed a staff of three and had two people seconded from the Office of the Financial and Development Secretary. It was headed by a Commissioner, Mr William Penman Brown. These were humble beginnings of an organisation which was to have such an important influence over the development of the financial services sector in Gibraltar.
Financial regulation in Gibraltar was not new. Legislation governing banking supervision had been in place since 1982 and a Banking Supervisor had previously been appointed in 1983 when the late Mr Geoffrey Burton, an ex-Bank of England employee, undertook this role on behalf of the Government of Gibraltar (later with the FSC). The Civil Service supervised insurance companies for some time before the FSC formally took over this role in 1991. Mr Dennis Figueras who worked for the Civil Service in this area was seconded to the FSC for a good number of years, and his experience was much appreciated.
The backbone of financial regulation anywhere in the world is a sound and clear legislative framework from which to work. The Financial Services Commission Act 1989 came into effect in 1991. This set up the FSC as a statutory body, with a governing body made up of Commission members. The membership originally comprised six local practitioners. In fact two of the original members served continuously until very recently. This Act was complemented by legislation setting out the main supervisory structure and powers. The Financial Services Act 1989 covered a wide variety of licensable activities including Company Management and Professional Trusteeship, the first time that this type of business had been regulated anywhere in the world.
Although the legislation was introduced in the wake of what became known as the "Barlow Clowes Affair", it was not a direct reaction to it, but rather a recognition by the Gibraltar Government of the need to regulate the rapidly expanding financial centre activities following the re-opening of the border with Spain and in the light of international regulatory developments.
The coming into effect of the Financial Services (Licensing) Regulations 1991 and the Financial Services (Fees) Regulations 1991 were key events. The FSC decided at an early stage not to 'grandfather' existing operations but, instead, to proceed with the assessment of every application. These were busy times as the FSC pushed ahead with a number of other regulatory codes covering the supervision of financial services providers. (Help with drafting was provided by Mr Ray Astin whom the Commonwealth Secretariat made available to the FSC.)
The increased workload of the FSC in dealing with the licensing process led to the appointment of a Senior Investigations Officer, Mr Mike Constantine in May 1991. His role was also to carry out on-site inspections of applicants and licensees. He was assisted by Mr David Parody, as Licensing Officer. David was one of the three initial employees of the Commission.
In July of the same year, Mr Mike Davidson joined the FSC as the first full-time Banking Supervisor, replacing Mr Burton. Mr Davidson brought with him valuable market experience, having been a senior manager with a major bank for many years. One of Mr Davidson's first priorities was to deal with the collapse of the Bank of Credit and Commerce SA, which operated a subsidiary in Gibraltar and whose closure coincided with his first day at his post.
Difficulties relating to an insurance intermediary had led to some loss of market confidence in this part of the industry. The FSC acted promptly to address these concerns by considering applications for licences from insurance intermediaries as a matter of priority. It was these licenses that were first issued by the FSC.
1992 saw a major redesign of the legislation covering the regulation and supervision of banks with the introduction of the Banking Act 1992 replacing the 1982 Act. The new Act, which gave effect to the EU Banking Directives in place at the time, did away with the two-tier licensing structure of the banking sector, known as A and B class licences, thus removing the difference in regulatory treatment of offshore and onshore business. Another innovation brought about by the new Banking Act was the power to issue administrative notices in order to transpose Community obligations. This permitted the FSC to put into Gibraltar law many of the outstanding Directives in a manner which was more readily relevant for Gibraltar's situation and better understood by the market.
Mr Mike Davidson was succeeded in October 1993 by Mr John Atkinson. John joined the FSC on a part-time basis and had been working in the Banking Supervision Division of the Bank of England. It was during John's tenure in office that the Large Exposures Directive was transposed for banks.
Following the expiry of Mr Penman Brown's term, Mike Constantine held the position of Commissioner in an acting capacity until a successor was appointed. This did not happen until a year later when, in July 1994, Mr John R Millner was appointed as Commissioner.
1994 saw the start of a process, which would extend over the next three years, of transposing outstanding EU legislation as well as the bringing of the standard of supervision up to UK levels. Amendments were made to the Financial Services Commission Act increasing the number of Commission members from seven to eight, four of whom must be UK based practitioners with financial services expertise. The UK based members, the Commissioner who also acts as the Chairman of the Commission, and the remaining three who have experience of the industry in Gibraltar are appointed by the Governor after consultation with the Foreign and Commonwealth Secretary.
The Act amendments also introduced a statutory obligation for the FSC to match UK supervisory practice where Community law applies. This was the first step towards ensuring that the FSC became a recognised competent authority within Europe. The legislation also provided for periodic review of the FSC's operations by a team of UK experts appointed by the Governor to ensure that UK standards are maintained. To date, two such reviews have taken place in the areas of banking and Insurance, and the FSC has been found to match UK supervisory practice. A third review covering investment services is expected shortly.
During this period substantial amendments were also made to the Financial Services (Insurance Companies) Act , in order to ensure UK standards were being met and to implement outstanding EU Directives.
Ms Jean Cooper joined the ranks of the FSC in January 1995 as Banking Supervisor on loan from the Bank of England. Following Mike Constantine's departure from the FSC to take up a position with the regulatory authority in Mauritius, Ms Cooper also took over responsibilities for the supervision of investment services. Ms Cooper presided over a number of important changes in the supervisory process when several banking directives were introduced including the Capital Adequacy and Bank Accounts Directives.
The Deposit Guarantee Scheme was also introduced during this period. The scheme provides compensation to depositors in the event of a bank failure consistent with European standards. It is administered by a separate legal entity (The Gibraltar Deposit Guarantee Board) but the majority of the work to establish this was conducted by the FSC acting in consultation with the industry.
In April 1995 the EU Directive on Money Laundering was transposed. Initially, the legislation transposed the minimum required by the Directive, covering only the proceeds of drug trafficking. This was effected by the re-enactment of the Drug Trafficking Offences Act and the issuing of the more detailed Drug Trafficking (Money Laundering) Regulations. For the first time, legislation codified the obligations of financial institutions in relation to customer identification and record keeping as well creating an offence of "tipping-off". This legislation was subsequently repealed and replaced with the Criminal Justice Act 1995 which extended the scope of the money laundering offence to cover the proceeds of any criminal activity. Gibraltar was one of the first jurisdictions to do this. In September 1996, the FSC published the first set of comprehensive Money Laundering Guidance Notes. These provide practical guidance on the legislation and the duties of institutions.
Mr Jim Costin was recruited in October 1996 from the UK's Department of Trade and Industry's Insurance Division to take up the position of Insurance Supervisor. He joined Mr Norman Ritchie, the Assistant Insurance Supervisor who had been with the Commission since April 1993. To cater for a projected increase in activities related to insurance company management, the Financial Services Act 1989 was amended in 1995 to make the business of "insurance management" a licensable activity.
Mr Costin's appointment was followed shortly afterwards by the appointments of Mr Brian Morris, who took up the post of Investment Services Supervisor, initially on loan from the UK Treasury, and Mr Kieran Power, who took over responsibilities for supervising the Controlled Activities area (company managers and professional trustees).
In 1998, the Investment Services Directive was implemented by a second Financial Services Act which supplements the original 1989 Act of the same name. At the same time, the UK agreed to provide funding for the development of the FSC's IT infrastructure. Without this financial assistance, the human resource requirements of the FSC would probably have been greater. The Commission has always relied heavily on IT to support most of its administrative functions and has managed to develop IT systems, which have frequently been praised by other regulatory and official bodies who have experienced the systems first hand. Such is the level of development of the supervisory IT systems at the FSC that it is actively marketing the software to other jurisdictions. Since then, the UK has continued to provide further financial support from time to time for the purchase of IT hardware and for software development.
Following the extensive effort in revising legislation, the FSC turned its attention to getting its supervisory regime up to standard. The first area to do this was insurance supervision. The hard work put in by the staff at the Commission paid dividends following the first review of its systems by a team of UK experts appointed by the Governor. The review, which took place in February 1997, found that insurance supervision by the FSC matched UK standards.
During this period, building societies, who had previously been operating under the Building Societies Act, were brought under the Banking Act, in order to bring Gibraltar's banking legislation into line with EU requirements. The financial and other requirements imposed upon the societies by the Banking Act could not be met by the two local building societies that were operating at the time. This led to the voluntary winding up of both institutions.
The second review of supervisory practices covered banking. Once again, the UK team of experts came to the conclusion that the FSC matched UK standards. The only outstanding area in which EU passporting rights could be exercised that has not been subject to a UK review is investment services. Because the Directive that gave banks the right to passport covered not only their deposit taking and lending business, but also some investment services, an agreement was reached between the industry and the FSC that banks would not passport any investment business for the time being.
Mr Martin Fuggle, another ex Bank of England Senior Manager, took over the responsibilities of Commissioner in September 1998. Mr Neil Kennedy also took up the position of Banking Supervisor in September of that year having previously worked for the Central Bank of Ireland. During this period the complement of supervisory staff was increased with the employment of a number of analysts to assist the supervisors in the relevant sectors. Following the expiry of Mr Kennedy's contract in September of 2000, he was succeeded as Banking Supervisor by Mr David Parody.
Despite the fact that Gibraltar banks and insurers have had the right to provide services into EEA States since the announcements that the supervisory regime for both met UK standards, there had been a practical problem in that certain states would not accept that Gibraltar could make the necessary notifications direct to these states' authorities. This issue was finally resolved with the agreement between the United Kingdom and the Kingdom of Spain on the 19th April 2000. Formal notifications to and from other competent authorities and Gibraltar that Gibraltar banks and insurers wish to provide services into other EEA States are now channelled through a 'post-box' at the FCO in London. This clarifies the position with respect to banking and insurance.
In 2001 international evaluations were to be methodology by which jurisdiction’s compliance with international standards were to be evaluated. Unlike previous attempt by bodies like the Financial Stability Forum (FSF) these evaluations were to be conducted against a set of established criteria and standards against which all jurisdictions could be evaluated and compared.
The Financial Action Task Force’s 40 recommendations are the leading international standards in Anti-Money Laundering (AML) compliance. The FSC subjected itself to an evaluation against these in 2001 under the auspices of the Offshore Group of Banking Supervisors who conducted the evaluation. The report was an endorsement of the strong AML measures in place in Gibraltar finding that:
“Gibraltar has in place a robust arsenal of legislation, regulations and administrative practices to counter money laundering. The authorities clearly demonstrate the political will to ensure that their financial institutions and associated professionals maximise their defences against money laundering, and cooperate effectively in international investigations into criminal funds. Gibraltar is close to complete adherence with the FATF 40 Recommendations…”
AML standards are not the only international standards to which a regulated community needs to abide by with equivalent Banking, Insurance and Investment Services also needing to be evaluated. This was done through an IMF team of evaluator who in 2001 conducted an assessment of these against the Basel Core Principles, International Insurance Association and International Organisation of Securities Commissions and Organisations standards. This review also encompassed the regulatory framework for fiduciary services providers even in the absence of international standards of supervision as Gibraltar is the leading jurisdiction for the regulation of this activity.
The IMF has noted that Gibraltar "is at the forefront of the development of good practices." It has further stated: "It is worth noting that Gibraltar was one of the first jurisdictions to have introduced regulation and supervision of the company and trust services business."
The IMF concluded that Gibraltar's regulator, the Financial Services Commission, "carries out its duties diligently and has an intimate knowledge of the institutions under its supervision… The results of our assessments indicated that supervision is generally effective and thorough and that Gibraltar ranks as a well-developed supervisor." The regulatory regime across the industry meets most international standards and accords with best practice.
With the growing sophistication of the market, new players entering the regulated sector and unlicensed operators trying to pass off as bona-fide operations, the FSC took the step of establishing a dedicated Enforcement Division in March 2002. This is primarily tasked with policing the perimeter and is headed by Albert Yome. The Division also assists with the risk assessment and on-site work of the supervisory divisions.
2002 also saw the appointment of Chris Collins as Head of the Insurance Supervision Division at a time when the insurance industry was about to take-off. The growth of this sector of the industry has rocketed from 14 companies in 1992 to a total of 50 by the end of March 2006.
International co-operation between regulators is a vital component of the armoury available to prevent and detect regulatory breaches and the FSC takes its responsibilities seriously. In 2003 the Financial Services Commission welcomed the decisions of the Supreme Court included in its judgement in respect of the judicial review of a decision by the Financial Services Commissioner to pass information to a foreign regulatory authority. The Commissioner's decision to assist the foreign regulator was challenged on a number of very wide bases including a challenge on the powers of the Commissioner to seek information from regulated entities. Had that challenge been successful, it would have hampered seriously the Commissioner's powers to carry out regulatory investigations in Gibraltar. The Commission welcomed the fact that the Court upheld his interpretation of his powers to seek information under sections 33 and 38 of the Financial Services Act 1989. The Commission also welcomed the decision of the Court that he has the power under section 58 of the same Act to pass information to a foreign regulator exercising functions corresponding to his own.
April of 2003 saw the taking up of his post as Chairman and Commissioner of the FSC by Marcus Killick.
With an increasing number of licensees it was inevitable that at some point in time the FSC’s muscle would have been needed to be flexed against a regulated firm to require its closure. In May 2003 the FSC took action against Rock Financial Services Ltd. As this continues to be subject to a police investigation no further commentary can be made at this stage.
In July the same year the Government of Gibraltar announced that Gibraltar authorised investment services firms would be able to take advantage of the passporting rights afforded under the Investment Services Directive. This concluded the full set of passporting rights under Banking, Insurance and Investment Services Directives. Passporting opens up a number of business opportunities for Gibraltar regulated firms, enabling business to be conducted on a services or branch basis based solely on the grounds of the Gibraltar authorisation.
The basis on which the FSC conducted its supervision and regulation of regulated financial services providers was radically changed in January 2004 when it moved to a completely risk-based approach. The new risk framework permits the FSC to apply its resources on a risk sensitive approach and adding value to the firms in the identification and mitigation of identified risks. The FSC also introduced the policy that no firm was too small to receive an risk assessment visit and a full programme of meetings with firms across all supervisory divisions continues to be effected.
The FSC has always been reliant on state of the art IT infrastructure and systems to support its work. Without it its human resources would have needed to be much higher than at present. These IT systems are recognised by external parties as being amongst the best in their class having been developed in-house by regulators. This has led to a demand for these systems and in October the FSC rolled out is Banking Supervision Database to the Eastern Caribbean Central Bank. This was followed shortly afterwards to the Financial Services Commission of Montserrat.
A key part of the FSC’s IT infrastructure is its web-site which is the main portal through which regulated firms and the public obtain information about the FSC, its licensees and regulatory developments. During the year the web-site was redesigned in order to make it accessible to the visually impaired users, thus extending its usability.
Following the departure of Brian Morris as Head of the Investment Services Division in May 2004, Mrs Heidi Bocarisa was appointed to the post. In March 2006 she also took over responsibilities for the Banking Division from David Parody who moved to the role of Chief Operations Officer on a full time basis.
Following receipt of several complaints from investors in TEP Plans purchased through Savignon Financial Services Limited (SFS), the Financial Services Commission conducted a preliminary investigation in 2003 into the suitability of TEP Plans for certain categories of investors and certain aspects of compliance with relevant regulatory obligations. The investigation concluded that for a large number of clients these products were unsuitable. The courts are expected to rule on the matter shortly.
It was with great sadness that the FSC announced the death of Terry Mathews in November 2004. Mr Mathews was a long serving Commission Member who was liked and admired by those who knew him in a personal and professional capacity.
With an expanding set of responsibilities and a new and young workforce the FSC decided to ensure that its delivery of supervision was being conducted in a consistent, effective and efficient manner and that processes were put into place which would ensure that these were continuously improved. With this in mind an application was sought for certification under ISO9001:2000 which was granted in December 2004. The ISO90001:2000 methodology has been embraced by the entire organisation and the planning and audit work forms an integral part of the FSC’s business processes.
The first of two consumer guides was published on the FSC’s web-site in January 2005 on insurance products. This was followed in 2006 with a guide on investment products and the third instalment on banking products will be launched in 2007.
The FSC applied and gained full IOSCO membership in March 2006.
A second IMF evaluation took place in March 2006 covering the areas of Banking, Insurance and AML/CFT. This report was published in May 2007 (click here to view). Again, the evaluators found the regulatory regime to be amongst the best in the world.
The FSC undertakes a vast number of responsibilities and does this to a level which is unprecedented for regulatory bodies worldwide. It is able to attain these levels of service, care and professionalism because it has a workforce that second to none. The FSC can reap the rewards of its training and development of its staff in the output which is visible to those that interact with it.
The graph below demonstrates how staff numbers have been increasing since its inception. This is not a demonstration of a bureaucratic organisation which is growing uncontrollably instead, this growth is justified by the growing demands of a burgeoning finance centre, a responsive regulator and new activities which the FSC is being asked to carry out.
The FSC is committed to the development of its staff and during 2007 obtained the Investor in People standard as part of a pilot programme developed in conjunction between the Government of Gibraltar and the University of Durham.