Gibraltar’s banking sector has successfully kept pace with the development of the territory into a flourishing onshore financial services centre, calling on local talent to cater to the diverse needs of well-heeled overseas investors. A number of vastly experienced Gibraltarian bankers have returned to the territory to take up the challenges and opportunities presented by the makeover of the local financial sector. But one of the most striking developments of late has been the government’s initiative to set up Gibraltar International Bank.
Gibraltar’s banking industry dates back to the 19th century when lenders began to cater to the needs of local business and international commerce. Since then, the biggest development in the sector has been the transformation of Gibraltar into an onshore financial services centre that has made Herculean efforts in terms of compliance with international regulations on tax transparency and the prevention of money laundering.
Refuting Spanish claims that Gibraltar is a tax haven, Peter Caetano, the local managing director of Swiss private bank Lombard Odier’s operations, confidently asserts that the sector does not knowingly handle any assets that are not tax-compliant. There are, however, obvious fiscal advantages to banking in Gibraltar. No tax, for example, is paid on interest generated by savings in the territory.
Overseen by the Gibraltar Financial Services Commission (GFSC), the sector last year had assets under management of £7.8 billion. There are a number of private banks that have been attracted to the territory by Gibraltar’s status within the European Union, which allows them to passport banking and investment services across the European Economic Area. They deal largely with wealth management, catering to well-off clients, mainly from Britain and Switzerland, with banks in the process of expanding further afield.
There are also three British building societies with a presence on the Rock, offering savings products and mortgages. Given the fact that Gibraltar only has a population of around 30,000, the retail banking sector has limited room for growth. But the territory, where a shortage of housing has been a persistent problem, is currently enjoying a property boom, and the number of homeowners has increased in the past few decades from around four percent to over 50 percent.
The most striking development in the sector of late, however, has been the government’s establishment of Gibraltar International Bank in the wake of Barclays’ decision last year to exit the territory’s retail banking sector after having had a presence there for over 100 years. This move left NatWest as the only major provider for the day-to-day banking needs of the local community. Announcing the withdrawal, Barclays, which retains some activities in Gibraltar, took pains to emphasise that its decision was based on internal factors within the bank and was in no way a reflection of its faith in the territory.
Gibraltar International Bank, which is run by seasoned professionals with no direct intervention from the government, started operating in May of this year.
Pensions and insurance grow thanks to UK legislation
Gibraltar’s financial services sector sees considerable scope for growth in the pension business and insurance-related product as well as other financial products. It has already made successful inroads in areas of the market such as motor insurance. Some 17 percent of British motor insurance policies are already written in Gibraltar.
Other areas for further expansion include the so-called QROPS segment of the market, overseas recognised pension schemes that are particularly attractive to British expatriate workers because of the favourable tax treatment they are afforded. Gibraltar is already a significant player in this area, with the business having grown dramatically in the past few years and with scope for further expansion expected.
The territory also recently completed its first insurance-linked securities transaction, a financial product which provides an alternative to the traditional reinsurance business by spreading risk among private investors. Gibraltar has been hiring experts in this segment of the market and Gibraltar Finance, a government initiative to promote the territory as an attractive centre for overseas financial services companies, has set up a team to oversee development in this area.
Gibraltar is also looking further afield from its traditional core markets to areas such as Bermuda and Hong Kong, with New York targeted as a potential growth area for insurance-linked securities.