Gibraltar’s Legislative Reform Programme (LRP) and Financial Services Act 2019

Gibraltar’s new Financial Services Act (“the Act”) and accompanying regulations (“the LRP Regulations”) will come into force on 15 January 2020, following the passing of the Act in Parliament in July 2019. The implementation of this new legislative structure will consolidate Gibraltar’s current financial services framework into a single Act together with the additional LRP Regulations, which will provide sector-specific regulation. The Act consolidates all EU and local legislation in relation to financial services with 41 sector-specific LRP Regulations implemented alongside. Draft Regulations have been issued and are made available here. Much of the substance under the current framework will remain the same with key changes being made to Regulated Individuals and the Permissions Regime. Further changes have also been made to sanctioning and investigatory powers of the Gibraltar Financial Services Commission (“GFSC”) and the related costs. The Act also introduces a Decision-Making Committee, independent to the GFSC.

Before implementation of the new framework, the GFSC organised several industry sessions during June 2019 to provide an overview of the new framework and its changes.

It is worth noting that with regards to the passporting regime, there will be no changes to the services a firm can passport both into Gibraltar and out of Gibraltar. The GFSC have confirmed that any firm which has already notified them of services passported in or out of Gibraltar does not need to resubmit any notifications under the new framework.

Permissions Regime

Under the new Act, a Permissions Regime will be introduced to replace the current licensing framework. Under the new regime, once a firm has satisfied the threshold conditions, they will hold one permission from the GFSC in order to carry out financial services in one or more Regulated Activities. This therefore eliminates the need for firms to hold various licences as these will be replaced with a single permission which will consider all Regulated Activities undertaken by the firm. Under the new Regime the permitted activities which a firm can carry out will not be changed, however, the terminology used to refer to the activity will change, for example, a credit institution that currently holds a banking licence will be referred to under the new Act as having a permission to carry out the regulated activity of “Accepting Deposits”. 

As far as firms which currently hold either licences, approvals, authorisations or registrations are concerned, the GFSC has confirmed that these will be transitioned over into the new Permissions Regime at no extra cost. Essentially a firm will hold one permission to carry out the Regulated Activities.

Regulated Individuals

The Regulated Individuals Regime requires pre-appointment approval from the GFSC for individuals responsible for certain functions within a firm; referred to as Regulated Individuals. The Act divides the Regulated Functions (the roles which require approval) into 4 different categories; (i) general functions, (ii) mandatory sector-specific functions, (iii) discretionary sector-specific functions under Schedule 15 of the Act, and (iv) significant influence functions. Regulated Functions which would fall under the scope of the general functions would be applicable to Directors, Head of Compliance, MLRO, Partner or Sole Trader and Branch Manager. The mandatory functions are sector specific, for example, for a DLT firm roles such as the Heads of Security, Technology, Risk Management and Finance. The discretionary functions under Schedule 15 of the Act can be waived by the GFSC and do not apply if they are not relevant to the Regulated Activity which is carried out by the firm. Under the fourth category, a person who exercises significant influence over a regulated firm where that person has influence over one or more aspects of the firm’s regulated functions despite not normally having that role and those aspects include a risk of serious consequence either for the firm or for Gibraltar. This would include functions such as Chair, Non-executive Director, Head of Finance and Chief Operating Officer.

The GFSC have highlighted that there will be a transitional arrangement in place whereby over the course of the next year they will be reaching out to firms to gain an understanding of what individuals are carrying out regulated activity functions in order to align the current information with the requirements set out under the Act.

Decision-Making Committee

The Act introduces, for the first time, an independent Decision-Making Committee (“DMC”) which is responsible for the implementation of any enforcement action or sanction. The DMC can also exercise, on the GFSC’s behalf, the GFSC’s powers in respect of specified regulatory decisions, for example, decisions on permissions for regulated firms to carry on regulated activities. The DMC will be comprised of six members, three of which will be lawyers and the remaining three members will be individuals with significant expertise in financial services. As the Minister for Commerce explained during the Budget debate in June 2019, “this check and balance on the Regulator has been widely welcomed by the private sector and especially by the Finance Centre Council”.

Concluding Remarks

The Act introduces a consolidated framework for financial services in Gibraltar with the accompanying LRP Regulations providing sector-specific requirements, a more navigable regime for a fast-paced industry. It is the single largest review of the financial services laws of Gibraltar and it delivers a “modern, innovative and balanced approach to financial services legislation and regulation” which “is fit for purpose… and… recognises and implements the checks and balances required in any modern regulatory regime.”

Aaron Payas, funds partner at Hassans, explained that “it is a welcome development indeed that, with our imminent departure from the EU at the end of the month, the financial services industry in Gibraltar should be able to reply upon a newly consolidated and simplified legal framework for financial services in Gibraltar.  Though this project has been a long time coming, the timing of its implementation places the jurisdiction on a solid basis from which to develop its offering as we take our first steps outside the context of the EU. This, coupled to the likelihood of our departure being conducted in the context of a withdrawal agreement and a transitional period which will last, at least, until end of December this year, bodes well for our modern and dynamic jurisdiction.”

by Caroline Lane and Aaron Payas