Setting up a Gibraltar Asset Management Company
1. Why choose Gibraltar as a jurisdiction in which to set up an asset management company Gibraltar is within the European Union Regulated in accordance with European Union law and standards Ability to passport services within the European Union Experienced legal, audit and fund administration firms able to provide professional support Low tax Ease of access
2. Investment Business In Gibraltar
1. Investment Business Investment business is regulated by the FSC under two distinct pieces of legislation, the Financial Services (Investment and Fiduciary Services) Act 1989 and the Financial Services (Markets in Financial Instruments) Act 2006. The latter Act implements the EU Markets in Financial Instruments Directive. Investment activity which does not fall under the scope of this directive is regulated under the Financial Services (Investment and Fiduciary Services) Act 1989 all other investment business is regulated under the Financial Services (Markets in Financial Instruments) Act 2006.
2. Investment Business The different classes of licence issued under the Financial Services (Investment and Fiduciary Services) Act 1989 are listed in the Financial Services (Licensing) Regulations. Investment activity regulated under the Financial Services (Markets in Financial Instruments) Act 2006 (as defined by the Markets in Financial Instruments Directive - MiFID) includes the following:
2. Investment Business Category 1 Firms in this category may be permitted to: 1. Deal as principal with investors. 2. Deal as agent for investors. 3. Manage investments for investors. 4. Arrange transactions for investors. 5. Give investment advice. 6. Hold client money and other client assets.
2. Investment Business Category 2 Firms in this category may be permitted to: 1. Deal as agents for investors. 2. Manage investments for investors. 3. Arrange transactions for investors. 4. Give investment advice. 5. Hold client money and other client assets. They are prohibited from dealing as principal with investors.
2. Investment Business Category 3 Firms in this category may be permitted to: 1. Conduct portfolio management including discretionary portfolio management, without access to client money or other client assets. 2. Arrange transactions for investors. 3. Give investment advice.
2. Investment Business Category 3 They are prohibited: 1. From dealing as principal with investors. 2. From dealing as agent on behalf of investors or agreeing to provide an indemnity in respect of a deal if the investor defaults. 3. From holding or handling client money or other client assets (except when holding or handling clients' assets other than client money in accordance with the client money regulations).
2. Investment Business There is a similar application process for investment firms falling under the Financial Services (Investment and Fiduciary Services) Act 1989. Where a potential applicant is not certain which Act applies, they should seek legal advice, or ask the Financial Services Commission for a preliminary opinion.
3. MiFID
3. MiFID The Markets in Financial Instruments Directive ( MiFID ) came into effect on 1 November 2007, when it replaced the Investment Services Directive ( ISD ). MiFID extends the coverage of the ISD and introduces new and more extensive requirements that firms will have to comply with, in particular for their conduct of business and internal organisation.
3. MiFID The Directive is designed to strengthen the legislative framework for investment services and regulated markets with a view to furthering two major regulatory objectives: 1. to protect investors and safeguard market integrity by establishing harmonised requirements governing the activities of authorised firms; and 2. to promote fair, transparent, efficient and integrated financial markets. MiFID has been implemented in Gibraltar via the Financial Services (Markets in Financial Instruments) Act, 2006 (the Act ) and the Financial Services (Markets in Financial Instruments) Regulations, 2007 (the Regulations ).
3. MiFID Selected Provisions of MiFID Passporting MiFID is intended to improve the operation of the passport of investment firms by more clearly defining the allocation of responsibility between home state regulators and host state regulators. MiFID extends the range of core investment services and activities that can be passported, and will upgrade investment advice from a non-core service to a core service. Whilst investment advice becomes a core activity it is limited to the instruments to which the Directive applies.
3. MiFID Selected Provisions of MiFID Organisational Requirements The MiFID requirements are relatively extensive and will cover compliance arrangements, internal systems and controls, outsourcing, record keeping, management of conflicts of interest, and safeguarding of client financial instruments or money held by firms. Conduct of Business Common conduct of business standards are also further established by MiFID.
3. MiFID Selected Provisions of MiFID Client Categorisation MiFID will establish a common EU framework for classifying customers as professional clients, market counterparts or retail clients. Best Execution Firms will be required to take all reasonable steps to obtain the best possible deal for their clients.
3. MiFID Selected Provisions of MiFID Suitability For those firms that provide investment advice or portfolio management, MiFID requires that a suitability test be applied. This means that firms will have to collect information about: 1. The clients knowledge and experience in the investment field relevant to the product or service. 2. The clients financial situation. 3. The clients investment objectives.
3. MiFID Selected Provisions of MiFID MiFID requirements will have to be included in a firm s operational and compliance manuals. IF IT IS NOT DOCUMENTED IT IS NOT DONE
3. MiFID FSC Guidance The FSC has published guidance notes in order to help firms understand what it is they need to be aware of in order to be MiFID compliant. The FSC MiFID Guidance Notes are as are follows: 1. Client Categorisation 2. Suitability, Appropriateness & Best Execution 3. Managing Conflicts of Interest & Related Organisational Requirements 4. Provision of Information, Client Reporting & Record Keeping 5. Transparency Requirements 6. Transaction Reporting 7. Glossary of Terms 8. Audit Requirements & Other Obligations & Disclosures
4. Application Criteria
4. Application Criteria All applicants for a licence to conduct investment business are required to meet certain criteria. Once regulated, all firms also need to meet the requirements set out below on an on-going basis. General criteria and requirements that firms need to comply with are:
4. Application Criteria General Criteria 4-eyes - The FSC must be satisfied that the applicant satisfies the "four-eyes" principle so that at least two competent individuals are involved in the decision making and day-to-day operation of the firm. Minimum of two directors A minimum of two directors must be appointed to the Board. Mind and Management - It is essential that the business have a physical presence in Gibraltar, and that mind and management be located in Gibraltar. Adequate resources - The business must be adequately resourced and staffed and sufficient controls must be put in place to reduce the risk of error and fraud.
4. Application Criteria General Criteria Competent staff - Before approving an application, the FSC has to be satisfied that the applicant or any person associated with the applicant is "fit and proper" to provide the services specified in the application. The "fit and proper" criteria include both technical competence and integrity. The same criteria apply to directors, shareholders, controllers, partners and managers. Procedures & compliance arrangements - The business must be able to provide evidence that it has put in place an appropriate internal audit/compliance function and that it has documented all procedures adequately. In addition, it is essential that the applicant develops a business disaster recovery or continuity plan. Professional indemnity insurance
4. Application Criteria Specific Criteria Classification Capital/Financial Resources Professional Indemnity Cover Reporting Requirements Category 1 730,000 minimum share capital. Total own funds must be greater than this and 1M (minimum) Audited financial statements (see N1) Statement of Compliance (see N2) comply with the relevant capital Monthly CAD & ISD Returns (see N4) Adequacy requirements. Transaction reports (see N5) Funds Under Management Return (see N6) Category 2 125,000 minimum share capital. Total own Funds must be greater than this and comply with the relevant capital adequacy requirements. 1M (minimum) Audited financial statements (see N1) Statement of Compliance (see N2) Quarterly CAD & ISD Returns (see N3) Transaction reports (see N5) Funds Under Management Return (see N6) Category 3 50,000 minimum share capital. Total own funds must be greater than this and comply with the relevant capital adequacy requirements. 1M (minimum) Audited financial statements (see N1) Statement of Compliance (see N2) Quarterly CAD & ISD Returns (see N3) Transaction reports (see N5) Funds Under Management Return (see N6) N1 to N6 notes referred to above are explained in following section
4. Application Criteria Specific Criteria (Notes) N1 N2 N3 N4 N5 N6 Annual audited financial statements are to be submitted to the FSC within four months from the company s financial year-end. An annual Statement of Compliance is to be submitted together with the audited financial statements. Category 1, 2 and 3 firms are required to submit financial returns on a quarterly basis. The deadlines are 21 January, 21 April, 21 July and 21 October respectively. Category 1 firms are also required to submit an additional monthly return. All firms to which transaction reporting applies are required to submit reports on a daily basis. If the company holds funds under management, a Funds Under Management Return will have to be prepared and submitted together with the corresponding quarterly return (see N3).
5. Application Procedure
5. Application Procedure 1. Applicants must provide the FSC with a summary of the full business plan effectively a business proposal. This sets out how the proposed activity is to be conducted. If the applicant is part of a larger group, the plan should include a brief description of the group structure, and the activities undertaken within the group. A description of how the applicant is to conduct the business activity to which the application applies, including details of the resources and systems to be employed should follow. If relevant, the plan should set out how clients are to be sought and which markets are to be approached. It should describe the arrangements to be put in place in respect of customer money and custody of other assets, and the level and nature of fees to be charged to clients. The plan should set out the nature of the administrative work to be located in Gibraltar, and the nature and manner of records that will be maintained.
5. Application Procedure 2. After the summary has been received and reviewed, the usual next step is a meeting between the Head of Banking & Investment Services Supervision and the applicant and/or the applicant's legal advisers to further discuss the proposal. 3. Once the FSC is satisfied that the business to be undertaken falls within the definition of investment business and that the proposal is viable, application forms will be provided to enable the applicant to lodge a formal application. At this stage, the applicant will need to submit a full and comprehensive business plan, including financial projections (note that under point 1 of the application process the FSC initially requires a summary of this). An application fee is payable at this stage. Different forms are issued depending on the category of licence being applied for. In order to ensure that applicants are aware of all the regulatory and legal requirements at an early stage, the forms required for applying for a licence or authorisation are not available on the website.
5. Application Procedure 4. All shareholders, directors and managers of an applicant, are also required to complete an 'Individual Questionnaire Form'. All Individual Questionnaires and Body Corporate Questionnaires are vetted. It is not possible to provide a definite timescale within which this exercise will be completed as the Commission will be dependant on third party confirmations. 5. All applicants will need to supply the FSC with copies (certified if necessary) of all constitutive documents in relation to the companies that are to conduct the licenced activity. These documents include Memorandum of Association, Articles of Incorporation, Certificate of Incorporation, certificate of good standing or latest company profile. The same documents would be required for any holding companies within the group.
5. Application Procedure 6. Once an application has been lodged, it is reviewed by FSC staff and any issues or points requiring clarifications are raised with the applicant. Once all issues are resolved, the application is referred to the FSC's Committee. One of the purposes of the FSC's Committee is to discuss and advise the FSC on licence applications. 7. The Chief Executive Officer of the FSC will then consider the application and arrive at a decision on whether to grant the licence/authorisation. If the FSC's Committee raises additional matters, a decision would normally be stayed pending the resolution of these.
5. Application Procedure 8. The FSC's decision will then be communicated to the applicant. Where the decision is favourable, the FSC will send an 'in-principle' letter setting out all the requirements which the applicant will need to meet before the licence/letter of authorisation can be issued. The letter will also request confirmation, for example, of share allotment and evidence that professional indemnity cover is in place.
Thank you