The Financial Services Act 2019 ("FSA 2019") finally came into effect on 15th January 2020. It filled me with dread when I saw that it was 667 pages long and accompanied by 41 pieces of supporting regulations. Why was it needed? Has it succeeded to "provide a clear, more navigable and accessible legislative framework for financial services that will facilitate innovation" as intended by the Government of Gibraltar ("GoG")? The FSA 2019 was the result of the legislative reform programme ("LRP") driven by the GoG and the Gibraltar Financial Services Commission ("GFSC").  It was announced in 2016 and it was not until recent months that the consolidation and rationalisation processes were completed with the implementation of FSA 2019.

The FSA 2019 must be seen against the wider ambitions of the GoG, being to create an innovative financial centre, which can be the match of anywhere in the World.

Before FSA 2019, the financial services rules in Gibraltar were taken from various sources such as English statutes, and when Gibraltar became part of the EU Single Market, the EU Directives and Regulations. 

However, in recent years, it became increasingly difficult to navigate through the labyrinth of rules and regulations on financial services as more and more EU Directives and Regulations were being churned out by the EU Commission in its drive to protect the financial markets and consumers from another collapse of the financial markets as that experienced in 2008.

Rapid new rules were introduced to comply with EU Commission's obligations and deadlines which resulted in some older rules lagging behind, sometimes due to oversight, and sometimes due to necessity because of Gibraltar's unique position and its' tiny size. This led to some "awkward" moments where two set of rules were applicable at the same time. Therefore, LRP was much needed to "spring clean" the existing financial services rules  both generally and to take Gibraltar forwards.

As I dived into the FSA 2019 and its contents began to unfold and unravel, I found the task of navigating through it to be less arduous than anticipated. Some of the main changes (each by reference to Sections of the FSA 2019) are as follows:

1. There is now one permission regime (instead of many) for all regulated activities and one application for entities that wish to undertake different regulated activity (see: Part 7).  With the FSA 2019, only one application is required to be submitted and the applicant can then list the regulated activities that it wishes to undertake for determination by the GSFC.

2. There is now a general blanket prohibition (rather than many varied ones) for all regulated activities. This is clearly set out in section 8.

3. The provisions for the restrictions on financial promotions are set out in Section 12 and apply to all persons carrying on regulated activities. The said provisions are now clear that "reverse" solicitation permitted. Section 12(3)  specifies that a "communication is unsolicited if the personal visit, telephone conversation or other interactive dialogue in course of which the communication is made was not initiated at the request of the recipient or (b) takes place otherwise than in response to an express request from the recipient".

4. The enforceability rules relating to agreements that were concluded in contravention of the general prohibition rules and the rules on restrictions of financial promotion ("Prohibition Rules") are also clearly set out in Section 14 to 18 (including accepting deposits in breach of general prohibition rules). Agreements that were made by persons in contravention of the Prohibition Rules were unenforceable against the other party and the aggrieved party would be entitled to recover any money or other property paid or transferred under the agreement and compensation for any loss sustained by him or her as a result of having parted with it.  Agreements made as a result of anything said or done by third parties undertaking a regulated activity in contravention of the Prohibition Rules for authorised persons were also unenforceable, unless it could be proven that the authorised person was not aware that the third party was contravening the prohibition rules or if it could be proven that the person who contravened the Prohibition Rules reasonably believed that he or she had not done so. The "just and equitable" principle would be applied by the Supreme Court in determining whether the restricted agreement (entered into in contravention of the Prohibition Rules) could be enforced or if money paid or property transferred could be retained. 

5. The procedure for application under Part 7 as laid out in section 76 is extremely helpful, and in particular, section 77  sets out the time period for determining applications for permission to carry out regulated activity. This is a welcome change and will be an attractive point for potential applicants due to the certainty it provides. As legal practitioners we can now advise our clients with a clear time period for the determination of their applications. Applicants can now set their business plans and projections with a set timing without having to push back their plans due to the delay in obtaining the required licence to operate.

I am delighted to note (although BREXIT may ultimately alter everything), in particular, that applications relating to the taking up or pursuance of distribution or reinsurance distribution in relation to a risk or commitment located in an EEA State is now set at 3 months. The same applies to the e-money and payment services sectors. These three sectors are known to be fast moving and therefore "speed to market" is an absolute must if Gibraltar wishes to see itself as a competitive jurisdiction for these businesses.

6.The FSA 2019 contains some common sanctioning powers and provisions for all regulated activities but one must be aware that, although the principal provisions are in contained in Part 11, one would still need to refer to the sector specific regulations on enforcement actions and powers of the GFSC since each sector may have different enforcement provisions. It is to be noted that the administrative penalties are, by and large, the same across all of the sectors, except for insurance companies, investment firms, credit institutions and UCITS schemes, which will attract higher and more onerous penalties. This is not surprising since these sectors bear a higher risk impact on consumers.

7. Securities laws have, perhaps surprisingly, been included in the FSA 2019, although it is perhaps understandable since GFSC is the "watchdog" for offers of securities in Gibraltar. Securities laws relate to offers of securities and prospectuses that require registration by the competent authorities and the registration regime is different to that in Part 7 as referred to above. This may lead to a little confusion.

8. It is equally perhaps surprising that money lending activities were left out and it continues to be governed under the existing Financial Services (Money Lending) Act 1917. The regulatory body for these activities is the GFSC.

9. The sector specific regulations that accompanied the FSA 2019 are mostly regurgitation of EU Directives, and unfortunately, they remain cumbersome. Anyone advising will still need to go through these rules, including the rules under the principal Act.

10. The Regulated Individuals regime ("RIR") and the establishment of a decision making committee ("DMC") were also introduced by the FSA 2019. The DMC will make supervisory or sanctioning decisions which is an attempt by the GOG to provide a fair hearing since members of the DMC are independent of the GFSC. This is a good move and hopefully avoid complaints of bias by disgruntled individuals and lessens the need for court referrals. The RIR applies to persons who have significant influence over the running of regulated entity, and these individuals will need prior approval from the GFSC before they can undertake their positions. Both these regimes are welcomed and will enhance the reputation of Gibraltar as a reputable and well governed jurisdiction.

Summing this all up, my view is that GOG have succeeded in achieving their aim. The FSA 2019 has achieved what it set out to do, namely to provide a navigable and accessible legislative framework to the markets. It is truly comparable with that of larger nations, if not better. There are bound to be teething problems, gaps and areas that will need polishing and improvements but I am glad to say that overall, once you find your way through its index, it grows on you!

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