Open for business: the Gibraltar International Bank is set to launch before the summer (Shutterstock)
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Lawrence Podesta: "setting up a bank from scratch is no easy task"

The soon-to-be-opened Gibraltar International Bank will fill a major gap in the local banking market. Lawrence Podesta, its CEO, shares the story behind the bank's development

What’s the story behind the Gibraltar International Bank – is it the first native retail bank in Gibraltar?

In 2012, one of the major international retail banks in Gibraltar announced that it was closing its retail operations. This bank had a substantial share of the market and, with only two other retail banks open for business, the government of Gibraltar took the decision to establish a local bank. The bank is set to open before the summer.

Historically, in Gibraltar there have been a number of retail banks from other countries. However, the Gibraltar International Bank is not the first locally established retail bank in Gibraltar. That honour goes to Galliano’s Bank, established in 1855 by a local family of Genovese ancestry.

Who is the bank for, and what services will it offer?

The bank will primarily cater for the needs of the local retail market, both for personal and corporate clients. It will provide a full range of products and services typically associated with a retail bank – such as current accounts, deposit accounts, personal and commercial mortgages, loans and overdrafts, debit and credit cards and online and mobile banking.

The bank is being set up as a traditional bank with a modern feel, meaning that we endeavour to provide the best face-to-face customer service, while at the same time promoting our online and mobile banking applications.

Is the new bank a public or a private one? 

The bank is wholly owned by the government of Gibraltar and has a board of directors which stands completely independent from government, comprised of top professionals from our community. The bank’s executive team and staff have all been recruited from the private sector and the bank will be run on a commercial basis.  

What impact did the banking crisis have on account holders in Gibraltar? Is there any connection between the banking crisis and Gibraltar setting up its own bank? 

There is no direct connection between the global banking crisis and the setting up of the Gibraltar International Bank. The new bank is the result of local needs expressed by the local community through various means over the past few years. The Gibraltar International Bank will, together with the other retail banks, add value to the marketplace.

What are some of the challenges you have faced setting up a bank from scratch? How have you surmounted these, and who are you turning to for advice? 

As you can well imagine, setting up a bank from scratch is no easy task. There are a number of fronts that need to be tackled at the same time – be it concerning regulation, operational or IT infrastructure, finance or risk.

Myself and my colleague (chief operating officer Derek Sene) embarked on this journey last May, and produced a business plan to take us forward. We have engaged with a number of external international parties in order to set up our operational infrastructure for services, such as having worldwide acceptance of our debit and credit cards.

They say that a company’s best assets are its employees. We made it a priority to employ the senior management of the bank in order to put the wheels in motion. We have been very cautious in setting our recruitment criteria, and are proud to say that the time and effort invested in this process has produced the desired results. 

Tell us about the premises that will house the bank – is it a historic building? Did it need much renovation?

The bank will be housed in possibly the only building constructed before the Great Siege of Gibraltar (1779-1783) to survive its original form. The building was constructed in typical Georgian style, and was used originally as a garrison armoury. No structural changes have been done to the building, and it will retain its charm and no doubt become an iconic building in Gibraltar.  

What are your long-term aspirations for the bank? What difference will it make for life and business in Gibraltar?

Gibraltar is an international finance centre, and whilst under its current remit the bank has been set up primarily to service the local community, we will entertain applications from prospective international clients who have personal or commercial links to Gibraltar and might require retail banking services.

Both Derek and I are convinced that the bank will have a huge impact in the community for personal and corporate customers. Gibraltar will be proud to have its own retail bank where decisions are taken locally by a team of professionals who fully understand the needs of our community.

The task force: CEO Lawrence Podesta (right) and COO Derek Sene (left)  

Photo: Getty
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Gibraltar - impact of Brexit

Last week our editor took a general overview of some of the scenarios for Gibraltar if Britain were to leave the Euro. This week, as the atmosphere in the British Conservative Party becomes ever more toxic, Michael Castiel, partner at Hassans lawyers on the Rock, goes into more detail (this piece written before the Iain Duncan Smith resignation and subsequent arguments happened).

However unlikely it may prove, the prospect of Britain's withdrawal from the EU sends shivers through Gibraltar's financial services, gaming and tourism industries, which are at the core of Gibraltar’s economy. For, if Britain leaves the EU, Gibraltar goes too, and, should Brexit occur, it is Gibraltar’s relationship with the UK that as in the past, largely will shape Gibraltar's future.

Gibraltar joined the European Union in 1973 as part of the UK. While rights to freedom of services across borders of EU member states apply between Gibraltar and the rest of the EU, because Gibraltar is not a separate member state (and is in fact part of the UK Member State) those rights do not apply between Gibraltar and the UK. Instead a bilateral agreement, formalised almost two decades ago, gives Gibraltar's financial service companies the equivalent EU passporting rights into the UK. Accordingly and pursuant to such agreement, where EU rights in banking, insurance and other financial services are concerned, the UK treats Gibraltar as if it is a separate member state.

This reliance on the special relationship with the UK is recognised by both the Government and the Opposition in Gibraltar, and when the territory (which in this instance as part of the UK electorate) goes to the polls on 23 June, the vote to remain in the EU is likely to be overwhelming. This may have symbolic significance but realistically seems unlikely to influence the outcome. In actual terms, although some non-EU jurisdictions use Gibraltar and its EU passporting rights as a stepping stone into Europe, almost 80% of Gibraltar’s business dealings are with the UK.

But whether or not Britain maintains the 'special relationship' with Gibraltar, if Brexit becomes a reality, other factors will come into play, with the ever-present Spanish Government’s historic sovereignty claim over Gibraltar topping the list.

Recently Spain's caretaker Foreign Minister Jose Maria Margallo went on record that if the UK voted to leave the EU he would immediately 'raise with the UK the question of Gibraltar.' If this was to come about it could take one or more of several different forms, ranging from a complete closure of the border between Spain and Gibraltar, demanding that Gibraltar passport-holders obtain costly visas to visit or transit Spain, imposing more stringent border controls, or a frontier toll on motorists driving into or out of Gibraltar. The latter idea was in fact floated by the Spanish Government three years ago, but dropped when the EU Commission indicated that any such toll would contravene EU law.

Here, again, imponderables come into play, for much will depend on which political parties will form the next Spanish government. A Spanish government headed by the right wing PP party is likely to take a less accommodating attitude towards Gibraltar (the Foreign Minister having recently indicated that in case of Brexit the Spanish Government may opportunistically push once again for a joint sovereignty deal with the UK over Gibraltar) whereas a left of centre coalition will likely adopt a more pragmatic and cooperative relationship with Gibraltar in the event of EU exit.

The most significant changes to Gibraltar's post-Brexit operation as an international finance centre are likely to be in the sphere of tax, and while Gibraltar has always met its obligations in relation to the relevant EU rules and Directives, it has also been slightly uncomfortable with aspects of the EU's moves towards harmonisation of corporate taxes across member states.

Although it was formed as a free market alliance, since its inception fiscal matters have been at the root of the EU, but Gibraltar's 'special relationship' with Britain has allowed considerable latitude in relation to what taxes it imposes or those it doesn't. However, as is the case with other member states, Gibraltar has increasingly found in recent years its fiscal sovereignty eroded and its latitude on tax matters severely curtailed.

As in Britain, Gibraltar has benefitted from several EU Directives introduced to harmonise and support the freedom of establishment, particularly the Parent-Subsidiary Directive which prohibits withholding taxes on cross-border intra-group interest dividend and royalty payments made within the EU.

As a stepping stone for foreign direct investment, should Brexit come about EU subsidiaries could no longer rely on these Directives to allow tax-free dividend or interest payments to their holding companies based in Gibraltar. In the case of the UK, bilateral double tax treaties will no doubt mitigate the impact of the non-application of any tax related Directives. Gibraltar, however, is not currently a party to any bilateral double tax treaties. Accordingly, Gibraltar would either have to seek from the UK the extension of all or some of the UK’s bilateral tax treaties to Gibraltar (subject of course to the agreement by the relevant counterparties) or it would need to negotiate its own network of bilateral double tax treaties with a whole series of EU and non EU Member States. To say the least, neither of these options would be straightforward to implement at short notice and would need the wholehearted support of the British Government

Whilst Gibraltar’s economy is likely to be adversely affected should Brexit occur, there may be some potential benefits. An EU exit would result in fewer regulations and possibly may provide Gibraltar with greater exposure to emerging economies.

From a tax perspective, an EU exit would probably enable Gibraltar to introduce tax rules and incentives that are contrary to EU tax laws and would provide the Gibraltar Government more freedom to adopt competitive tax regimes that may be considered contrary to EU state aid rules. How possible or effective any such strategy would be is doubtful given the OECD driven anti-tax avoidance climate affecting all reputable jurisdictions whether within or outside the EU.

In this as well as other possible change much will hinge on any post-Brexit relationship with the UK - an issue which the Gibraltar Government addressed recently in a paper sent to Westminster's Foreign Affairs Committee. It stressed not only that 'EU membership has been an important factor in the development of Gibraltar’s economy' but also the importance of 'clarity as to the rights the British Government will protect and defend for Gibraltar in the context of its own negotiations.'