Finance Centre Director (Government of Gibraltar )

Could you give us some background information on Gibraltar’s financial services industry?

The financial services industry in Gibraltar is a very important part of the economy. It accounts for around 33% of the GDP and employs some 2,000 people directly, and maybe another 1,000 indirectly. When you consider that Gibraltar has a population of about 30,000 people and a force work of about 14,000, those numbers are considerable, but not an overwhelming part of the economy.

In line with the government’s conservative (with a small “c”) fiscal stance on economic development, the development of the financial services sector is an important part in ensuring that Gibraltar remains fiscally self-sufficient. We receive no financial aid from any other party, therefore the development of what has traditionally been the three pillars of our economy; financial services, marine services and tourism, is essential in order to support and fund our social programs such as housing, health and education.

With regards to financial services in general, Gibraltar has a niche market of which we have two peer groups or competitors. Within the European Union (EU), we compete with Dublin on insurance products and with Luxembourg possibly on funds work. Outside the EU, our peer group is essentially the crown dependencies of Jersey, Guernsey, Isle of Mann and beyond that, Bermuda. With regards to a particular product and as a jurisdiction with that type of activity, we are compared with Monaco or the Isle of Mann.

We also liaise and work very closely with the financial district in London and we also have a very good relationship with the Swiss financial centers. It would be presumptuous to say that we compete with these two markets, because in terms of overall numbers Gibraltar is a very small international financial services center.



Why was the Finance Center created and what are its main responsibilities and goals?

The Finance Center Department, reports to the Chief Minister who is also the Minster with responsibility for Financial Services. As I am sure you are aware, the Government of Gibraltar is autonomous in all areas of self-governance, except for defense and foreign affairs, which remain the remit of the United Kingdom. Essentially we are a “micro-state” within Europe.

The Finance Center has a few main areas of responsibility. One is the marketing and promotion of Gibraltar, and the development of Gibraltar as an international financial services center. Secondly, we play a very important liaison role between the government and the private sector, and to that end we have a very close relationship with the Finance Center Council, which is the umbrella body of seven professional organizations in Gibraltar. I believe the Finance Center Department of the government has to have a very commercial approach to business in order to be able to liaise with the private sector. Thirdly, we run the fiscal incentives for high net worth individuals who want to take up residency in Gibraltar, what traditionally has been the case in other parts of the world such as Monaco or Isle of Man.



Could you tell me in more detail the role of the Finance Center Council?

This council meets on a regular basis to ensure that the industry is telling us what they would like with regards to new legislation, products or any other concerns they may have. Likewise, it is also a forum for the government to explain to the private sector what the big picture policy issues are with regards to relevant EU directives affecting Gibraltar, as well as multi-lateral issues affecting global standards of regulation, such as money laundering.



What is Gibraltar’s competitive advantage in financial services?

Gibraltar is developed and marketed in the eyes of investors, both corporate and private clients, as a quality jurisdiction, which is looking for quality business in financial services. All of the financial services activities in Gibraltar are regulated to EU and UK standards. This regulation is carried out by the Financial Services Commission, a fully independent regulator, created by the local parliament in 1989. It is responsible for regulating the four main markets of the financial services sector, which are banking, insurance, investment services (which is generally funds work) and company and trust management. What we are trying to achieve in the development of financial services, is stable growth within all four of those areas. We are not keen on seeing accelerated or out-paced growth in one particular area. We would much rather see stable and consolidated growth in each of these sectors. Being a part of the EU, Gibraltar offers international corporations interested in expanded their business into Europe an excellent base from which to do that. We are an ideal gateway, which has been recently exploited by the insurance sector.



Could you tell us about the recent boom in the insurance sector of Gibraltar’s financial services industry?

The main driver behind the development of insurance business over that last four to five years is the fact that we are within Europe and therefore benefit from the over 350 million person single market in financial services. Any Gibraltar licensed bank, insurance company, investment services firm and insurance and/or reinsurance mediation firm is automatically entitled to passport their products and services into any EU member states without the need for further licensing. That right is derived from our legal status within the EU and the fact that our regulatory environment is on par with the rest of Europe. What this means is that companies coming from outside of Europe, for example from the United States, and are looking for a location that will give them access to the European market will find Gibraltar a very attractive location depending on the factors that those corporations consider when choosing where to set up. Some of those factors could revolve around the work force; is it expensive, is it educated, is it multi-lingual? There may also be life-style issues that affect the company’s decision, which are sometimes called the “soft factors.” In that regard, Gibraltar is extremely attractive. Low taxation is an issue, but it is not everything.

The insurance sector is an example of a type of activity that we have been trying develop for quite sometime. We obtained “pass porting” rights in 1997 and that together with the hardening insurance market in 2001, has combined to see insurance licenses raise from 13 in 2000 to 44 or 45 at present. That is an example of reasonable growth because the regulatory platform and the infrastructure you have to have in place to regulate one, two or three insurance companies does not mean that you have to multiple that platform in order to regulate more because the fixed costs of having that in place are very expensive. Therefore, we have been able to cope with that increase, while at the same time ensuring that the industry is well regulated and properly licensable.



How has the Finance Center been working with the insurance industry to market these competitive advantages?

We have been working very closely with the industry in developing Gibraltar’s position and I believe we have achieved a very reasonable level of critical mass in which the industry begins to talk about you and it becomes automatic that a lawyer or account, when advising a client on where to establish in Europe, would mention Gibraltar as a place that should be considered. It is the only area in which we have marketed reasonably heavily towards the United States. We have one or two US firms that are here and we have over the last 4 years attended the world’s largest risk and insurance management seminar; this year’s being in Philadelphia, in order to raise Gibraltar’s profile in the US market as a real alternative to Dublin and London as a gateway into Europe. With our very limited resources, the idea of trying to market in the States is a very tall order, which is why we are focusing on a very specific niche, which is the insurance market.



Looking more specifically at the insurance market, how can this sector be divided with regards to types of insurance providers?

The insurance business is basically divided into two markets. One is captive insurance, which is the establishment of an insurance company to provide overall coverage in a wide array of areas for a multinational company, such as for its employee’s cars, health scheme, building insurance. An American corporation might choose Gibraltar as a captive insurance center through which to ensure all of its European operations. The other type of insurance is the direct writing insurance, which simply involves writing insurance on a case-by-case or location-by-location basis.



How has Gibraltar’s economy and financial services industry evolved over the years?

Gibraltar has been a financial services center since 1967 and we have always had a good, deep base of professionals in all of the major sectors, but until recently Gibraltar’s economy was overwhelmingly driven by public sector spending, primarily from defense spending, which made up about 65% of GDP. Now, defense spending is around 8 or 7% of GDP, and our economy is overwhelmingly driven by the private sector. The critical period of that transition occurred in the early 80s. The mid to late 90s was another critical time in our development because of the great advancements in communication and technology, most notably the Internet boom. As a result, many derivatives trading companies moved from London to Gibraltar because trading can be done from anywhere around the world, there are reasonable levels of taxation here and there are of course lifestyle issues involved.

We have also seen over the last 5 years a shift from the more traditional and simple, private client business to a more sophisticated, corporate business. In the area of insurance, Novartis is an example a large multi-national company that has decided to set up in Gibraltar.



After the insurance sector, what other sectors of Gibraltar’s financial services industry would you like to see marketed to the States?

The government’s very strong view is that if one is involved in cross border financial services, as a legitimate part of your economy, then it is critical that you are complying with all of the established international standards, regulations and laws and that you are operating in a professional and responsible manner. Part of that has been that even though we are a small jurisdiction, we have to establish competent authorities within Gibraltar to ensure that we adhere to all EU directives and laws. We have our own regulator of telecommunications and a number of other key industries. We have continually invited third party assessment teams to review our regulations, and we have continually received praise.

I think US corporate business is easier to deal with than US private client business because of time zone and other issues. I think it is the much more sizable US corporations that are either doing business or want to do business in Europe in which Gibraltar can be a serious alternatively location to provide a bridge or gateway into Europe, and that is the most clearly identifiable and focused area of business for Gibraltar in the US.



I’ve noticed that there are not any American banks here in Gibraltar, what is the current status of the banking sector of the financial services industry?

The banking industry, globally speaking, has been going through a very significant consolidation process in the last 10 – 15 years and that is something we have noticed here. The number of licenses has decreased, however the number of employees in the industry has increased because of mergers and acquisitions outside of Gibraltar. The very large American banks already have a presence in London, Frankfurt and all the other major cities of Europe, so the possibility of attracting them here is probably not very realistic. However, banks that are slightly smaller and that are looking to develop business in Europe, whether it is within the area of securities, private banking or funds, would find Gibraltar to be an attractive location as a gateway into Europe.



What are some of the challenges you see for the Gibraltar’s financial services industry in the years to come?

We consider ourselves to be a small, but mainstream international financial center, of which there are not that many in the world when you look at the ones that fully comply and are at the forefront of regulatory and anti-money laundering issues, etc. The main issue for everyone has been to keep pace with the demands of regulation and related legislation. For a small jurisdiction, those pressures are even greater because of the limited resources, however the government as shown enormous commitment with regards to carrying out our cross border financial services in a responsible and professional manner.



After the insurance sector, what area of the financial services sector do you think has the greatest growth potential?

The trust and company management sector, along with the banks, is still probably the largest employing sector in terms of absolute numbers. However, as the Chief Minister has explained, with the EU Commission position and what is happening with the “exempt companies” status, this sector is one that is undergoing the biggest period of change. I foresee that there will be more consolidation within that sector, more trust work than company work. However, certainly the insurance sector has led the way and we would like to think that the funds would be next to follow. We have no intention, and it would be unrealistic to think we could compete head on with Luxembourg on funds, but what we are looking at is the establishment of niche funds (private funds), all licensable, etc. We think this could be the next area of growth for Gibraltar.



You mentioned that the financial services sector accounts of around 33% of Gibraltar’s GDP. Is the government satisfied with that number?

Government policy with regards to the economy is stable and diversified growth. A very important thing for us is to have a diversification of the economy. Tourism accounts for some 30% of GDP, and marine services account for about 20%. Recently, the government has also tried to introduce E-commerce related activities as a fourth pillar of the economy. While these activities do not rely on large numbers of people, it can allow you to leverage business quite substantially. If we assume that we have three and a third pillars of the economy in place now, I do not think that the government would want to see the balance between those three to go out of sync. Gibraltar would not like to be in the position of some jurisdictions that are 70% reliant on financial services because that puts you in a vulnerable position if something happens to that sector. The financial services sector does have capacity to grow, but the government would not like to see it grow to such an extent that it becomes the overly predominant area of the economy.



What would be your personal message to our reader?

Gibraltar is very keen on ensuring that Gibraltar’s profile, among American business people and corporations, is elevated so that they become aware of Gibraltar’s position as a financial services center within Europe. I agree with the Chief Minister’s assessment that Gibraltar has an affinity with the United States in terms of being a microcosm of the United States. Finally, I believe that Gibraltar is a gateway into Europe for business activity from the United States.