Mr. James Tipping
Finance Centre Director (Government of Gibraltar )
2005-02-01
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.