Gibraltar looks to reinvent itself after Brexit
‘The Rock’ is home to large financial center • Minister says it could be gateway to UK after Brexit
GIBRALTAR/LONDON (Reuters) – Gibraltar, a rocky British enclave on Spain’s southern tip that has positioned itself as a springboard for finance to the European Union, may have to reinvent itself after Britain voted to split from the bloc.
Fund managers and insurers have been drawn to “the Rock” because of an attractive tax and regulatory regime, location in mainland Europe and proximity to the European market. Financial services account for about a third of the economy.
But Gibraltar is now considering refocusing on the British market in case London fails to secure financial access to the EU in talks with Brussels about its EU exit.
Fund lawyers in Gibraltar say they have not seen a drop-off in client queries since the June vote to leave the EU, which 98 percent of residents opposed. But Chief Minister Fabian Picardo has warned of an “existential threat” to the economy. The government is now preparing a plan B for its financial center.
Albert Isola, Gibraltar’s financial-services and gaming minister, says the territory will reinvent itself as an entry point for EU firms wanting to access a cut-off British market via Gibraltar’s attractive tax and regulatory regime.
“Being outside the EU is an opportunity, not a threat,” Isola said in an interview in his office that looks out across the bay to the Spanish port of Algeciras.
There is little alternative. A “hard” Brexit, in which Britain loses automatic access to Europe’s single market, would prevent financial firms based in Britain and Gibraltar from offering their services in other EU countries.
This would abruptly end Gibraltar’s efforts to lure firms looking to Europe, with the promise of corporate tax of 10%, easy-to-access regulators and Mediterranean lifestyle.
The British overseas territory, which Spain ceded in 1713 but would now like to reclaim, is home to more than 100 regulated funds that manage assets worth about £3 billion ($3.91b.). It is also an important cog in Britain’s insurance industry, with 20% of automobile insurance being underwritten there.
Isola said even if Britain loses its right to a “passport” allowing it to sell financial products into the EU, the British market will remain one of the largest in Europe. Any firms wanting to do British business would need to set up subsidiaries in Britain or Gibraltar.
GIBRALTAR TO MALTA?
Gibraltar’s financial district has grown rapidly along the narrow strip of land between the sea and the towering limestone rock, famous for its monkeys and views out across the narrow strait to Morocco.
Some of Britain’s biggest auto insurers, such as Admiral and Hastings, have Gibraltar subsidiaries. Although the bulk of their business is in the British market, some insurers and other financial firms are making inroads into mainland Europe.
Firms that are there now have to decide whether to stay.
“There obviously are a lot of exploratory talks with countries like Malta to keep, if and when needed, access to the continental European market,” said Ron Westdorp, the managing director of Taler Asset Management, a fund in which the majority of investors come from EU countries other than Britain.
One British general insurer with a Gibraltar operation, Elite Insurance, has already decided to set up a subsidiary in Luxembourg.
“The issue for us is that we cannot afford to let our customers just wait and see what happens between the British government and the rest of Europe,” Elite chief executive Jason Smart told Reuters. “We do not feel that is fair.”
HEAD IN THE SAND
‘Being outside the EU is an opportunity, not a threat’
Gibraltar has a history of adapting to adverse circumstances, particularly on its border with Spain, which was closed by former dictator Francisco Franco in 1969 and only reopened in the 1980s.
Gibraltarians say it can reposition itself far faster than Britain. “Because we are such a small jurisdiction, we are able to adapt very quickly,” said Joey Garcia, a lawyer at family law firm Isolas.
He said his pitch to clients would have to change in the worst-case scenario of a loss of EU passporting rights; he would be selling them access to Britain, not to the EU.
Isola said Gibraltar’s government would help its licensed businesses make arrangements with other jurisdictions that would allow them to maintain access to the single market.
One option on the table, he said, would be to set up a dual-legislative regime comparable to arrangements in British overseas territory Guernsey. One regime would be in line with European standards to allow Gibraltar to be included in EU passporting, and the other regime would have its own domestic standards.
A further option under consideration, according to local lawyers, is an agreement with an EU jurisdiction that would allow Gibraltar to passport into the EU through that territory. In return, businesses in the other jurisdiction would be able to set up in Gibraltar on a fast-track basis.
But Isola concedes that Brexit will hurt if firms that rely on business with the EU move elsewhere.
“Anyone who doesn’t know that is digging their head into the sand,” he said.