Gibraltar is keenly interested in attracting business from China, but what exactly is Gibraltar trying to attract, and what does Gibraltar have to offer? Four areas in particular stand out, mutual funds, insurance, wealth management and capital markets.
The main mutual fund product offered in Gibraltar is called the Experienced Investor Fund (commonly called an “EIF”). Its main selling points are its light but effective regulation (which is possible as EIF’s must have licensed service providers whose task includes, in effect, ensuring regulatory compliance), and its speed to market (a fund may be established in a matter of days). However, there are many competitor jurisdictions for mutual fund business, and this has created challenges for the Gibraltar industry. Membership of the EU, which enables EU based mutual funds over a certain size to be sold throughout the EU market (what is commonly called passporting), had provided a distinguishing feature for Gibraltar from competitors like the Cayman Islands, but not others within the EU, such as Ireland and Luxemburg. However, EU passporting rights come with heavy EU based regulations, and in practice, many Far East mutual fund businesses have stayed out of Europe (and hence Gibraltar) to avoid that regulation. Therefore, Brexit may not be particularly detrimental to Gibraltar’s mutual fund business, and may, in fact, bring opportunities if current UK – Gibraltar arrangements stay in place. In something of a twist, if a hard Brexit happens, it may be that Gibraltar will prove useful not so much as an entry point into the EU, but as an entry point into the UK.
Non-EU membership will enable Gibraltar to move from a single EU based system, to a dual system where both EU compliant funds, and non-EU focussed funds may be created. Gibraltar will then be free to develop its mutual funds industry in a way that best serves the needs of its potential clients, rather than the political concerns of Brussels. A more diverse offering may well lead to increased business, including from the Far East, where many view the EU as over regulated.
Insurance business is typically divided into distinct sectors, namely general insurance (such as accident, health, home and car insurance), long-term insurance business (life insurance, annuity and pensions), captive insurance and re-insurance. Gibraltar has a sizeable insurance industry, its biggest success relating to car insurance in particular with respect to the UK market. Indeed, Gibraltar insurers cover around 20% of UK motorists, almost double the market share of Lloyd’s of London.
Insurance is multi-faceted, and Gibraltar has become something of a specialist in this complex industry. An example of this is the creation of protected cell companies for insurance purposes. Many off-shore jurisdictions have copied this concept, although very few have the length of experience with it as Gibraltar.
Insurance in Europe is largely governed by EU law, in that there is a uniform system of laws which each EU member must adhere to. EU regulation is considerable in this area and has had its critics, however, there is considerable confidence in the EU insurance industry, and Gibraltar’s full compliance with these requirements has placed it in the top division in this sector. Having achieved such status, the Gibraltar insurance industry may choose to remain fully compliant with EU law following Brexit although a dual aspect of regulation may be decided upon in certain areas, for example, captive insurance.
China has an insatiable appetite for capital, reflected in the fact that it has three international stock exchanges, namely Hong Kong, Shanghai and Shenzhen.
Many companies that list their shares on the Hong Kong stock exchange re-structure themselves prior to listing so that their parent company is located in a stable, tax neutral jurisdiction. Bermuda and the Cayman Islands are the most common jurisdictions. When the Channel Islands took the decision to pursue the Chinese market, one of the first actions they took was to become an approved jurisdiction under the rules of the Hong Kong stock exchange. There is no reason why Gibraltar should not follow that path.
The Gibraltar stock exchange (GSX) opened for business in 2014. Initially listing the shares of mutual funds only, it quickly expanded its offering to include the listing of bonds and securitisation vehicles. The GSX has now opened a second exchange market alongside its existing main board. This is a multi-trading facility platform (commonly called a MTF), which is designed to attract debt and securitisation business. Indeed, it is in the area of securitisation that the GSX is having its greatest success, and securitisation may be an area in which Gibraltar will become more actively involved.
Wealth management is a professional service that combines financial and investment advice, accounting and tax services, retirement planning, legal and estate planning, and invariably, private banking.
A wealth management centre needs a combination of factors to be successful. It, of course, needs private banks and investment companies with the necessary management skills. It also needs to be located in a stable jurisdiction in which investors can have confidence. That jurisdiction also needs to have an efficient and independent legal system, and laws which create structures typically used in the industry.
Gibraltar has a distinct advantage in wealth management that would prove attractive to wealthy Chinese. It is a British overseas territory and so benefits from the stability provided by its British link, but also has a great deal of domestic independence enabling it to establish its own laws and tax system.
Brexit and retaining existing rights into UK market
Gibraltar is in a unique relationship with the UK as a consequence of its EU membership that allows the passporting of financial services between Gibraltar and the UK in a way that is not available to any other British overseas territory. It is becoming clear that this situation will survive Brexit. Following Brexit, it is quite possible that Gibraltar will be the only territory that has unrestricted passporting rights into the UK. Gibraltar will no doubt retain some access rights into the EU market as well but realistically, these will not be as favourable as the rights enjoyed between the continuing EU member states. Not having the most favourable market access to the EU market will be a hindrance to attracting Chinese investment in Gibraltar, so it is crucial that this situation is off-set by unique opportunities to access the UK market.
Relationships are the key to success in China
Successful financial services revolve around trust and relationships. In respect of Chinese business, the challenge may be less on the products on offer, but rather on the development of relationships.
I am frequently asked by local businesses how they can attract Chinese business. My answer is very simple. It is all about relationships. Recently, at a local event in Gibraltar, attended by local government officials as well as representatives from the Chinese embassy in London, a keen interest in furthering Gibraltar-China business was expressed. The response was very positive, but came with a reminder that usually, business develops from friendships, not the other way around. We need to remember the importance of relationships in Chinese culture. This should come naturally to us, as Gibraltarians are renowned for their friendliness.
words | Alicia Bowry, Benady Cohen & Co Chartered Accountants