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The decision on the 23rd of June was as surprising as the Remain vote was emphatic in Gibraltar. 84% of the electorate turned out and fully 96% of those who did voted to remain in the EU. Only 823 voters chose a parting of ways.

The fundamental concern that arose from the Brexit decision was in respect of the longevity and good health of Gibraltar’s economy. Having enjoyed over 25 years of uninterrupted growth on an unprecedented scale, the focus of the political and economic leadership turned immediately to the four engines of Gibraltar’s diversified economy: the financial services industry; the online gaming industry; tourism; and shipping and port related industries.

Can Gibraltar’s economy stay aloft post-referendum and, ultimately (assuming Brexit means Brexit) after the UK leaves the EU? In this edition we deal with Financial Services and Gaming.

Financial Services:

There has been no impact so far on financial services beyond the slowdown experienced in the run up to the referendum, as international business put investment decisions on hold pending the poll. Surprisingly, in the wake of the referendum, activity has picked up in the sector, defying all predictions of doom and gloom.

Whilst this may be the case and the immediate reality is that nothing has changed pending exit, the industry has been busy drawing up its assessment of the potential impact of a departure from the single market, which potential impact can be summarised as a loss of access to the single market following a period of uncertainty in the run up to Brexit.

Gibraltar’s financial services providers have been leveraging the EU passporting arrangements in the banking, insurance, funds and pensions contexts amongst others for many years now. The banking and asset management sector has long benefited from access to the single market and the application of measures such as the parent/subsidiary directive to attract business to Gibraltar. Gibraltar has also, by way of example, provided a launch pad for Swiss asset managers into the single market in the context of turbulent and difficult changes in transparency in the Swiss regulatory environment.

The issue of access to the single market, as opposed to membership of it, a distinction alighted upon by Anthony Browne, CEO of the British Bankers Association (BBA), is one of the issues fraught with most uncertainty, given the inextricable link between access to the single market and issues of free movement and immigration in respect of which the British Prime Minister has said there will be no concessions.

How realistic Norwegian style or ‘Swiss Plus’ arrangements are in the context of the hardline stance being taken by the EU, in particular in the context of the concession by the Swiss Government (despite a referendum earlier this year rejecting such moves) that it too will allow concessions on free movement to retain access to the single market (e.g., in respect of Life Assurance) remains to be seen.

Insurance

One in five cars on Britain’s roads are insured by insurers based in Gibraltar, operating in the UK on the basis of a financial services passport. It is estimated that 80% of the business written by Gibraltar insurers is UK facing business, with the remaining and not insignificant share of the business being done throughout Europe. The fact that Gibraltar is such an appealing jurisdiction for insurance companies has a knock on benefit for consumers too, in the shape of lower capital costs translating into more competitive premiums, flexibility around investments and continuous product improvement to cite a few.

The key areas of concern are, self evidently, the nature of the relationship Gibraltar might enjoy with the U.K. in a post Brexit scenario, access to and independence of the regulator, passporting to other jurisdictions in Europe and, of course, the free movement of people.

For leaders in the insurance industry, it is clear that access to the UK is vastly more important than access to the EU, as the Minister for Financial Services explained in a recent interview on Bloomberg TV, however important the EU passport also is. Legislative equivalence is also, certainly, on the shopping list given that if Gibraltar wants to continue to be competitive on a global scale, it will need to retain the legislative and regulatory framework that can be offered as equivalent to EU for the purposes of, at the very least, third party recognition on the basis of that equivalence.

Gaming

One of the main pillars of the economy, the online gaming industry is no stranger to challenges. In recent years, the application of a point of consumption tax as well as the creation of national licensing regimes in a growing number of countries has put pressure on an industry that has generally found itself compensating for an ‘image problem’ by being in the most prestigious, highly regulated jurisdiction in the industry, Gibraltar. The EU angle is a far less significant one in this context given that there is no Europe-wide licensing regime along the lines of the financial services passporting system.

The EU angle which potentially threatens to impact upon the industry is simply, the manner in which Spain might choose to comport herself, or not, in the context of the land frontier between Gibraltar and Spain. A large number of the gaming workforce in Gibraltar reside over the border in Spain with the consequent threat to business continuity that that might represent should movement across the border be hindered in any way. Already the Government has taken this potential chink in the armour on board and announced measures designed to attract the development of housing which meets the needs of the workforce, in addition to further fiscal incentives for individuals working in that industry who may be settling in Gibraltar.

So, will it fly? In short yes. There are challenges ahead, of that we can be sure. The fundamental concern is the uncertainty, not just about what the relationship between the UK and the EU will look like at the conclusion of Article 50 negotiations (and these may well not be triggered until September 2017), but also the uncertainty that stems from being unable to predict how the Spanish Government (as soon as there is one) decides to handle the evolving situation.

Despite these challenges, we are working hard to secure the best possible deal for Gibraltar and what that mostly means is that we are looking to develop and strengthen our ties with the British Government in a way that might allow us to establish a common market arrangement with the U.K.

Gibraltar will also need to continue ensuring that we offer the highest quality, respected and fully EU and internationally compliant regulatory environment because, in so many of the financial services contexts, we would be ill advised to shift our focus away from a 100% committed approach to compliance. In much the same way as will be the case in the UK’s unraveling of the 43 years in ‘Hotel California’, we too will ‘check out any time we like but’ in the compliance sense, ‘we can never leave.’

Government and industry have worked on and continue to work on coming up with the solution our clients need from a modern, connected and compliant jurisdiction. We have connected and are exploring opportunities with other financial centres because, after the referendum result, we are operating in a climate where the only thing we know is that we know nothing of what is coming down the line. Everything is on the table and Gibraltar is working to identify and pursue avenues for business as it has always done because in times of change, risk represents an opportunity too.

 

To discuss anything in this article further or to enquire about how Gibraltar may prove to be the right solution for you or your clients, email Selwyn Figueras on selwyn.figueras@isolas.gi  

Click to view our latest newsletters:

Brexit Advisory Newsletter - 1, September 2016

Brexit Advisory Newsletter - 2, November 2016

12-10-2016 | by Selwyn Figueras | Published: Online Only

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Selwyn Figueras

Senior Associate