Michael Castiel examines how despite recent regulatory challenges Gibraltar continues to punch above its weight with its financial services offerings.
The medium-term uncertainty of the UK's continued membership of the EU remains a cloud on Gibraltar's financial horizon, for the Rock's membership of the 27-nation body - and thus her role as a stepping-stone into Europe's vast financial market - is under Britain's umbrella. And it is partly in response to this that the Gibraltar government recently has strengthened its presence in both London and Brussels.
It has also intensified its thrust into other markets - particularly in the Far East - and despite the Spanish stumbling-block, many in political and financial circles here believe that eventually the jurisdiction will seek direct individual membership of the EU.
But, as yet, the cloud is neither too large nor particularly threatening, and Gibraltar's stature as a significant player on the global financial stage continues to grow. This, in part, has been encouraged by two important and on-going developments - the adaption onto the statute book of all relevant EC directives and regulations (more advanced than in the UK and many other member states); and the transparency that has stemmed from the Government's readiness to implement the Foreign Account Tax Compliance Act (FATCA) where some 130 agreement have been signed.
Gibraltar's easier access to regulators is attracting more fund managements; and, in the wake of recent changes in Britain's pensions legislation, the Rock has established a thriving QROPS presence, not only filling the void left by HMRC's delisting of international pension schemes in some other jurisdictions, but also helping to ensure worldwide adherence to the high standards for retirement provision that the UK requires.
Both the new Stock Exchange and the recently-opened Gibraltar International Bank continue to grow; and the Financial Services Commission has begun a long hard look at the current regulatory regime - consulting the Rock's finance sector on the broad base of changes it is considering. It has already adopted the Corporate Governance Code, drawn up by the GIFA’
In recent months the jurisdiction also has hosted a string of international conferences linked to two of its strongest sectors - funds and on-line gaming.
The latter sector - with 34 gaming licensees - has also established the Rock as a new insurance-linked securities provider in a 100 million euro move by the lottery company Lottoland.
However, as in other jurisdictions, the growth of Gibraltar's on-line gaming industry has spawned potential problems as well as profits. Not only is technology outpacing legislation and regulation, but as internet and on-line gaming expands - with punters world-wide expected to lose €28 billion this year - there are other sectors of financial services that in effect support the industry with no specific gaming-related regulation.
In what has been lightly described as a' Cyberspace race' regulation and legislation attempt to keep pace with the rapid developments in e-technology and their impact on such aspects as Internet banking via mobile phones to split-second currency transfers from one side of the world to the other.
As elsewhere, some of Gibraltar's gaming legislation is outdated, and - like plans to promote the Rock's the potential to become a hub of e-business in Europe (and even outside the EC) -- will require new sets of controls. There's vexed question of crypto-currencies... the global lotteries and scratch cards which in many jurisdictions are unregulated and where such rules exist often conflict with each other.
Gibraltar is poised to take a lead in solving part of the problem, with plans set out and work on new law begun by a panel of experts. The Rock is already regarded as one of the better-regulated e-gaming jurisdictions with far fewer problems than many of her peers. And although the European Commission is itself looking at potential EU-wide gaming regulations (to replace current Directives) new Gibraltar legislation could provide a blue-print for European regulation.
While warning against regulation for the sake of regulation, Gibraltar's gaming regulator Phil Brear recently stressed the need to 'modernise the regime' and to 'change the actual entry point'.
The Rock has established itself as ' a sector of excellence' across the international gaming community, largely because successive governments have been careful to licence only gaming firms with spotless reputations. Such 'cherry-picking', which allows regulatory reins to be light, would be impossible for the EC to impose. However, following Gibraltar's example individual EU jurisdictions could demand undertakings of specific conduct by would-be licensees.
Gibraltar's 'selective licensing' has led to interaction between legislation and the agreements which the operators have signed. These have worked well so far. However, our local legislation does not allow any system for appeal, so the new legislation is expected to provide this. It will also arm the regulator with more open powers.
A convincing argument supports a proposal put to one of the recent international symposia that e-gaming is moving ever closer to becoming part of the actual financial services sector, rather than being itself serviced by many in the broader industry. And, because these are unregulated in terms of gaming, it is from them that the 'real' challenge comes, several speakers suggested.
Does this herald the coming of separate licenses for service providers? In the legislative changes that must come, to meet technologies' advances that seems inevitable - not only in Gibraltar, but elsewhere in Europe.
Michael Castiel, Partner, Hassans