Gibraltar, the British territory on the southern tip of Spain, is seeking to reinvent itself as a gateway to the U.K. for fund managers and insurers after the U.K. leaves the European Union in 2019.
The Gibraltarian government is in the process of reviewing regulations to make the enclave attractive to insurers wanting a piece of the growing bulk annuity market. It is also researching new fund structures and consulting on financial technology rules to appeal to asset managers seeking alternative fund structures and financial blockchain firms seeking a regulated market. It is hoping that the new measures will be sufficient to entice insurers to establish new offices in Gibraltar and fund managers to domicile new funds there, too.
The pitch appears to be working: Gibraltar’s commerce minister, Albert Isola, tells Institutional Investor Gibraltar has already attracted new applications from 26 insurers, fund managers and financial technology firms since the U.K.’s referendum on European Union membership.
The applications are predominantly from insurers looking to obtain a license to write regulated business under Gibraltarian law and from fund managers looking to establish funds in alternative asset classes. Isola hopes to attract life insurance groups who want to win a slice of the UK’s burgeoning bulk annuity market. In a bulk annuity transaction, an insurer takes on a company’s pension obligations in exchange for a fee.
For insurers, the attraction of Gibraltar is clear. Under Gibraltarian “Protected Cell Company” rules, they can operate corporate structures that allow them to underwrite insurance risks without these risks affecting their profitability.
U.K. corporate pension schemes are increasingly outsourcing their future pension liabilities to insurance companies through these transactions. A report by investment consultants LCP, released at the end of last year, said £70 billion ($90.7 billion) of UK retirement assets had been transferred to insurers over the past 10 years, accounting for some five percent of the total assets in the defined benefit pensions market.
“We already have a lot of insurance firms in Gibraltar but we are looking to see how some of our products — Protected Cell Companies, for example — can be used to support the life and pensions sector,” Isola says.
In fund management, Isola’s team is also hoping to attract fund firms looking for new structures that will accommodate new asset classes. In July, Gibraltar became the first European jurisdiction to regulate an exchange-traded fund investing exclusively in bitcoin, according to a Reuters report.
Isola says while most European governments have been lobbying to encourage the relocation of business from London after Brexit, Gibraltar is focusing on giving European firms access to the U.K. market after Brexit, when passporting rules will no longer apply. Passporting refers to firms being allowed to sell financial products cross-border throughout the European Union. As it stands, the U.K. will no longer be included in this when the Brexit negotiations conclude in 2019. Isola says the British government has made assurances that Gibraltar will continue to enjoy equivalent regulatory status to the U.K. through its regulator, the Gibraltar Financial Services Commission.
Gibraltar has been a British overseas territory since 1713, but Spain has always contested British rule. Since the U.K. voted to leave the European Union, Spain has said it would use its veto power for any plans that will give Gibraltar special treatment after Brexit. The European Council’s guidance on Brexit negotiations, however, states that Gibraltar is a separate issue for Spain and the U.K. to negotiate separately.
Financial technology companies and organizations specializing in blockchain technology have been attracted to Gibraltar because of forthcoming legislation that will regulate these businesses, according to Isola.
“Reputable businesses are looking to be regulated in that space. By early next year we hope to be in a place to start regulating DLT business,” he says. “We have an innovation team at the regulator and they acknowledge that if we don’t innovate it is going to be difficult for us to get ahead.”
Mark Maloney, chief executive of investment firm Gibraltar Asset Management, says he believes the appeal of being regulated in Gibraltar as opposed to London is down to the level of access firms have to the local regulator, which can make it easy to check rules, set up businesses or apply for authorization.
“If you look at the companies that Gibraltar now attracts, these are big companies,” he says.
