Are the stars aligning for Gibraltar’s investment funds sector?
By Jay Gomez, Director, and Javier E. Triay, Senior Associate, Triay Lawyers
The build-up to Brexit was not easy for anyone living and breathing financial services in Gibraltar. Although we took comfort in the ongoing access to our primary market, the United Kingdom, negativity and pessimism reigned for what looked like an uncertain future.
As a result, Gibraltar featured heavily in the international media. The question primarily being asked centred around the impact on day-to-day lives and primarily the question of fluidity at the frontier with Spain. The loss of access to the EU market was largely suffered in silence.
During 2020, Gibraltar continued to feature in the international media when along came COVID-19 and the spotlight was then on the efficiency of Gibraltar’s vaccination programme, and then the New Years Eve ‘In-Principle’ Agreement with Spain. Then followed the positive impact of the vaccination programme on limiting community transmission of the virus and the hotly contested abortion referendum. For the past 12-24 months Gibraltar has been plastered all over the international media. This looks set to continue as the negotiations ramp up in respect of our future relationship with the EU.
Self-criticism is engrained in all Gibraltarians and for years we have believed that our ability to market ourselves as a jurisdiction has not been as successful as that of our main competitors. Perhaps our size has something to do with that?
Whilst some may have not realised, the past 12-24 months has created more publicity for Gibraltar than any of us could have ever hoped for or dreamed of. Overall, that publicity has also conveniently been positive and has shown Gibraltar in great light and on many occasions as a leader and a beacon of hope: the success of the vaccination programme being a perfect example.
Why does this matter for financial services and specifically the funds sector? The answer is simple: post-Brexit our competitor jurisdictions have shifted from being EU fund domiciles to non-EU fund domiciles and it seems the time Gibraltar has spent in the news has also sparked interest from prospective clients in what Gibraltar can offer for financial services.
Gibraltar Funds & Investments Association (GFIA)
The timing has been superb as since the result of the Brexit referendum our funds products have been carefully refined to make them as competitive and attractive to prospective clients as they possibly can be. They are now at least on par with our non-EU competitor jurisdictions and the work continues in partnership between the industry, driven by the Gibraltar Funds & Investments Association (GFIA) the Gibraltar Financial Services Commission (GFSC) and Minister Isola and his team at the Gibraltar Finance Centre.
The work now centres primarily on creating a dual regime for investment funds and managers that are now not able to take advantage of the benefits of the passporting permissions under EU Directives. The aim being to give investment funds and their managers the ability to opt-out of those regimes: the Alternative Investment Fund Managers Directive (AIFMD) being a perfect example.
This ongoing work shines a light on the competitiveness of Gibraltar’s experienced investor fund and private fund regimes and the advantage of a jurisdiction where industry and policymakers work side-by-side in the best interests of the jurisdiction.
FATF grey-listings
The industry is reporting a common trend, a marked increase in enquiries for domiciliation of funds in Gibraltar and most importantly those funds making Gibraltar their home. Perhaps this is down to the increased media attention surrounding Gibraltar? The trend may have also been aided by the FATF grey-listings and other reputational issues that have plagued some of our non-EU competitor jurisdictions. Perhaps the herd mentality of funds drifting to some competitor jurisdictions has been broken. Gibraltar’s position in the market was recently recognised in a report published by PwC and Elwood Asset Management which ranked Gibraltar as the 3rd most popular jurisdiction for the domiciliation of crypto funds. This report may have also created even more interest in Gibraltar.
Gibraltar is also able to provide something that no other jurisdiction can: access to the UK financial services market. This is particularly important in the retail funds space. Historically, Undertakings for Collective Investment in Transferrable Securities (UCITS) managed by UK managers had been domiciled in a handful of EU jurisdictions and then have been promoted back into the UK to retail investors on the basis of the EU’s passporting regime. Due to Brexit, this is no longer possible and is set to be replaced with the UK’s Overseas Funds Regime. This is dependant on equivalence and it remains to be seen how it will work in practice. It is also unlikely that UK managers will be able to manage a UCITS domiciled in the EU.
UK’s Overseas Fund Regime
Gibraltar has had re-domiciliation legislation since 1996. The process has been tried and tested over the last 25 years and has been proven to be an effective tool in the re-domiciliation of companies and funds alike. If those UCITS were to redomicile and make Gibraltar their home, on the basis of the single market created as between Gibraltar/UK.
UK managers could continue to manage their UCITS, they could continue to enjoy the unfettered access they have enjoyed to the UK without the worry of what the UK’s Overseas Fund Regime might look like and the UCITS would be regulated by the GFSC, a regulator which prides itself on its pragmatism and approachability.
It does seem like the stars have aligned for Gibraltar’s fund industry.