By Craig Doyle, Director – Business Risk Services, Grant Thornton Gibraltar

In entrepreneurial environments, high importance is given to providing employees with the autonomy to enable them to grow and develop business without constraint. When the balance between autonomy and oversight goes wrong however, it can have disastrous consequences.

There have been recent cases where a lack of good governance over their businesses have resulted in substantial losses for investors/shareholders. At the heart of the issue has been a lack of oversight and control. It is essential to make sure that those managing a business have their objectives aligned with those of its owner(s), that there are good controls over money exiting the business and generating the right culture in the firm. Without good governance the consequences can include management fraud, serious breaches of legal/regulatory requirements, and decisions being made against the interest of those with significant ownership.

A robust governance framework

By the time the importance of having a robust governance framework is realised, it can be too late and incredibly costly (in terms of money, time and reputation) to rectify. There are some common underlying causes, and it is important to get them right.

Board representation

When a significant investment is made in a company, it is important to ensure that there is adequate and effective board representation so that good decisions are made, and that they are aligned to the interest of the owners. Without this representation there can be both a lack of oversight to identify problems in the business, or even an inability to prevent decisions being made that are against the interest of some shareholders. It also needs to be clear which decisions need to be escalated to the board for approval, so that no material decisions fly under the radar. Bear in mind that good relations between an investor and a company’s management at the time of a transaction may not be the same in a years’ time.

Control over cash

The ‘fraud triangle’ states that individuals are motivated to commit fraud when three elements come together:

1. There is a perceived pressure (e.g. financial stress, or need to meet targets)
2. There is some way to rationalise the fraud (e.g. resentment, or view that there is no actual harm done)
3. There is a perceived opportunity (e.g. weak controls, inadequate oversight)

A company cannot always control the external pressures affecting an employee or whether that person can rationalise committing a fraud, however they can ensure that there are controls in place to restrict the ‘perceived opportunity’. There is still a surprising amount of firms without basic controls over how cash exits the business, for example: no requirements for dual signatories on bank accounts, lack of clarity over approval levels for large payments, no sign off procedures for expenses, not performing due diligence on suppliers (even major ones) – to name but a few.

Fraud is far more common than many people perceive, and it can often happen right in front of us if we do not have a sceptical outlook and the right controls in place.

Good governance is often viewed as a cost or an administrative burden, but in reality, it is an investment in the long-term success and stability of a business

Challenge and oversight

It is essential to have robust oversight over a business, and to challenge both the decisions being made and company performance. Poor performance is always likely to be scrutinised in depth but there may be commercial pressure to accept positive numbers without such scrutiny. These also need to be challenged and understood – if an area of a business is outperforming all others, why is this the case? It could simply be that Good governance is often viewed as a cost or an administrative burden, but in reality, it is an investment in the long-term success and stability of a business management of a certain area are doing an incredible job, but could it be an indication that there is something happening within the business which needs further investigation. It is critical to understand the reality behind trends and anomalies.

Managing risk

Managing risk is often perceived as only being about the downside and preventing growth; this is a misconception. When done properly, risk management is a strategic asset that drives business performance. The most important part of managing risk is agreeing the level the business is willing to take (the risk appetite) and making sure that everyone is aligned and working towards this. An aggressive stance can be taken, but it is important that this is agreed and understood by the board. Once it is defined, then it can be monitored, ensuring that everyone is aware if anything happens outside that agreed risk appetite. Without this, the board may misunderstand what risk is being taken, and then get a nasty shock further down the line.

Internal audit

Independent internal audit allows stakeholders to understand how mature the control environment is within a company, and where it is taking significant risks that may affect it achieving its objectives. It is an important foundation upon which a business and its owners can rely, and it helps them ensure effective and efficient operations. It is also a deterrent against behaviour not in the interest of the shareholders.

It is often believed by companies that key processes they run are well controlled. Upon closer review, the standard process can indeed be very solid; however, for various reasons there can be exceptions which bypass it (sometimes unknown to senior management). It can be in these cases where issues arise, and lead to errors (either accidental or intentional) that do not get picked up. Internal audit is a great mechanism for companies to highlight these exceptions, help to implement controls around them to prevent issues occurring, or find any issues that have occurred (before they are identified by 3rd parties and become harder to manage).

Conclusion

The areas outlined represent some of the key considerations when establishing effective governance, oversight, and risk management practices. Organisations may wish to review their current arrangements to ensure they remain appropriate and proportionate to their objectives and risk profile.

Good governance is often viewed as a cost or an administrative burden, but in reality, it is an investment in the long-term success and stability of a business. Without it, even the most promising ventures can falter (sometimes irreversibly) under the weight of poor decisions, unchecked risks, or behaviour that goes unchallenged. By the time shortcomings are exposed, the damage to reputation, financial performance, and stakeholder confidence can be significant. The question is not whether you can afford to have effective governance and oversight in place, but whether you can afford not to.

The post The importance of having a robust governance framework appeared first on Gibraltar International Magazine.

By Marcus Killick OBE, CEO, ISOLAS LLP & Fiduciary Group

Once Upon A Time it was wonderful to be a non executive director. All it required was a healthy appetite, a love of fine wines and a decent golf handicap. You would start by attending a dinner the night before the board meeting. It would be long and liquid. However you could sleep through much of the meeting the next day, until the time had come for you to nip off to the golf course with your fellow directors. As you wandered around the course you would compliment each other on what a good job you had done in running the company. That was Once Upon A Time.

Non Executive Directors (NEDs)

Today such sinecures, if they did indeed exist, are extinct. The extinction, like that of the dinosaur was swift and brutal. Many of those with low handicaps at golf suddenly had significant handicaps in retaining and gaining new directorships. The failures of NEDs to properly monitor the Executive, to control the psychopath who was the Chief Executive (and there were a number) and generally act as a critical friend to the organisation as a whole, has meant that many have become museum pieces. Today’s NEDs must be fleet of foot and nimble of brain.

The Non Executive Director’s brought this upon themselves as failures such as Enron WorldCom and the Royal Bank of Scotland, together with a multitude of other ones which caused damage not merely to the businesses themselves but to national on international economies. Governments had to act to prevent reoccurrence. Over the past 20 years director’s have therefore been subject to an increasing variety and complexity of Codes of Good Governance with sanctions which are both reputational and financial should they fail.

For those engaged in financial services a further challenge for a number of NEDs has recently arisen, that of being a guardian of the duties imposed by the regulators upon firms to ensure they deliver positive outcomes to their clients. This Consumer Duty requires a director (preferably a NED) to become the board Consumer Duty Champion. This has imposed a very high obligation on them to understand not only the nature of the business itself (which they should have anyway) but also the Consumer Duty impact throughout the life cycle of its products and services with not only its clients but consumers more generally

Mistakenly a number of businesses considered the new Consumer Duty requirements to be simply an extension of the treating customers fairly obligations which have existed for a number of years. They have rapidly found out that this is not the case.

Board Champion

For some directors this will inevitably prove to be an obligation too far and they will resign, but for most it will represent a duty imposed which in many circumstances good governance had already required but in a less prescriptive form. Nevertheless understanding of exactly what the requirements are and, in particular, what are the requirements concerning vulnerable clients for whom particular attention and particular duties are imposed. One of the key challenges that needs to be addressed is that of ensuring that the Board Champion does not, by virtue of his more intrusive involvement in the business, find himself effectively in an executive rather then non executive role.

Another issue is one of remuneration for these additional responsibilities. The GFSC have acknowledged the additional work imposed upon the Board Consumer Duty Champion and the likelihood of the need for increased remuneration for these additional responsibilities as well as greater personal exposure to regulatory sanction in the event that the consumer outcome is not as required. This additional cost together with the cost of the increased bureaucracy in respect of management time now required to demonstrate compliance, will inevitably put up the cost of doing business in Gibraltar. It also will, at least initially, act as a distraction from senior management on their ability to focus on the prosperity of the company. Some of this distraction is necessary and can be considered symbiotic with the growth of the business. However it is difficult to see the increased reporting and recording requirements as enhancing profitability.

NED Forum

A further issue facing any NED operating in the crypto sphere is how Consumer Duty requirements can be met in this sector. The NEDs in these businesses face additional uncertainty and potentially additional exposure to personal sanction in the event that it is ultimately determined that consumer duty obligations were not met.

As with much regulation the pendulum has swung in an anti capitalist, pro socialist direction. Regulations needed to prevent systemic risk have morphed into a control on growth and increase in cost. For NEDs it has moved from simplicity of tasks to a complexity of obligations. The swing has been a violent one. No doubt as regulation is increasingly seen as the inhibitor to business and economic growth then those complexities will be reduced as the pendulum swings back. In the meantime the Non Executive Director’s have no choice but to keep swinging until the music stops.

As Gibraltar NEDs become aware of what 2025 is going to present them they have begun to act collectively and a new NED Forum specifically focused on Consumer Duty has been recently created to act both as a discussion point and to facilitate learning of the new requirements. The Forum is not there to represent or to lobby as that is already amply achieved by the representative bodies on the Financial Centre Council. Rather its role will be to support, educate and encourage. The year will tell whether it is successful in those ambitions. If so NEDs may well still be swinging but at least they will be swinging in tune and in sync.

The post “Many years ago in a boardroom far far away…” appeared first on Gibraltar International Magazine.

The Women’s Insurance Network (WIN) was formed by a steering group of women in the insurance industry, whose aims are to empower and elevate women to assume more senior roles in the insurance sector. The inaugural breakfast event saw a significant turnout of companies, sponsors, and industry associations.

Going into the nexus of this group, WIN was created in a move to create a safe environment for locally based women in insurance to network and address gender inequalities in the insurance sector. Announced on International Women’s Day 2023, cofounders Erika Pozo, Lisa Casemore, Lorraine Povedano and Charlotte Kirkby invited expressions of interest for women interested in joining a newly set up steering committee. Joining the team before its official inauguration were established industry professionals Liz Quinn, Kathryn Morgan, Monika Sookhee and Yvonne Chu bringing a wealth of experience to the project.

Since WIN’s inauguration the network has been very active and has held various seminars. These events are aimed at elevating women in the local insurance industry through networking forums. To date these include a Start Up Grind panel breaking barriers & a networking clinic held & sponsored by Hassans led by Kathryn Morgan and hosted by Yvonne Chu. Other events aimed at raising awareness spearheaded by Lorraine Povedano, for causes such as Breast Cancer were also held during October 2023.

It is no doubt that the work of the group has not gone unnoticed, with WIN’s public acknowledgement during the Insurance Breakfast of Gibraltar Day London Events in October 2023. The formation of the group has been very much welcomed by The Gibraltar Finance Centre and the Gibraltar Insurance Association (GIA) who have demonstrated a willingness to work collectively.

Christmas Gala

In December the Women’s Insurance Network kicked off the festive season with their first sponsored Christmas  Gala at the Mons Calpe Suite, in aid of Breast Cancer Support Gibraltar. Over 60 women attended the sponsored event, with representatives from the Finance Centre, and the Hon. Minister for Equality Christian Santos.

Opening the event was co-founder Erika Pozo who gave a brief speech on the work done by WIN during 2023, shortly introducing Liz Quinn who gave an empowered speech on the importance of diversity in the workplace, as Deputy Chair of the Gibraltar Insurance Association. Following some closing remarks by the Minister for Equality, Hon. Christian Santos, a lovely evening ensued with a buffet style dinner, live music, and a raffle which raised a total of £740 for Breast Cancer Support Gibraltar.

The network as part of its ‘New Year, New Goals’ initiative, launched its own targeted Mentoring Scheme in January 2024. Run by experienced and established individuals working within the sector, who have carefully selected a panel of sector specific mentors who are carefully matched to their mentees. The aim of this, is to offer a confidential and committed long-term relationship, where the mentor shares knowledge and experience, and guides the mentees career development. This scheme is aimed at helping women progress in their chosen fields and will build on encouraging aspiring individuals to take on more senior roles and responsibility in the workplace.

In addition, the network holds a monthly social breakfast in Vinopolis on the first Thursday of every month at 9am through to 10am. These have proven to be very popular with lots of new faces attending each month!

In a statement released by the Women’s Insurance Network, the group would like to express their utmost gratitude to the network’s main sponsors during 2023: Kroll, Admiral Insurance Gibraltar, Chubb, Intrepid Tech Ventures & Hassans. Their continued support has ensured the positive impact of the network throughout its first year.

WIN would also like to thank Robus, Redsands, Collingwood & Ibex for their generous contributions and participation at the Christmas Gala, the event would not have been the success it was without their support and the network looks forward to continuing to work together with them this year.

The post Gibraltar network going from strength to strength appeared first on Gibraltar International Magazine.

It’s hard to imagine any building as a paradigm for emerging technology: after all, apart from a few doors and windows, buildings have so few moving parts, and unlike computers and satellites, they’re rooted firmly to the earth. So, you might also be pushed to think of a less likely candidate for fast-track status in these rapidly evolving, high-tech times…But if so, you need to dig a little deeper. All those brick-clad houses and office blocks, hospitals and schools on the high street…they might look pretty much as they always did (from the outside, at least), but over the last decade or so (and getting faster track every day), how they’re being built has been transformed by nothing short of a technological revolution.

That humble old building, seemingly so traditional and trenched deep in the ground, is now just as much a miracle of our modern times as ChatGPT, Blockchain, and FinTech. This makes this an especially good time to take a closer look at how we build and live now…

Breaking out of the box

In the not-so-distant past (and occasionally even now), most buildings began their life on a drawing board, and the designer (or architect, assuming there was one) would periodically visit the land slated for development, literally to check the lie of the land. And then, eventually, on a timeline that made your average London to Manchester train look like Usain Bolt, a set of plans would be produced (four feet wide by three deep…so hardly pocket-sized). The surveyors and engineers on site would begin to find disturbing variances between the blanket-sized plans and the actual topography of the site. That’s because the people producing the projects had been working in an office somewhere, with very little understanding of what the area looked like or what the building would look like when it finally took shape.

Mismatches of that kind often meant walls had to be removed (to make way for reality), and drainage systems dug up because the fall didn’t quite match what had looked like reality back in the office. The list of gruesome disconnects went depressingly on…which was one reason cost overruns, material wastage, and unscheduled delays were so much a feature of dinosaur construction back in the bad old days. Happily, that’s all changing.

BIM

Building Information Modelling (BIM) uses digital technologies to create a 3D model of the building, as well as its related components, which enables architects, engineers, and contractors to collaborate much more efficiently from the outset, significantly reducing error rates and radically reducing levels of waste (bear in mind that traditional construction has historically been the biggest producer of industrial waste in the world). And BIM also allows productivity rates, sustainability levels, and overall quality assurance standards to go up, too…which is why, for the last decade, it has become a musthave technology for any construction project. And, if nothing else, it’s nice finally to ditch those blanket-sized plans…modern construction professionals are working from a laptop, tablet, or mobile phone and doing much better.

3D Printing Technologies also facilitate the creation of much more accurate largescale modelling (using a layer-by-layer approach). The scope for increased accuracy makes it possible to create complex materials on site (from scratch), again reducing costs (see above) and maximising the bottom line by dispensing with redundant transportation and storage costs. The tallest 3D-printed residential building in the world (three stories high) was recently completed in Wallhausen, Germany,(www.stirworld.com): and all the materials were bespoke and created onsite, with no individual parts that required shipment or separate assembly. And that’s by no means all…

Other emerging technologies, such as Advanced Robotics, AI, Augmented Reality, Blockchain, and, inevitably, the Internet of Things, are also increasingly combining to improve site efficiencies and (not unimportantly) site safety standards. Drones are being used to conduct more accurate surveys than ever before, in addition to enabling buildings under construction to be inspected from angles previously the stuff of science fiction.

Modular Construction

And then, of course, when it comes to advanced building technologies, Modular Construction is a class of its own: creating units and components in carefully controlled conditions (no more wading around in the mud), which can then be readily assembled on-site, at a third of the cost of traditional construction, and twice as quickly as well. That means more buildings where we need most (especially more new homes in these challenging times). If ever there was a paradigm of what emerging technologies can achieve, Modular Construction is it.

Executive Overview

Beneath the façade of those familiar buildings, it’s easy to forget how complex the technologies that put them together in the first place. But construction technologies are as much a modern miracle as computers and satellites.

The post Emerging technologies are transforming modern construction appeared first on Gibraltar International Magazine.

I n early 1997 a London based magazine publishing group, run by Director Anthony Bernard and partners, came across a magazine promoting the benefits of finance and business between the Channel Island of Jersey, and the UK, most prominently the City.

The group had, since 1984 published a prestigious hotel magazine on the Costa del Sol named Marbella Life, which ran a section promoting the tourist side of visiting Gibraltar to hotel guests during their holiday. They wondered if there was a similar magazine promoting the finance and business sectors in Gibraltar, and so they set about doing research.

Through a well-connected contact in the City, it soon became clear that while the finance and business sectors of Jersey, Guernsey and the Isle of Man were well known in the UK, Gibraltar was less so, and there was clearly no magazine doing any promotion. Shockingly, some of the comments received in the City were quite unbelievable: “Gibraltar, that’s just a military base, isn’t it?” and “Gibraltar, that’s in Spain, isn’t it?”

HRH the Duke of Kent opening the new premises of the Gibraltar Finance Centre in 1998, with Anthony Fisher, Finance Director, left and Peter Montegriffo, Minister for Trade & Industry, right

Gibraltar Finance Centre

With the clear misunderstanding of what Gibraltar had to offer, the group approached Anthony Fisher, who was at the time the director of the Gibraltar Finance Centre (now Gibraltar Finance) at the end of 1997 to ask him if he would be interested in helping them get a promotional magazine off the ground between Gibraltar and the UK. The timing could not have been better, as Mr Fisher was in fact launching his own Gibraltar / UK finance and business promotion, and so he welcomed the idea with open arms.

After he had put the group in contact with all the ‘movers and shakers’ in Gibraltar at the time, who greatly supported the magazine, the very first edition of Gibraltar International Finance and Business Magazine was launched in the summer of 1998, with Peter Bond as the editor and a small sales team.

Within a year it had grown and become extremely popular, not only in Gibraltar, but also in the UK, as more and more people requested to be signed up to the free subscription.

The first edition launched in June 1998

Sponsors

Originally the magazine was financed by adverts alone, but as the popularity and demand grew, and so of course the costs, it soon became clear, that adverts alone would not be sufficient to do what the group wanted to achieve, and so the Sponsorship was launched, as a way of Gibraltar companies joining together to promote the jurisdiction, and what it had to offer. Nothing has changed in that style of promotion, and we continue to promote companies from all sectors to the national and international markets. It is of course the Sponsors that have made the magazine a success, and without their support we would not be celebrating 25 years! On behalf of the Gibraltar International Magazine team, I would like to thank all the Sponsors, past and present who have supported us over the years.

Apartment prices in 1999

21st Century

As Gibraltar entered the new millennium, it saw many new changes. Anthony Fisher, the Finance Centre Director moved on, and was replaced by James (Jimmy) Tipping, who, along with his wonderful team, continued to support us.

The jurisdiction also saw a rise in online gambling companies setting up, following on from Victor Chandler (Betvictor), which was one of the first big gambling companies to move their headquarters to Gibraltar in 1998.

When the 2007/2008 financial crisis occurred, which caused a severe worldwide economic crisis, Gibraltar was of course affected, but due to its established finance and business sectors, the jurisdiction recovered far more quickly than many other countries.

Gibraltar embraces early digital technology in 2000

The power of advertising

Henry Ford, the great American industrialist, and founder of the Ford Motor Company, famously once said: “Stopping advertising to save money is like stopping your watch to save time.” Unfortunately, today there are many companies, especially new ones, who do not follow his wisdom and think that they don’t need to advertise or think that free social media is all that is needed. Social media is a great back-up-tool, but should not be used as the main form of advertising. Big companies, like Coca Cola stay on top because they continue to advertise, and while one company is saving money by not advertising, their competitors are getting the business because they do. Also, some companies think that if they run one advert then the phone won’t stop ringing, but advertising doesn’t work like that, and it takes time to get your message across, and of course it is equally as important to keep that message continually active to clients and potential clients.

Early magazine distribution rack at the old Gibraltar airport

The future

Over the last few years, the world has seen massive increases in price, not least in publishing. In 2022 paper prices more than doubled. Print, mailing, and distribution have also all increased in price. We have taken these price increases ‘on the chin’ and have not passed the costs over to our Sponsors by increasing prices. However, the longterm future of the magazine depends on not only the continued support of our current Sponsors, but also on new Sponsors joining the magazine to continue promoting what Gibraltar has to offer; after all, I don’t think anyone would want to go back to an era when someone in the City says: “Gibraltar, that’s just a military base, isn’t it?”

Gibraltar’s London office, before the purchase of Gibraltar House, 150 Strand

The post Twenty-five years promoting Gibraltar’s Finance, Business and Investment sectors appeared first on Gibraltar International Magazine.

There is a time in a business’s evolution when IT systems get out of hand. Once a company employs more than a dozen people or so, it becomes easy to lose track of devices and data. Company information gets stored in odd places in the cloud or shared around personal devices. You would think tech companies would be all over their IT systems, but this isn’t always the case.

This is rarely perceived as a problem until something goes wrong. Someone serves a Data Subject Access Request (DSAR) on your company, for example, and you realise that you don’t know where all the data is. Or you find that your intellectual property has somehow been handed over to a rival.

Such events can turn into major financial and reputational problems, but they are rarely viewed as IT risks. Much effort rightly goes into securing systems from attack by hackers and malware, while the consequences of poor data and IT infrastructure management go largely unremarked.

This is unfortunate because reducing these risks can be relatively easy. And once some basic measures are in place, risk reduction need not take much time or effort. Here are six things that you can do straight away to make sure your house is in order, IT-wise.

1. Keep an asset register

It is remarkable how many businesses have no real knowledge of the IT assets they hold. And we are not just talking about spare smartphones and laptops here: in one forensic engagement we were involved in, we found an entire server that nobody knew about.

To make sure machines holding vital data don’t go missing and are properly maintained — and ensure the true value of your capital assets is reflected in your accounts — create an asset register and update it at least once a year, or preferably whenever an IT device is bought or discarded.

2. Build a data map

As with devices, very few companies have a complete view of what data they keep, and where it is. Nowadays, pockets of information are increasingly spread across multiple systems, sites, and the cloud. This can create compliance problems in the event of a DSAR, litigation or a similar matter.

To overcome the problem, it is important to have a map that shows where different types of data are housed and how they are connected. Building a data map, and updating it every year, can help reveal vulnerabilities and inefficiencies in your data architecture, helping you to cut costs and reduce risks.

3. Manage authorisations

In smaller scale-ups particularly it is not unusual for anyone in the company to have access to everything on the corporate network. This is an open invitation for intellectual property theft and other problems but can be easily remedied by putting the correct levels of access in from the start.

Technology tools can help restrict how data flows around the business, so that — for example — important documents cannot be copied onto a pen drive without the say-so of an authorised individual. Tight data access helps prevent leaks and identify culprits if information does end up going astray.

4. Make data management a human resources issue

Anything to do with data is usually viewed as an IT affair. But when it comes to incidents such as intellectual property theft, the issue really lies with human resources. For this reason, it is important that information management is covered in areas such as employment contracts, training and onboarding.

Staff should be made aware that their employer takes data issues seriously and expects employees to do the same. A culture of respect for data and IT systems will lessen the likelihood of problems and make it easier to enforce policies regarding the use of personal devices, email accounts and cloud storage for example, all of which may increase data risks for the company.

5. Carry out exit interviews

Companies are understandably picky about what skills and capabilities a new joiner can bring into the business. But less care is taken about what an employee might carry out with them when they leave the business. Restricting access to key data, as mentioned previously, can reduce the chances of theft.

Another effective measure is to carry out exit interviews where data protection policies are restated, and leavers are asked to give an assurance that they are not in possession of company devices or information. This won’t stop a determined criminal but might put off a casual theft and may be helpful if an issue is identified in the future and you wish to pursue legal action.

6. Get experts in

Somebody who really wants to steal your data will eventually find a way. But as with cyber security, the key to reducing other IT related risks is to make things so difficult that 99% of would-be offenders will be put off and casual mistakes simply won’t happen.

Putting the appropriate measures in place can be relatively straightforward but at the outset a forensic IT audit can assess what risks you are exposed to and what you should do to counter them effectively. Your route to lower risks starts with a phone call.

For further information please contact Desiree McHard,
Managing Director, BDO Gibraltar:
Desiree.McHard@bdo.gi
www.bdo.gi

The post Six things you can do now to reduce business risks around your IT systems appeared first on Gibraltar International Magazine.

What does the recent addition of the 10th regulatory principle on market integrity provide, and what is the importance of adding this to the existing regulatory framework?

The 10th regulatory principle on market integrity was recently implemented as part of the Government’s stated goals of providing regulatory certainty and leading the way in setting standards for, and maintaining pace with, the burgeoning digital asset sector. It was drafted with an aim of setting the standards for market integrity in the industry, the first time this has been attempted for the diverse range of assets and activities which exist within the virtual asset marketplace. It mandates that all Distributed Ledger Technology (DLT) providers operating in Gibraltar conduct themselves in a manner which maintains or enhances the integrity of the markets in which they participate, with a concurrent onus that consistency be maintained with the other 9 Regulatory Principles in doing so. The Gibraltar Financial Services Commission (GFSC) has published a Guidance Note which sets out its expectations of DLT Providers in this context, and can be found on the Gibraltar Financial services website: https://www.fsc.gi/

Just like any other market, we believe that in order for the virtual asset market to operate effectively, it is imperative that they do so in a manner which is fair, efficient and orderly. This is crucial to ensuring that those who wish to participate in this market can enjoy the same levels of trust that those in traditional, widely regulated markets do.

What did the process for shaping this legislation look like, and who were the key figures that were involved?

Since the implementation of the DLT regulatory framework in 2018, the GFSC has approached drafting legislation in this sector in a manner which holds a balanced consideration and awareness for the interests of both the public and private sector. Accordingly, the process for shaping this legislation was carried out through rigorous consultation with a panel of experts across government bodies, specialist advisors, and industry figures, who together comprised a working group. This working group, along with further sector representatives, played an integral role in the shaping of this piece of legislation including consultation with GFSC during the drafting process.

I remain most grateful to the members of the working group that include: Lee A Schneider, Emma Channing, Joshua Ashley Klayman, Roman Beck, Jannah Patchay, Joey Garcia, Tongtong Gong, Barbara Halasek and Nicholas Philpott.

In the recent PwC Annual Global Crypto Hedge Fund report, Gibraltar was ranked third. What do you think has facilitated Gibraltar in achieving this ranking and what moves are you making to improve upon this moving into the future?

Gibraltar is in a position to achieve this ranking as a result of continued proactive efforts to change and adapt to the fast pace of the virtual asset industry and the existing highly effective funds legislation. This has allowed a regulatory framework to be put into place which provides an enhanced level of regulatory certainty to service providers. In turn, it has facilitated robust protection for their growing consumer bases, ultimately, allowing for increased levels of both trust and assurance to both those in institutional and retail settings.

Moving forward, the intention is to maintain this momentum through a sustained focus on regulating and adjusting to any relevant developments which should arise in this fast-paced industry. This will ensure that existing frameworks remain fit for purpose and are revised when necessary, and further, it will allow for improvements and adjustments to be made alongside changes in the sector.

What is the significance of the Dual Funds regime which was recently launched in Gibraltar and what significance does this have for Gibraltar’s fund sector as a whole?

The Dual Funds regime is significant in that it has now positioned Gibraltar so as to maintain its long established AIFMD compliant funds management regime (which has direct access to UK markets) whilst also providing the option for Experienced Investor Funds to opt out of this regime when targeting global audiences. This will allow for effective and controlled exposure to both UK and global markets, which is one of the considerations for today’s sophisticated investors and their managers when making investment choices.

The launch of this regime has significance as it highlights yet another example of the interplay which exists between the public and private sector. My Ministry, the Gibraltar Funds and Investments Association (GFIA) and the regulator have been working together in tandem to develop and deliver on this project which, above all else, provides greater choice to the market. Furthermore, it will encourage wider interest in Gibraltar as a successful jurisdiction amongst investors on the European continent.

The post Q&A with the Minister for Digital and Financial Services appeared first on Gibraltar International Magazine.

By Eran Shay, Managing Director, Benefit Business Solutions Ltd

The successes of technology start-ups such as Uber, Airbnb and Revolut have inspired governments around the globe to support the development of national start-up ecosystems. The incentives are clear: young innovative enterprises are major drivers of economic and employment growth.   Furthermore, start-ups may develop disruptive products and business models that provide the economy with a competitive edge in new technologies. Successful start-up ecosystems do not only depend on the research infrastructure and an entrepreneurship culture but also on the availability of sufficient financing.

Indeed, the HiTech sector presents many growth opportunities for Gibraltar. Realising the compelling advantages that Gibraltar offers to HiTech start-ups, Benefit Business Solutions has already announced it will be launching the first technology Accelerator program in the history of Gibraltar – the Rocket Accelerator – which will be offered to up to 10 cherry-picked start-ups. But attracting start-ups to Gibraltar doesn’t go without its challenges and one of the key challenges is the lack of a local venture -capital culture.

Traditional financing channels for small and medium-size enterprises (SMEs) such as bank loans fail to provide start-ups with sufficient financial resources. From a bank’s perspective a start-up is an opaque and risky investment. It usually has little collateral, its business model lacks a proof of concept and failure is quite likely. The income from interest cannot compensate the riskiness of such an investment. Therefore, start-ups need investors that can profit from the potentially large return on investment if the start-up grows into a successful company. Venture capital (VC) funds and other private equity investors have specialised in this high-risk high return segment and thereby fulfil a critical role not only in the start-up ecosystem but in the economy at large.

Corporate investors and private individuals are the most important sources of private funding. Large institutional investors, such as pension funds, insurance companies, banks and university endowments, which are the most important sources of VC capital in the USA, play however, a less prominent role in Europe. One explanation for the lesser role of institutional investors in the European VC market is a regulatory disincentive for the financial industry to invest in venture capital due to high-risk weights and asymmetric treatment of equity and debt financing. In the USA, but also in Sweden, relaxing regulatory requirements for pension funds and allowing more risky investments has led to increasing investments into the VC industry. While the deregulation of such sensitive financial services is no trivial task, institutional investors with a long-term investment horizon are particularly suitable to support the economy with capital for equity and infrastructure investments because they do not need to sell when asset markets go down and can therefore act as a counter-cyclical stabiliser to the market.

What can public policy do (better) to support VC investment?

In Europe, government agencies are the most significant investor group in the VC market. Over the last decade they provided about 18% of funding. In their role as investors, public agents enjoy a substantial degree of discretion as they are directly involved in the allocation of financial resources. This can help to promote strategic sectors that are not yet competitive but it also carries the risk of inefficient favouritism. Despite mixed evidence of the efficiency of government VC funding and the theoretical question as to whether public actors are as suitable as private investors to select the most promising portfolio companies, public money is undoubtedly an important stabiliser in times of crisis. Indeed, public sector programs, such as matching Pound-to-Pound investment with private funding, have proved to be highly successful in stimulating the growth of a VC industry in countries like Israel, Sweden and Denmark.

Another way in which a Government can encourage Venture Capital investments is through favourable taxation. This is where Gibraltar shines as it offers one of the most attractive tax regimes in the world with no capital gains tax, no VAT, no tax on dividends (for non-residents), no tax on investment income and no inheritance tax, and should therefore be a magnate to VC funds and private investors. However, as highlighted by a recent report by The European Commission, there are cross-border barriers to VC investments such as:

– VC investors need to establish a local presence in the country of the investee firm.

– A cross-border VC investment runs the risk of double taxation (once in the country where the portfolio company is located and once in the country where the investors are based). This depends on whether the national tax authority regards the VC fund activities as permanent or non-permanent, a decision that is not always predictable. As a consequence, VC funds limit their cross-border activities artificially.

­ VC funds face different tax classification and different tax treatments from member state to member state. Tax authorities frequently discriminate between non-resident and resident VC funds.

What Gibraltar needs to do is to cooperate with other Governments to ensure that fiscal benefits offered for investors in one country can be extended to investments they make in Gibraltar. One example of such scheme is the tax relief offered to investors in start-up companies under the UK Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) which can be extended to a foreign subsidiary of the UK entity. This means that investments can be channelled to a Gibraltar subsidiary of a UK company as long as there is either permanent establishment in the UK or a UK authorised agent.

This is great news for Gibraltar, especially in light of the recent Double-Taxation treaty signed with the UK. However, more can be done locally to stimulate investment in start-ups, such as providing Loss Relief which allows an investor to offset a loss made on investment in a start-up company against their income tax bill. This too is offered in the UK under the EIS relief scheme. Another way is for Government to provide a guarantee scheme for private sector loans provided by the banks, so as to reduce the exposure for the banks and stimulate them to lend more.

Implementing such measures could help positioning Gibraltar as an attractive jurisdiction for Venture Capital investments, which will in turn attract more Tech start-ups and grow the economy as a whole.

The post Why Gibraltar needs a venture capital culture appeared first on Gibraltar International Magazine.

In mid September, HM Government of Gibraltar launched the start of its new business development campaign in London, ThinkGibraltar

The two month campaign is the latest promotion from the government to increase more awareness and further attract new businesses to Gibraltar, by highlighting the opportunities to passport into the UK, post Brexit, and to reaffirm the close ties Gibraltar has with the United Kingdom.

The ThinkBusiness ThinkGibraltar logo is being advertised on the side of some 300 London taxis, 100 buses and 40 key commuter stations in the City and West End, including London Bridge, Liverpool Street, St Pancras and Waterloo.

The campaign was created to increase greater awareness of Gibraltar in London, and to direct businesses to the ThinkGibraltar website. The website focuses on five key sectors, Insurance, Distributed Ledger Technology (DLT), Gaming, Funds, and Private Clients. These are the sectors where the jurisdiction excels and has created world leading business environments and frameworks.

A ThinkGibraltar digital marketing campaign on social media was launched simultaneously, on Instagram, Facebook, and Linkedin.

As part of the campaign, HM Government of Gibraltar will be hosting in early November five financial services events in London, as part of the annual Gibraltar Day events. The events will be supported by both the private and public sector to help further drive awareness and inform the rest of the world that Gibraltar is a world class jurisdiction, with world class talent, that is open for business.

Gibraltar is a fully self-governing and fully self-financing British Overseas Territory, to which the Treaties establishing the European Union (EU) apply, with only certain exceptions. It is within the EU single market for the purposes of the free movement of persons, the freedom to provide services and the free movement of capital. It is not within the Common Customs Union and does not have to apply a VAT regime. Its status applies until the United Kingdom (UK) formally exits the EU. It will continue to have access to the UK in all financial services areas that are covered by Cross Border Directives.

EU Regulations apply directly and EU Directives are transposed by Gibraltar’s parliament. This includes all measures on financial supervision and regulation, direct taxation and anti-money laundering. The corporation tax rate is 10%, with a maximum effective rate on personal tax of 25%. The taxation regime is subject to EU scrutiny.

The Gibraltar legal system is based on the common and statute law of England. English is the official language, although Spanish is also widely spoken

The post Think Business, Think Gibraltar appeared first on Gibraltar International Magazine.

Updating company and trust laws this year has given a new lease of life and potential new business lines for Gibraltar’s trust and company service providers against the background of rising costs, greater transparency and increasing regulation, discovers Ray Spencer

It has been 20 years since the jurisdiction’s reputation in this area of financial services was based around the setting up of hundreds of brass plate companies and secretive trusts to hide ownership of assets offshore. For the past 15 years, however, Gibraltar has been at the forefront of implementation of international initiatives to ensure transparency, compliance and security.

“The industry may to some extent have been tarnished by certain bad practices, whereby some operators aggressively promoted the establishment of structures whose benefit was predicated on a failure by the client to report the structure in his home jurisdiction. Taken at its worst, this could amount to facilitating the sheltering of assets” said Adrian Pilcher, who is part of the private client tax team within the commercial department at law firm ISOLAS, where he is a partner.

Pilcher was candid. “Service providers could in the past hide behind the fact that ultimately the reporting obligation was on the client.  Today the rules have changed, and it is now up to the service provider, as well as the client, to report.”

Today, providers generally have fewer clients; fees have risen significantly.  At the height in early 2000’s, there were 30,000 companies in Gibraltar; today there is less than half that number.

The Gibraltar Financial Services Commission confirmed: “There are just over 60 licensees authorised to provide Fiduciary services and there continues to be rationalisation and consolidation in fiduciary groups. The trend within the industry continues to be focused on a move towards a higher quality offering and product, which is reducing client numbers, although not profits.”

Pilcher maintained: “Reporting effectively cleans up the playing field, so at the end of the process the good, legitimate operators are in a great position to do business. The other side of the coin, however, is that for some operators the cost of doing business may have gone up by as much as 50%. Although some cost can be passed on to the client, some smaller operators are finding that their business model is no longer viable.”

Mark Bridge, director and legal counsel at Europa Trust, was formed 33 years ago and licensed both as a company manager and as professional trustee, has seen the firm’s client base decline numerically in recent years, but the amount of work increase.

He suggested: “The nature of our business has changed and there’s been a general shift from establishing holding companies for single assets, to setting up trading and operational companies.

“This has been because Gibraltar’s much-improved image from being an off-shore jurisdiction to a successful, stable and compliant finance centre in the forefront of EU locations where people of substance are comfortable in setting up their businesses.”

Joey Immosi, Fiduciary Wealth’s business development director, noted: “Some 20 years ago, there were lots of brass plate companies, but that has changed with the emphasis on due diligence and KYC (Know Your Customer) processes, and Gibraltar government was an early adopter of OECD tax information exchange agreements, which has been good for the jurisdiction’s reputation.

“We need to know from our clients today exactly what is going on and technology has helped drive this.”  That had also meant investment in “a team to meet
regulatory requirements, to check that clients are who they say they are and living where they say.  Our compliance section began 12 years ago rising from one part-time person to three now”.

Compliance costs up

Higher compliance costs have also reduced the volume of companies being incorporated, but has resulted in better quality and more services being provided. “Overall business remaining strong”, said Gibraltar’s Association of Trust and Company Managers (ATCOM), which has 56 member firms [representing 90% of the sector] four more than five years ago and, it claims, the number of people employed has remained steady at around 1,000.

Marc X Ellul, managing partner of law firm Ellul & Co, and managing director of its associated company management business, became ATCOM chairman in June, and insisted: “The cost of compliance, as with any other reputable jurisdiction, has pushed up fees, but clients understand and accept those costs”.

“There is a lot of company business for sure; less volume, but a lot more work”, Ellul emphasised. Structures were more complicated, with tax advice and a clear understanding of an individual’s tax position being required, “so higher fees are being paid for that.  It is not an industry like it was 20 years ago – it’s not the volume sector.”

In addition to the near 160 various Gibraltar tax exchange agreements with other nations, the 4th EU Anti Money Laundering Directive (AMLD) and Exchange of Notes between the UK, Crown Dependencies and Overseas Territories (such as Gibraltar) required the private register of beneficial ownership, identifying anyone having more than a 25% beneficial interest in a company, by end-June. 

The UK’s Companies House information is public, but in other jurisdictions only tax, security and law enforcement agencies can look at Registers’ portals.  Trusts have traditionally maintained anonymity and these are included only if they have a tax consequence within Gibraltar.  Imossi reasoned: “Nobody really wants everything about them out there, no matter if it’s a very wealthy client, or someone less so; it’s a private matter.”

The Ultimate Beneficial Ownership Register at Gibraltar Finance was created in June and firms are encouraged to add details when creating new structures, with historic information being required by end-January.

Fiduciary’s website states: “It is usual for an underlying company to be utilised as a vehicle to hold assets of the Gibraltar trust. The company acquires assets such as real estate, marketable securities, pleasure yachts or any other investments or businesses, and it is the shares in the company that are entirely owned by the Gibraltar trust.  Normal practice is to have a number of companies owned by a trust, each of which holds one asset type.”

Non-residents do not pay tax locally, even when trustees may be Gibraltar residents and it is fully managed from The Rock.  Gibraltar has no capital gains tax, gift tax, wealth tax, estate duty, inheritance or death tax, “so it is possible to accumulate income and realise capital gains without a tax liability arising”, Fiduciary states.

Imossi revealed the threshold investment for establishing a structure had risen. “For example, unless the value of the assets to be held in a trust are worth at least £750,000, it doesn’t generally make financial sense, whereas in the old days the value could have been just £200,000,” he held.  In a smaller market, “the fee structuring has increased so that, perhaps, for every three clients lost, we onboard a new client with much larger business.”

Significant wealth

Paul Astengo, senior executive at Gibraltar Finance, responsible for growing the private client proposition, including trust and company management, concurred: “It’s costing more to stand still.  There are still very good reasons to place wealth in a structure, but it has to be significant wealth rather than
a one-off property, for example.” Special purpose trusts might be used for an educational donation to guarantee payment of a child’s university education, for example and for a set period of time.

ATCOM’s Ellul is looking to create a two-year Gibraltar company law and administration course in 2019, in conjunction with Gibraltar University, rather than having to teach the differences with English Law as now.  He estimated that conservatively more than 50 people will be attracted initially, and declared: “You have the alternative of
studying English law academic courses, but then you have a huge learning curve on the many Gibraltar law differences.

“At present, people in trust and company management learn through experience – [Gibraltar lawyers have a separate compulsory law course] – so I expect there to be three modules covering Gibraltar company law, company administration and regulation/compliance focusing on our particular laws, procedures and practices,” Ellul said.

Gibraltar company law has recently been overhauled with significant input from the Gibraltar Society of Trust and Estate Practitioners (STEP), whose chairman, Peter Isola, the senior partner at ISOLAS, set up a committee to look at bolstering Gibraltar’s private client / family office legislative offering.

Fire-walls added

“We identified a number of areas,” Pilcher noted, including “foundations legislation (that is particularly attractive to clients from civil law jurisdictions, who are not as familiar or comfortable with trusts), purpose trust legislation, legislation increasing the perpetuity period for private trusts, and ‘fire-wall’ legislation applying Gibraltar law to Gibraltar trusts to the exclusion of any other law.”

Fintech (financial technology) start-ups are showing interest in Foundations, although none are thought to have been registered since being permitted from April.  The UK has no foundation legislation; Guernsey and Jersey have, as well as traditional civil law jurisdictions such as Lichtenstein.

“A foundation offers some of the advantages of both a company and a trust. Assets held under a trust are held in the personal name of the trustees subject to the principles of equity and the common law which operate to ring fence the assets from the trustee’s own estate.  A foundation, on the other hand, is a separate legal entity in the same way as a company, and therefore holds assets in its own name. Like a trust, however, a foundation can be extremely flexible, and can also legitimately help maintain privacy,” Pilcher explained.

Conceptually, US FATCA was a smart, revolutionary piece of legislation”, Pilcher felt, but questioned how it was possible to implement “something so ground-breaking” and be able to anticipate all of its potential effects and consequences.  “When applied to certain scenarios, the legislation seems unclear, which of course, is the last thing you want. With trusts in particular it has not always been clear exactly who has to report, what is to be reported, or on whom.”

Pilcher pointed to government and industry guidance, but that was “not always in alignment, and often varies significantly from jurisdiction to jurisdiction.” The consequences of failing to report something reportable are such that service providers quite understandably err on the side of caution and opt for over reporting in cases of doubt, (although legislation discouraged it), “which creates a tremendous amount of unnecessary duplication, often at significant cost.”

This lead Pilcher to reflect: “Eventually, they will need to rein some of it back in.”  It’s a situation made worse by a proliferation of other reporting regulations with a great deal of overlap, yet with no consolidated reporting framework.”

The post Higher costs fail to deter company formation and use of trusts appeared first on Gibraltar International Magazine.