Gibraltar aims to lift restrictions on non-domestic fund administrators in a matter of weeks to make the tiny UK overseas territory more attractive to the financial sector, the jurisdiction’s government told journalists yesterday.

The jurisdiction’s financial industry, with a total of around £18 billion (around $28 billion) of bank and fund assets combined, makes up about 30 per cent of its gross domestic product and its fund sector is far smaller than some other locations, but there is considerable growth potential, said Gilbert Licudi MP, minister with responsibility for financial services.

One move has been to allow foreign firms to operate as fund administrators to investment funds registered in Gibraltar. At present, only local firms can do this important work at a time when there is great focus on compliance and the regulation of funds. The call for foreign administrators to be let into the local market has come from the industry itself, Licudi said.  

“I hope to have legislation in place, possibly as soon as next week, where we are going to permit funds to be established or be domiciled even if their administrator might not be in Gibraltar,” Licudi said.

The current local administrator rule “has been an obstacle to establishment of some of the largest funds”, he continued. To highlight the potential growth, Licudi said there are more than 20,000 funds in the Cayman Islands and only 150 funds in Gibraltar. “This [gap] shows the massive potential that there is,” he said.

We’re onshore

The international financial centre in Gibraltar, along with locations such as Malta, Luxembourg and Ireland, is a member of the European Union, so although it has some of the low-tax features of some traditional offshore centres and holds investments of foreign clients, its EU membership and compliance with the bloc’s rules gives it onshore status, journalists at a briefing on Gibraltar were told. Gibraltar has signed 20 tax information exchange agreements and complies with a number of international agreements on issues such as anti-money laundering, Licudi said.

Gibraltar, which has been a UK overseas territory since the early eighteenth century – a bone of contention with nearby Spain – makes money from activities such as tourism, financial services, internet gaming and its port. While still a UK military base and a crucial location given its location at the borders of the Atlantic and Mediterranean, defence now accounts for just 4 per cent of Gibraltar’s GDP.  

In its marketing literature on Gibraltar, Hassans, the law firm, stresses the location’s EU membership. Some non-EU centres such as Jersey and the Caymans, for example, are potentially at risk in the case that EU directives, such as the Alternative Investment Fund Managers Directive, discriminate against them, although these IFCs have repeatedly said they do not see a threat and should achieve EU-equivalent status for funds located in their borders.

The AIFMD, which was approved by EU lawmakers in 2010, is designed to tighten oversight of hedge funds, private equity and other “alternative” investment funds in the EU. It creates a passport system for such regulated funds to be sold across all 27 EU member states. The directive will be implemented in two stages: up to July 2013 and then more fully in 2015.

One of the key requirements of the directive is that fund domiciles must have local custodian/depositories, which tend to be banks. There are currently 16 such banks in Gibraltar, such as Barclays, Credit Suisse, Lombard Odier and Lloyds Banking Group, journalists were told.

New regime

Some of the changes have been driven by the recently elected Gibraltar government, which came in to power last December. Its push on the issue of non-domestic fund administrators was an election manifesto commitment, Licudi said.

But he warned that any liberalisation would not mean a free-for-all and the jurisdiction is determined to ensure high standards.

“We are not going to open the taps for anyone who wants to come to Gibraltar... we need to be selective,” he said. “We have had discussions with the industry and we’re looking at a number of proposals”.

One of the benefits of any liberalised system is that it would give Gibraltar the chance to promote its existing Experienced Investor Funds regime, the meeting heard. EIFs are designed for investors with a net worth (not including their residential property) of at least €1 million (around $1.32 billion), and who make a minimum investment of €100,000.

Licudi said that Gibraltar is examining the idea of developing a foundations law and a more formalised trusts legal framework. The Society of Trusts and Estate Practitioners has discussed the idea of a formal trusts law with the government, Licudi said. At present, trusts operate under the Common Law system that Gibraltar inherited from the UK.