The strategic importance of Gibraltar in Europe – it’s Dual Regime
Gibraltar’s geographic position makes it strategically important. That is also the case in the context of financial services.
Gibraltar left the European Union with United Kingdom and is now the only jurisdiction in the world that continues to have a common market with the United Kingdom but there is more that Gibraltar offers fund managers.
Self-governing, a common law jurisdiction with an attractive fiscal environment and with a financial services regulator (the Gibraltar Financial Services Commission)(the “GFSC”) which takes great pride in engaging with the industry that it regulates: Gibraltar continues to attract financial services businesses requiring UK market access or alternatively looking to do business on a global scale.
It is now generally accepted that the Alternative Investment Fund Managers Directive (“AIFMD”) had a profound effect on the fund management industry. The implementation date for AIFMD was 22 July 2013 and Gibraltar, like every other EU Member State, was required to “adopt and publish the laws, regulations and administrative provisions necessary to comply with this Directive” by that date.
Unlike UCITS, which has become the gold standard of retail funds, AIFMD carries with it negative connotations amongst the industry primarily because of the perception that it was a knee-jerk reaction to the 2008 financial crisis. Some will argue that the unintended consequence of AIFMD was an exodus of funds from the European Union to some of the traditional offshore jurisdictions. It is a common view that AIFMD made it almost impossible for EU Member States to compete with what those offshore jurisdictions could offer.
Gibraltar’s fund management industry pre-dates AIFMD. Gibraltar has had and continues to have its own robust and tested domestic legislation for alternative investment funds: the experienced investor fund regime and the private fund regime. Regimes that had worked for many years pre-AIFMD and which continue to work to this day.
Brexit was no different to other periods of change, there were challenges but similarly there were opportunities.
Gibraltar’s exit from the European Union could not mean that as from exit day all EU law would be disregarded. There did however need to be some recognition that Gibraltar had ceased to form part of the European Union. Its competitor jurisdictions had ceased to be its old fellow Member States and would, overnight, become all those non-EU jurisdictions with whom it had previously not been able to compete.
The dual regime, that is now law, recognises Gibraltar’s new position and permits a fund domiciled in Gibraltar to safely opt out of AIFMD and continue operating under Gibraltar’s robust and tested domestic regime, which by design, is very attractive when compared to the offshore jurisdictions.
Gibraltar is entrepreneurial, its history speaks for itself and like on many other occasions, with the creation of the dual-regime it has grasped the opportunity which on this occasion Brexit had forged for the fund management industry.
Gibraltar’s importance on the continent for investment funds was recognised in the PricewaterhouseCoopers, the Alternative Investment Management Association (AIMA) and Elwood Technologies Global Crypto Hedge Fund Report which ranked Gibraltar as the top jurisdiction in Europe for crypto funds.
Undoubtedly, Gibraltar’s first-mover advantage in regulating blockchain/distributed ledger technologies business has contributed to its success and it is gratifying to see how other jurisdictions, like the United Kingdom are now following suit with HM Treasury announcing on the 1st February 2023 a consultation entitled “Future financial services regulatory regime for cryptoassets”.
The dual-regime has undoubtedly contributed to the ease of doing business. In the days of AIFMD, a crypto fund would be required to appoint a AIFM depositary for safekeeping. Unfortunately, finding a bank that is able to safekeep crypto is a tall order. The dual-regime eliminates this issue, as it does many other issues, and it is exactly this flexibility of doing business in Gibraltar which has contributed to its success.
Gibraltar is on the European continent but not within the European Union. Why would anyone establish a fund in an offshore jurisdiction, in a different time zone and a 12-hour flight away, when you could do it in Gibraltar?
Negotiations are ongoing with the European Union for Gibraltar to form a common travel zone with the Schengen Area: thereby eliminating the land frontier between Gibraltar and Spain. On the 28th January 2022, the British Ambassador to Spain, Hugh Elliott was quoted as saying that the treaty on Gibraltar would be closed very soon and would be historic. If that were to be the case, Gibraltar’s strategic location could play an important role in permitting financial institutions to access the UK and global market from Gibraltar and the European market from a subsidiary domiciled and authorised in nearby Spain and both offices within a couple of miles of each other. In doing so, Gibraltar’s strategic importance in Europe for financial services will be rock solid.
This article was feature in Hedgeweeks Gibraltar in Focus 2023
This report examines the main benefits of Gibraltar as the emerging jurisdiction of choice for traditional and crypto hedge funds, including the dual regime that permits a fund domiciled in Gibraltar to safely opt out of AIFMD and continue operating under the Rock’s robust and tested domestic regulatory regime.