Gibraltar Global Investors Guide 2012 by Gibraltar Finance

Gibraltar Global Investorâ&#x20AC;&#x2122;s Guide 2012

In association with

milestone GRP

Contents

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EXPERT CONTRIBUTORS

FOREWORDS

Fabian Picardo, Chief Minister of Gibraltar

Petar Stoyanov, President of the Center for Global Dialogue and Cooperation

GFIA - EU Directives Presenting Opportunities: Fund relocation to Gibraltar Interview with Adrian Hogg, Chairman, Gibraltar Funds & Investments Association

Expert Analysis - Regulatory Changes Improving Competitiveness: Experienced Investor Funds Regulations 2012 by James Lasry, Partner & Funds Team Leader, Hassans International Law Firm

Sovereign Trust - Trust and Company Management: International reach and depth of service Interview with Ian Le Breton, Managing Director, Sovereign Trust (Gibraltar) Limited

STM Group/STM Fidecs - The Rock Reaching Out: The EU and farther abroad Interview with Alan Kentish, Chief Financial Officer, STM Group/STM Fidecs

GOVERNMENT

GBA - A Stable Sector in Rough Seas: Banking supporting Gibraltar’s growth Interview with Emma Perez, President, Gibraltar Bankers’ Association

Chief Minister’s Perspective - Dawn of a New Era: A fresh vision for Gibraltar’s future Interview with Fabian Picardo, Chief Minister of Gibraltar

RBS International/Natwest - Trends in the Banking Sector: Consolidation and steady growth Interview with Marvin Cartwright, Regional Head - Gibraltar & Corporate Banking, RBS International / NatWest

Minister’s Perspective - Sustainable Growth and Investment in People: Business success for social welfare Interview with Joe Bossano, Minister for Enterprise, Training and Employment

Lloyds TSB - Gibraltar as Base: Passporting Private Banking across the EU Interview with Marina Dominguez Steglich, Head of Private Banking, Lloyds TSB Private Banking Gibraltar and Mark Johnson, Country Manager, Lloyds TSB Bank Gibraltar

FINANCIAL SERVICES

Minister’s Perspective - A World-Class Reputation and Best Practices: A small jurisdiction punching above its weight Interview with Gilbert Licudi, Minister for Education, Financial Services, Gaming, Telecommunications and Justice

ONLINE GAMING

Expert Analysis - Carefully Managed Growth: Quality over quantity Interview with Peter Montegriffo, Team Leader & Partner, Hassans Law Firm

Industry Regulator - Efficiency and Effective Regulation: Maintaining Gibraltar’s reputation as a stable financial centre Interview with Marcus Killick, CEO of Gibraltar’s Financial Services Commission and David Parody, Deputy CEO of Gibraltar’s Financial Services Commission

GBGA - Regulation and Transparency to Build Trust: Online Gaming leaving nothing to chance Interview with John Anderson, Deputy Chairman, Gibraltar Betting & Gaming Association

Finance Centre - Gibraltar - EU Financial Services Centre: Reformed and Transformed Interview with James Tipping, Director, Gibraltar’s Finance Centre

Expert Analysis - New Momentum for a Successful European Online Gambling Market by Sigrid Ligné, Secretary General, European Gaming and Betting Association

Expert Analysis - Gibraltar as an Overall International Finance Centre by Michael Mainelli, Executive Chairman, Z/Yen Group and Mark Yeandle, Associate Director, Z/Yen Group

Victor Chandler - The Rock’s First Online Gaming Licensee: Good numbers in the books 15 years on Interview with Victor Chandler, Chairman, Victor Chandler International

Expert Analysis - A Look at Gibraltar’s Neighbours: Europe’s situation and the Rock’s position within it by Tim Harris, Chief Investment Officer - UK, Lloyds TSB Private Banking

ProSpreads - Straddling Finance and Gambling: A bet that’s paying off Interview with Simon Brown, Managing Director, ProSpreads

Expert Analysis - Boards as Modern Drivers for Change: The evolution of Gibraltar’s finance sector’s boards by Marcus Killick, CEO, Gibraltar’s Financial Services Commission

TELECOMMUNICATIONS & IT

Expert Analysis - Gibraltar’s Insurance Industry: Yesterday, today and tomorrow by Chris Johnson, Chairman, Gibraltar Insurance Association & Director, Robus Group

Industry Regulator - Ensuring Compliance and Fair Play: Regulating the Telecoms sector Interview with Paul Canessa, Chief Executive, Gibraltar Regulatory Authority

Expert Analysis - The Use of Protected Cell Companies by Insurance Companies and Funds by Nigel Feetham, Partner, Hassans International Law Firm & Visiting Professor, Nottingham Law School, Nottingham Trent University

SES - On the Med and in the Skies: Going up and high-tech Interview with Harry Pallas, Senior Manager, SES Gibraltar

Gibtelecom - Telecoms Growing in Pace with the Economy: An all-round provider extending its reach Interview with Tim Bristow, CEO, Gibtelecom

Expert Analysis - International Transparency and Cooperation: Gibraltar’s 20 TIEAs by Ghuozi Foo, Secretariat Administrator, OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes

Sapphire Networks - From Back-up to Primary Provider: Keeping the Online Gaming sector connected Interview with Lawrence Isola, CEO, Sapphire Networks

R&Q Caledonian - On the Rock with Space to Grow: Based in Gibraltar, Insuring across Europe Interview with Penny Hudson, Managing Director, R&Q Caledonian Gibraltar

Gibraltar 2012

Contents

PORT SERVICES & SHIPPING 90

Minister’s Perspective - Expanding the Port and Increasing Tourist Flow: Leveraging infrastructure and Gibraltar‘s attractions Interview with Neil Costa, Minister for Tourism, Public Transport & the Port

Port of Gibraltar - Staying Ahead of the Tide: A port leveraging its competitive advantages Interview with Roy Stanbrook, Captain of the Port & CEO of the Gibraltar Port Authority

Expert Analysis - Gibraltar’s Key Position as a Maritime Service Centre by Torben C. Skaanild, Secretary General, The Baltic and International Maritime Council (BIMCO)

101

Bland Group - Homegrown and Venturing Out: Born in Gibraltar but expanding internationally Interview with James Gaggero, Chairman, Bland Group

102

East Gate Express - Land, Air and Sea: Connecting all the freight shipping dots Interview with Colin Davis, Operations Director, East Gate Express

TOURISM

106

Tourist Board - Prime Location and Top-notch Attractions: A tourism sector ready for investment and growth Interview with Nicky Guerrero, CEO, Gibraltar Tourist Board

110

Expert Analysis - Gibraltar as a Cruise Port: Punching above its weight by Peter Wild, Managing Director, G. P. Wild

113

MH Bland - Welcoming Tourists and Ships: A long history operating in Gibraltar’s ports of entry Interview with George Gaggero, Deputy Chairman, MH Bland

114

Caleta Hotel - The Caleta Hotel: A Gibraltar Landmark Interview with Franco Ostuni, General Manager, The Caleta Hotel

118

Event-led Tourism - Hosting the World of Chess: A global tournament with a high - and rising - rank by Alice Mascarenhas, Features Editor, The Gibraltar Chronicle

120

Tourism Offerings - Gibraltar’s Tourism Highlights: Lots to discover by Karen Lawson, Gibraltar Tourism Enthusiast & Author

124

BMI - Building on Rock-solid Foundations: Agents on the ground, and higher Interview with Louis Montegriffo, Director, BMI Group

PROFESSIONAL SERVICES

128

Hassans - At the Centre of Gibraltar’s Legal Evolution: Growing in and beyond Gibraltar Interview with James Levy QC, Senior Partner, Hassans International Law Firm

130

Baker Tilly - Upholding International Standards: A well-regulated European jurisdiction for serious investors Interview with Joe Pisharello, Chairman, Baker Tilly Gibraltar

132

PwC - Serving Businesses On and Off the Rock: Local knowledge, international network Interview with Colin Vaughan, Territory Senior Partner, PwC Gibraltar

Global Investor’s Guide – Gibraltar 2012 Milestone GRP Editor: Country Director & Analyst: Project Manager: Design & Production: Contributing Sub-editor: Web Editor:

Tim Penketh Florent Thevenin Amaliya Abbas Caspar Macke Darin Bielecki Juanjo Dominguez

Published by Milestone GRP (UK) Ltd. 3rd Floor, 207 Regent Street, London, UK W1B 3HH Telephone: +44 20 7099 3790 Fax: +44 20 7043 9064 www.milestonegrp.co.uk Registered in the UK: #7792839 We would like to thank all those who assisted us throughout our project and with the production of this publication. Statistics sources are abbreviated as follows: GOG: Government of Gibraltar GRA: Gibraltar Regulatory Authority GSO: Gibraltar Statistics Office FSC: Gibraltar Financial Services Commission

Contributors

milestone GRP

Mr Nigel Feetham

Partner, Hassans International Law Firm & Visiting Professor, Nottingham Law School, Nottingham Trent University. Nigel Feetham was awarded a Masters degree in law with Distinction from Manchester’s Victoria University, was called to the Bar in 1993, and became a partner of Hassans International Law Firm in 1999. He is considered a market leader in Gibraltar on 'insurance passporting', the structuring of insurance companies, and Protected Cell Companies. He has set up innovative structures for insurance operations and advised the Government of Gibraltar on ways of implementing insurance related legislation. Nigel was recently appointed a Visiting Professor at Nottingham Law School, Nottingham Trent University. His publications include ‘Protected Cell Companies: A Guide to their Implementation and Use’,’A Guide to Insurance: Combining Governance, Compliance and Regulation’ and ‘Tax Arbitrage: The Trawling of the International Tax System’.

Chairman, Gibraltar Insurance Association & Director, Robus Group Chris Johnson’s background is initially in the insurance company world, beginning his career in 1979 with Norwich Union in Norwich, and moving with them to Gibraltar in 1987. He has been a mainstay of the Gibraltar insurance industry for 25 years. He has been involved in broking (also in Spain) and insurance management, setting up and running Aon Insurance Managers’ Gibraltar office for four years. Following that he worked as an independent consultant and recently set up Robus, an insurance management and risk consultancy firm with offices in Gibraltar and Guernsey. Chris is a Chartered Insurer and an Associate of the Chartered Insurance Institute.

Mr Guozhi Foo

Mr Markus Killick

Guozhi Foo is a tax consultant at the Global Forum Secretariat based at the Centre for Tax Policy and Administration in the OECD. During his time with the Global Forum, he has led and completed the peer reviews of several jurisdictions, including the Phase 1 peer review of Gibraltar in 2011. Prior to joining the Global Forum, he was the Head of the International Tax Unit at the Singapore Ministry of Finance. Over the last six years, he has worked on a wide range of domestic and international tax policy issues, including international tax cooperation and technical assistance.

Markus Killick, LLb, Mphil, Fellow of the Securities Institute, took over as Chairman and Commissioner of Gibraltar’s Financial Services Commission in April 2003 and became its first Chief Executive following the introduction of the Financial Services Commission Act 2007. Mr Killick is an English barrister by training and is also a member of the New York State Bar. From 1998 until 2003 he was a Director in the International Regulatory Services Team of KPMG, based in the UK. He has also previously held positions as Deputy Chief Executive of the Isle of Man Financial Supervision Commission, and Head of Banking, Trusts and Investment Services at the Cayman Islands Monetary Authority.

Secretariat Administrator, OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes

Mr Tim Harris

Chief Investment Officer - UK, Lloyds TSB Private Banking Tim Harris is based in London and works closely with Lloyds TSB’s Gibraltar team. Tim previously worked at JPMorgan in London, initially as European equity investment strategist for JPMorgan Securities and latterly as chief investment officer of the EMEA platform of the global private bank. Tim has 30 years experience in the industry and in his early career was an engineering and conglomerates equity analyst, working for Phillips & Drew, which was acquired by UBS, and latterly Nomura Research Institute. Tim holds an MA in Mathematics from Oxford University and an MSc in Finance & Economics from Queen Mary, University of London. He is a Chartered Fellow of the Chartered Institute of Securities & Investment and a holder of the ASIP, a recognised qualification of the CFA Institute.

Mr Chris Johnson ACII

CEO, Gibraltar Financial Services Commission

Mr James Lasry

Partner & Funds Team Leader, Hassans International Law Firm James Lasry is a highly regarded practitioner who has been instrumental in setting up the majority of Gibraltar's funds, including the first experienced investor fund and the first protected cell company fund. He served as Chairman of the Gibraltar Funds & Investments Association for 2 years. James advised the Government of Gibraltar on its funds legislation and was involved in the drafting of the Financial Services (Experienced Investor Funds) Regulations 2005 and their subsequent amendments in 2012. He is fluent in English, French, Spanish and Hebrew and he read literature, music and law at John Hopkins and Bar-Ilan Universities. James is a member of the Israel Bar Association, the Law Society of England & Wales and the Gibraltar Bar. James also serves as chairman of the Gibraltar Philharmonic Society.

Gibraltar 2012

Contributors

milestone GRP

Professor Michael Mainelli FCCA FCSI

Mr Peter Wild

Managing Director, G P Wild (International) Limited

Executive Chairman, Z/Yen Group After a career as a research scientist and an accountancy firm partner, Michael Mainelli co-founded Z/Yen, the City of London’s leading commercial think-tank, to promote societal advance through better finance and technology. Z/Yen’s clients include numerous global financial institutions, technology firms and policy makers. Michael created the Global Financial Centres Index and the Global Intellectual Property Index. In 2005 Michael initiated Long Finance, addressing “when would we know our financial system is working?” Michael is Emeritus Professor of Commerce, Fellow & Trustee at Gresham College, non-executive director of AIM-listed Sirius Minerals, and a non-executive Director of the United Kingdom Accreditation Service overseeing UK laboratories and quality standards. In 2011 Nicholas Brealey published his third book, based on his Gresham College lecture series from 2005 to 2009, “The Price of Fish: A New Approach to Wicked Economics and Better Decisions”, co-authored with Ian Harris.

Peter Wild holds a BSc degree with honours in Maritime Studies from the University of Wales. He is also a Fellow of the Chartered Institute of Marketing, a Member of the Chartered Institute of Logistics and Transport, a Member of the Nautical Institute, a Supporting Member of the London Maritime Arbitrators Association, a Liveryman of the Worshipful Company of Shipwrights and a Freeman of the City of London. Peter is a specialist in cruising and has written many papers and reports on the industry. G P Wild (International) Limited is a management, marketing and economic consultancy practice founded in 1985 to provide independent consultancy advice to clients in both the national and international market place. G P Wild specialises in marketing, management, business planning and strategic business development. It typically deals with marketing, management, economic, financial, infra-structural, operational and policy issues.

Ms Sigrid Ligné

Mr Mark Yeandle

Sigrid Ligné started her career working for the Legal Service of the Council of the EU and the European Commission. She then moved to consultancy. Over the last fifteen years she has been responsible for several Brussels-based and pan-European advocacy and communications campaigns, advising a wide range of corporations and trade associations. She joined the European Gaming and Betting Association in March 2007 as Secretary General and spokesperson. The European Gaming and Betting Association is the industry body representing the leading online gaming and betting operators established, licensed and regulated within the EU. EGBA promotes the implementation of fair and competitive regulations for online gaming operators throughout Europe in line with EU law. Such regulations should be based on genuine public order and consumer protection concerns and be adapted to the crossborder nature of the online market.

Mark Yeandle’s early career was in sales and marketing when he held senior marketing positions at companies including Liberty and Mulberry. Before joining Z/Yen, Mark was an interim manager specialising in company turnarounds. from which he developed strong project management skills. During his MBA at Cass Business School he specialised in corporate finance and marketing strategy and has a deep understanding of these areas. He joined Z/Yen in 2002, initially to run SpecialiZm, Z/Yen’s expert resourcing division. He has since been involved in several of Z/Yen’s core projects including the development of a client intelligence business; advising a new business on financing and human resourcing issues and assisting a training organisation to develop and deliver training in finance management. Mark has managed most of the data work and analytics for PropheZy applications.

Secretary General, European Gaming and Betting Association (EGBA)

Associate Director, Z/Yen Group

Mr Torben C. Skaanild

Secretary General, The Baltic and International Maritime Council (BIMCO) Torben C. Skaanild has had a long and very international career within the shipping industry, having held executive positions in Canada, The Philippines, Thailand and Hong Kong before returning to Denmark to join BIMCO in 1981 as Deputy Secretary General. In 1984 he was appointed Secretary General of BIMCO, and left in 1991 to join Dr. Helmut Sohmen and the World-Wide Shipping Group (now BW Group), Hong Kong as a Director. His non-executive positions include member of the IACS Board of Appeal and in 2011 he was elected as Chairman of the Executive Board of the World Maritime University. In 2008 Torben returned as Secretary General of BIMCO. BIMCO is the largest of the international shipping associations representing ship-owners controlling around 65 percent of the world’s tonnage and with members in more than 120 countries.

Gibraltar 2012

Forewords

Gibraltar: Open for Business

I am very proud to introduce you as the newly elected GSLP-Liberal Chief Minister to Gibraltar, its economy and everything it has to offer foreign investors at a very exciting time in the Rock's history. Gibraltar has come a long way from the days of dependence on UK defence spending. My mission, and that of my team, is to continue to push Gibraltar’s economic expansion forward through national growth and international investment, while maintaining a keen eye and ear on the needs and demands of all Gibraltarians. Our new Government sets out to distinguish itself in a number of ways. Firstly, we will work to ensure economic progress directly translates into tangible benefi ts for all residents of Gibraltar. This is the bedrock of Gibraltar's long-term development and must ensure that the people of Gibraltar have quick and effi cient access to the services they require to give them a better quality of life: health, education, employment and care for the elderly all ranking highly among these. International investment and the economic growth it brings to Gibraltar secures the state’s capability to provide those essential services in an inextricably connected virtuous circle, which strengthens Gibraltar as a whole, ensuring not only present day development but also the social infrastructure necessary to keep Gibraltar growing and improving for generations to come. Secondly, our Government will continuously seek to engage the various stakeholders in Gibraltar to ensure progress is undertaken in partnership. In this sense, I have committed my administration to dynamic, collegiate decision-making in order to streamline and facilitate international investors’ entry into Gibraltar. Once established in our economy, these companies – as well as those already here - can expect quick reaction times in respect of any situations or issues they might face, in order to resolve matters and progress the business of doing business. This is not only a promise I have made to Gibraltar’s business world, but also to its citizens as individuals in our Citizens Charter.

milestone GRP

Last, but certainly not least, we will proactively reach out to further integrate Gibraltar within the global economy and position ourselves as a natural gateway for investment into and out of Europe. My attendance, and that of my colleagues, at the Centre for Global Dialogue and Cooperation’s Annual General Meeting this May in Vienna is one of the many steps we are taking in this direction, in order to keep Gibraltar punching above its weight in the international arena. We look forward to meeting and working with President Stoyanov, the CGDC’s founders and members of its honorary board. We also value this opportunity to promote Gibraltar and all the benefi ts it offers as a well-regulated investment destination within Europe, to the large number of politicians and international business people who will be in attendance. I am confi dent that increased interaction with Gibraltar and its businesses offers every one of these individuals, their countries and their companies considerable advantages and many opportunities for cooperation and investment. It is in this context that this Milestone GRP Global Investor’s Guide serves to showcase Gibraltar as the compliant, well-regulated and sophisticated jurisdiction it is. Our economy posted enviable fi gures through the recent years of fi nancial turmoil and I am very optimistic about the potential it holds for the future, especially as signs of a strengthening global recovery continue to emerge. I welcome everyone to take a closer look and fi nd out what Gibraltar really is all about. When you have done so, if the fi t is right, to make the Rock your next strategic move. At the very least, come and enjoy our stunning views and the sunshine!

Fabian Picardo Chief Minister of Gibraltar

The CGDC and Gibraltar: Social Development Through Economic Growth The Center for Global Dialogue and Cooperation - CGDC is a relatively young organization that we founded with colleagues who share the same conviction, namely, that ethical values in business and politics are essential for sustainable and stable global welfare. Through engagement work, and active participation in international fora and events, we have been able to draw together a large and impressive number of acting and former heads of state, politicians, international business leaders and members of civil society from around the world, including President Bill Clinton who has become an ardent supporter of our vision and mission, to analyze the key issues at the intersection of business and politics that affect global welfare today. We also actively strive to make a change for a better future through various programmes, such as by enabling further education for sixty-fi ve students in way of an MBA in Public Governance through a commitment in collaboration with the Clinton Global Initiative. We are fully aware that the challenges involved are immense and that the results we seek will require concerted efforts and dedication on behalf of our many partners and all stakeholders. However, it is also our fi rm belief that a challenge must be risen to and cultures – be they societal, business or political ones – must adapt. I see many similarities between our organization and Gibraltar. Gibraltar has a new, young government in the form of Chief Minister Picardo and his team of ministers. Their views are very strongly aligned with ours in that they strive to ensure Gibraltar’s social development, prosperity and sustainability. This is done through the encouragement of well-regulated business across a variety of established and thriving industries. These co-exist within a relatively small yet international community whose personal breadth and operational reach stretch far beyond the Rock. Gibraltar has also risen up to challenges through international cooperation, transparency and a culture change of its own. It has gone from being seen as an offshore fi nance centre, with the

usual connotations popularly affi xed to such areas, to positioning itself as an onshore, well regulated and internationally cooperative fi nance centre. Going beyond that, it has also played to its strengths and attracted new business to its shores, such as the Online Gaming sector, to increase the robustness and diversifi cation of its economy. Gibraltar’s Rock has long been a historical symbol of solidity and stability – and it is still getting stronger. I therefore strongly support this Milestone GRP Global Investor’s Guide on Gibraltar. It provides in-depth insight into Gibraltar’s economy and highlights the opportunities Gibraltar offers foreign investors across all of its main sectors. I am also delighted to host Chief Minister Picardo and members of his Government at this year’s CGDC Annual General Meeting in Vienna, where a focus on topics relating to Energy and Democracy will be discussed by our panel of leading experts and international delegates. As a vibrant society and thriving economy, with restricted natural resources and strong democratic traditions that have seen the recent election of the fi rst new Chief Minister in 15 years, I warmly welcome Chief Minister Picardo’s participation and input during the event. I, and the entire CGDC community, also look forward to working with him and his cabinet members on issues of importance in the future.

Petar Stoyanov Founder and President, Center for Global Dialogue and Cooperation - CGDC Former President of Bulgaria (1997-2002)

Gibraltar 2012

Gibraltar

Government

milestone GRP

Revenue

400

Expenditure

350 300 250 £ (million)

their home and to make their investments over here viable too. Much of what we do in relation to them is to provide a legal framework where they want to do business; a tax framework which they think is advantageous compared to tax frameworks elsewhere and, most importantly, to provide the sort of responsive Government that makes Gibraltar a place where they know they can do business.

200 150 100

Milestone GRP - If there was one foreign investment project which you would like to see realized during your 4-year tenure, what would it be?

50 0 2002

2003

2004

Government Revenue & Expenditure

2005

2006

2007

2008

Government Revenue & Expenditure

2009

2010

2011

2012

Source: GOG/GSO

Chief Minister Picardo - It is diffi cult to answer this question

Dawn of a New Era

A fresh vision for Gibraltar’s future Interview with The Honourable Fabian Picardo, Chief Minister of Gibraltar

Chief Minister Fabian Picardo holds a law degree from Oxford University, is called to the bar both in Gibraltar and the British Virgin Islands, has a respected legal track record spanning human rights, litigation and commercial law, and has appeared before the United Nations and other international bodies. His latest achievement was being elected as the head of Gibraltar’s Government in December, 2011. Milestone GRP sat down with Chief Minister Picardo to discuss his vision for Gibraltar’s development and his priorities for the next few years. Among these are streamlining the Government’s decision-making process to facilitate foreign investors’ entry and establishment, implementing an inviting legal and taxation framework, and increasing Gibraltar’s competitiveness as a base for international corporations to do business in, and with, Europe. All this with a commitment to his belief that social progress and economic growth are two tightly intertwined and essential strands in the fabric of Gibraltarian society.

Milestone GRP - What major transformations can be expected from your newly elected administration? Chief Minister Fabian Picardo - The most important change

will have to do with a more dynamic decision-making administration. During our campaign and in the run-up to the elections, it became obvious to us that complaints often came from international operators wanting to do business in Gibraltar and experiencing a lack of reaction from the previous administration. Looking forward, there will be a positive and reactive administration that will interact with international investors who need decisions from Government on any matter which affects their presence in Gibraltar; whether it is regarding the immigration status of their employees, the tax status of the companies, those things will happen quickly and in fact, we will strive to make Gibraltar the place where you will get decisions the quickest in Western Europe. We have very clearly set out criteria and we are small enough to get information in front of a Minister, or another decisionmaker who will not always be a Minister, very quickly and to get a an answer very shortly thereafter. We have created a citizens charter which entitles people to responses to correspondence within 21 days of an acknowledgment which

they will receive 14 days after sending their letter. Here you can see that we are fi xing very tight time limits for the administration to operate in. I believe that international investors require and will appreciate that sort of speed of reaction. Milestone GRP - Your social agenda is very clear in the GSLP Liberal manifesto; how will you reconcile this with economic priorities which businesses and investors may have? Chief Minister Picardo - To tell you the truth, as a socialist

party, there is only one priority: the social issues. I have not been elected to do anything other than to make sure that the people of Gibraltar have the services they require, in particular in relation to health, education, employment and care of the elderly to name a few. These issues are always going to be a priority for us. What we are very alive to is the fact that the economics that make that possible depend on Gibraltar being a place where international operators can do business. Therefore we see those things as going hand in hand, together. So although we will prioritize our spending on social projects, we will also pay attention to the factors that allow international investors to make Gibraltar

at this stage because I believe it is important that I fi rst talk to the relevant players in the industry here. I do think that we can revolutionize the social infrastructure of Gibraltar from the income that we can derive from a different approach to the gaming industry, with the existing operators here and with very few choice operators that we may want to attract to Gibraltar in the future. Gibraltar will always be a gaming jurisdiction of quality, not of quantity; but if things go the way I expect them to go, then ask me in 4 years time whether I have realized the project I think we can realize. Milestone GRP - So economics as a means to an end to transform Gibraltar and its infrastructure, and to deliver quality social services? Chief Minister Picardo - Absolutely. Economics as a means

of delivering to the people of Gibraltar the services that they need; international business in order to deliver for Gibraltarians the Gibraltar that they deserve and a friendly home for those that want to do the sorts of business that are in keeping with the Gibraltar that we want to see fl ourish and prosper. Milestone GRP - As the Chief Minister, you obviously have tools and institutions at your disposal to do so, such as the Finance Centre for instance. How will you use these tools in the future? Chief Minister Picardo - We will always look to use the levers we have with the key players in any given industry, to ensure that those who are here are able to prosper and that we attract people who might be interested in coming to Gibraltar. We will not be using our tools to make the lives of those doing business in Gibraltar harder but we will use them to make it easier for people who want to stay in Gibraltar and for those who want to attract new business. So for example in terms of Financial services, whether it is a licensing regime and the fees that are associated with that, or a regulatory framework, we are always going to work with the industry to ensure that we are not making Gibraltar an expensive place to do business. And where regulation is needed, and it is essential for it to be provided, that regulation should be top-notch, not just in terms of the legal framework but also in terms of the ability for the regulator to deliver it with the resources necessary to provide worldclass regulation.

Milestone GRP - You have confirmed your attendance at the CGDC Annual General Meeting in Vienna in May this

year. What is your approach towards international events and how will you decide which ones to attend? Chief Minister Picardo - To be very honest, it is about value for money. It must be something that is going to produce suffi cient value for the taxpayer in Gibraltar, that it makes sense to incur the expense of my travel and justify my absence from the offi ce while I could be doing something else. Therefore I have identifi ed that this particular conference is one that I think will produce value for money for the Gibraltar taxpayer, because I can see that it is the sort of place where Gibraltar needs to be to continue to punch above its weight in the international community.

Milestone GRP - In the current global economic context, are there specific opportunities for Gibraltar, for instance with the BRICS countries and other rising global players? Chief Minister Picardo - I think there are because Gibraltar

is fortunate to be within the European Union trading block, outside the Common Customs tariff and outside the Shengen immigration rule but yet within the principle parts of the EU freedoms of movement which are fundamental to do business in this part of the world. We are also a low tax jurisdiction so when a BRICS country wants to set a foothold in Europe, why go anywhere other than Gibraltar? In terms of the agility of the legal and administrative processes, in terms of the fi scal obligations Gibraltar imposes compared to those of other countries and in terms of the means of communication available from Gibraltar to the world, whether electronic communication or physical communication to London for instance, I think Gibraltar is actually one of the choice jurisdictions for the world to be looking at to do business in Europe. And the sun shines on most days. Milestone GRP - Please paint us a picture of Gibraltar the way you imagine it after your tenure. Chief Minister Picardo - Well, fi rst of all, I don’t take for granted the fact that we will be re-elected because the people always have the right to decide. So, after 4 years of GSLP Liberal Government, I think Gibraltar will be a modern and vibrant city. It will be more open to the world and it will be more open to itself; in other words, our Government will have given back to people the information and the other aspects of Government that have been kept closed to them in a more conventional way, for so long. So I would see a modern, positive and open Gibraltar doing business with the world.

Gibraltar 2012

Government

Government Revenue and Expenditure 2010-2012 REVENUE

FORECAST OUTTURN 2010/11 £ (million)

ESTIMATE 2011/12 £ (million)

Income Tax

151.500

152.500

Duties, Taxes and Other Receipts

97.717

98.731

Gambling Fees, Taxes and Lottery

11.820

12.050

Rates and Rents

17.500

24.001

Departmental Fees and Receipts

93.548

96.830

Government Earnings

9.899

9.584

TOTAL RECURRENT REVENUE

381.984

393.696

Consolidated Fund Exceptional

5.755

–

TOTAL REVENUE

387.739

393.696

Consolidated Fund Revenue Estimates, 2010-2012

EXPENDITURE

FORECAST OUTTURN 2010/11 £ (million)

ESTIMATE 2011/12 £ (million)

Education & Training

151.500

152.500

Culture, Heritage, Sport and Leisure

97.717

98.731

Housing

11.820

12.050

Environment & Tourism

17.500

24.001

Family, Youth and Community Affairs

93.548

96.830

Enterprise, Development, Technologyand Transport

9.899

9.584

Health & Civil Protection

381.984

393.696

Administration

5.755

–

Finance

387.739

393.696

Employment, Labour and Industrial Relations

3.521

1.073

Justice

14.597

14.928

Immigration and Civil Status

3.074

3.085

Parliament

1.309

1.511

Gibraltar Audit Office

0.654

0.777

Supplementary Provision

–

7.000

Consolidated Fund Charges

54.802

55.586

TOTAL RECURRENT EXPENDITURE

353.714

372.185

Consolidated Fund Exceptional

3.119

–

TOTAL EXPENDITURE

356.833

372.185

Consolidated Fund Expenditure Estimates, 2010-2012

Source: GOG/GSO

Europa Point

Government

milestone GRP

25,000

150

20,000

125

Male

Female

100

15,000

10,000 50

5,000 0 2000

25 0

2001

2002

2003

2004

Number of Employee Jobs Number of Employee Jobs

2005

2006

2007

2008

2009

Source:StatisticsOffice Source:

2010

GSO

funding, as is the case with any other bank in Gibraltar. We would not be operating a bank without applying the same standards that we require of any other bank. But there are no other requirements.

Sustainable Growth and Investment in People Business success for social welfare

Milestone GRP - How will the new administration reconcile priorities such as the need to develop the economy to attract new investors, and the desire to address social issues such as health, education, or the need for better infrastructure?

Interview with The Honourable Joe Bossano, Minister for Enterprise, Training and Employment

Joseph John Bossano is the former leader of the Gibraltar Socialist Labour Party. He was Chief Minister of Gibraltar from March 1988 to May 1996. He led the Opposition in the Gibraltar Parliament from its founding in 1978 until 2011 when he stood down as leader of the GSLP, replaced by Fabian Picardo. Mr Bossano has a degree in Economics from the London School of Economics, as well as a degree in Italian from the University of Birmingham. In the 1960’s, he became part of the UK trade union movement as a seaman and was a member of the Labour Party there too. Following the victory in the 2011 general elections, he was given Ministerial responsibility for Enterprise, Training and Employment. He met with Milestone GRP to discuss the new government’s approach to business and social issues, and how those worlds are closely interconnected.

Milestone GRP - Gibraltar’s economy has fared very well through the recent years of financial difficulty. What growth figures do you expect going forward? Minister Joe Bossano - When we were previously in Government we achieved 133% growth in 8 years. The economy grew from 156 million to 356 million pounds, from the years 1987/1988 to 1996/1997. In our Government’s recent Manifesto we put a conservative target of 5% growth in GDP. We expect the GDP this year to be around 1.1 or 1.2 billion. The last published figure was just below one billion. We aim at reaching 1.7 to 1.8 billion in 2014/2015. This is independent of what is happening in the global economy. If you can provide a safe haven and a reasonable return for investors, then it becomes a seller’s market, with more people looking for growth, than people able to offer it.

Bank with all sorts of restrictions, such as a 2,000 pounds deposit limit. There was a need to modernise the vehicle, the products and the way the bank operated. At that time the bank had 2.5 million pounds in deposits and it was making 67,000 pounds of profit a year. As a result of those changes and modernisations, by 1996, it had around 280 million pounds in deposits, and was making 5.5 million pounds in profit. This year, the deposit base is around 300 million and the target is to double this figure every 12 months.

Milestone GRP - What areas have you identified as ripe for providing this growth?

The bank now has a new investment vehicle. It its a tenyear debenture issued by the bank. The debenture pays 2% interest rate in the first year, and goes up by 1% each year for the following 10 years. So it is a ten-year bond issued by the Gibraltar Savings Bank, and all savings and investments are guaranteed by the Government without any limit. So you have a vehicle where you have the potential of an average of 6.5% interest per annum if you keep the money in it for the whole life of the debenture.

Minister Bossano - One of the areas I would like to expand, and I will be directly involved in expanding, is the Gibraltar Savings Bank. The Savings Bank is a State owned Bank that was set up in 1882, and it has been trading since then. When we came in 1988, it had been used as a Colonial Savings

The bank is able to operate in other currencies, but it is not something we are planning to do. The target is mainly the savings market in Gibraltar, but there is no residential requirement. Like any other entity, the requirement is that the investor must give proof of the legitimacy of the source of the

Minister Bossano - They are not incompatible priorities. The more we improve the quality and standard of living, the easier it will be to attract investments, and vice versa, the more investments we attract, the more resources we will have to improve our quality of life. They are mutually beneficial objectives that feed on each other. You can create a virtuous circle. Success brings success. An example of this is provided by the Gaming industry in Gibraltar. When the first Gaming company was set up in Gibraltar, it was offered very generous tax terms, along with a period of several years of exclusivity as they were the pioneers and predicted that it would be a successful sector. The Gaming sector now employs over 2000 people, almost 25% of the private sector. As I said, success brings success. Milestone GRP - What challenges does Gibraltar’s size pose in terms of staffing and employment?

2003

2004

2005

2006

2007

2008

2009

2010

Source: Department of Education andEducation Training Source: Dep. of & Training Student Enrolments at UK universities

Student Enrolments at UK Universities

Milestone GRP - What can the business world learn from Gibraltar? Minister Bossano - First of all, that small is beautiful. The lesson to be learned is that everything that is big is made up of many small parts. In Gibraltar there is no big business, there is a very tiny part of many different businesses. They are here, though, because Gibraltar is more efficient and profitable than elsewhere. The economy has to be analysed in terms of being made up of lots of little economies. So if I was responsible for a bigger entity than the size of Gibraltar, I would be using the same philosophy but on a different scale.

Minister Bossano - One thing that must be understood is that a town of our size in Spain or in the UK, would form just a part of a larger entity, and this town itself would not even have the power or responsibility to solve problems like that of employment. The only thing we have to be careful about is that the level of skill we produce to satisfy the demand of the Gaming companies is so narrow that they become nontransferable skills. The gaming industry, or any other, should never become so large that if it goes we all go down with it. With regards to education, Gibraltar has got a very generous Higher Education System, which was introduced by the Socialist Government in 1988. We are now making it even more generous. Since 1988 any school-leaver with the necessary qualifi cations to obtain an offer to a place in a university in the UK or Europe, will have his travel expenses, tuition fees and maintenance paid by the State for the whole undergraduate course. What is new this year is that we are extending it to post-graduate courses. Supporting education is key since our geographical location and the intellect of our people, are the two only resources we have.

Local Pride

Gibraltar 2012

Introduction

milestone GRP

33% Tourism 1050 950

17% Online gaming

Notes: (i) Provisional Estimate (ii) Forecast

£ (million)

850 750

17% Shipping and Port Services

650 550 450 350 250

33% Financial Services 2001

2002

GDP

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: GSO

Economy by sector

Source: FSC

Male

Shipbuilding Other Manufacture

BAY OF GIBRALTAR

204

Electricity and Water Supply

299

Construction

2722

Wholesale and Retail Trade

2989

Hotels and Restaurants

1121

Transport and Communication

1228

Financial Intermediation

1848

Real Estate and Business Activities

2821

Public Administration and Defence

2031

Education

Female

230

896

Health and Social Work

1602

Other Services

2984

500

1000 1500 2000 2500 3000 note: Industry Classification follows the UK’s Standard Industrial Classification

Jobs by Industry

Source: GSO

80+ 75-79 70-74 65-69 60-64 55-59 50-54 45-49 40-44 35-39 30-34 25-29 20-24 15-19 10-14 5-9 0-4 1,2

1,0

0,8

0,6

0,4

0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

Population (in thousands)

Population Pyramid, 2012

Source: U.S. Census Bureau, International DataBase

TAXATION CORPORATION TAX

KEY TAX POINTERS

A fl at 10% Corporate Tax rate came into effect on 1 January 2011 for all companies. (Energy and utility providers are subject to 20% tax.)

• No Inheritance Tax or Estate Duty

Companies are taxed on profi ts accrued in or derived from Gibraltar (i.e. territorial basis of taxation). Gaming Tax: 1% of relevant income (gaming yield for remote casinos and bets placed for on-line bookmakers), capped at £425,000 with a minimum payable of £85,000

Land Area Total:

• No Capital Gains Tax • No VAT • Minimal Stamp Duty rates • No tax on Bank interest • No tax on listed investment income

INCOME TAX

6.5 km²

Individuals Enjoying Special Concession

Choice of Personal Tax systems Taxpayers can opt to be taxed under an Allowance Based System or under a Gross Income Based System.

Climate Mediterranean - mild winters and warm summers

(A) ALLOWANCE BASED SYSTEM Taxable Income Bands

Population 29,034 (2012 est.) Birth Rate 14.22 births/1,000 population (2012 est.)

Rate %

Tax on band

£ 0-£4,000

17 (reduced rate)

£ 680

£ 4,001-£16,000

30 (standard rate)

£ 3,600

Over £16,000

A) High Net Worth Individuals ("Category 2 Individual") Only the fi rst £80,000 (2010/11 - £80,000) of assessable income is taxable subject to a minimum tax payable of £22,000 (2010/11- £22,000) and a maximum of approximately £30,000 (2010/11 - £30,000). Conditions on residential accommodation and previous residence/activities in Gibraltar apply. A Category 2 individual cannot, in general, engage in a trade, business or employment in Gibraltar.

*Tax Allowances and Reliefs apply

(B) GROSS INCOME BASED SYSTEM

Population growth rate 0.265% (2012 est.) Source: CIA World Factbook

(a) The income bands and tax rates for income up to £25,000 are First £10,000 £10,001 - £17,000

6% 20%

Balance

29%

(b) The income bands and tax rates for income above £25,000 are

Atlantic Ocean

• No Wealth or Gift Taxes

EUROPE ASIA

Gibraltar

Mediterranean Sea

First £17,000

16%

£17,001 - £25,000

19%

£25.001 - £40,000

25%

£40,001 - £105,000

28%

£105,001 - £500,000

25%

£500,001 - £700,000

18%

£700,001 - £1m

10%

Balance at

B) High Executive Possessing Specialist Skills (HEPSS) The tax payable by a HEPSS is limited to the fi rst £120,000 of earned income. The relevant skills must be deemed to be of exceptional economic value to Gibraltar. HEPSS are taxed under the Gross Income Based System. Conditions on residential accommodation and previous non-residency apply.

All taxpayers will pay tax at an effective rate of less than 25%

AFRICA Map by Eric Gaba

Gibraltar 2012

Financial Services

milestone GRP

We will continue to work with other countries to develop agreements and cooperation. We have all necessary measures in place in relation to anti-money laundering practices and legislation. The Financial Services Commission plays a crucial role in regulation and licensing, independently from the Government. I think Gibraltar, as a Financial Services centre, can be very proud of the framework that not only allows companies to do business comfortably but that also protects their customers and the people who do business with them.

A World-Class Reputation and Best Practices A small jurisdiction punching above its weight Interview with The Honourable Gilbert Licudi QC Minister for Education, Financial Services, Gaming, Telecommunications and Justice

Gilbert Licudi QC is a barrister by profession having being called to the Bar in England & Wales and in Gibraltar in 1992. He has practised throughout his career with Hassans in Gibraltar. He was made a partner of Hassans International Law Firm in 1998 and was appointed Queen’s Counsel in 2012. Mr Licudi has been a member of the Gibraltar Socialist Labour Party since 1984. He fi rst stood for elections to the Gibraltar Parliament in 2007 winning a seat in the Opposition benches. Between 2007 and 2011 he was Shadow Minister for Employment, Transport and Sport as well as for Education. Following the victory in the 2011 general elections, he was given Ministerial responsibility for Education, Financial Services, Gaming, Telecommunications and Justice. He sat down with Milestone GRP to discuss his views on the relationship between the public and private sectors, new opportunities in Gibraltar's Funds sector and the importance of education.

Milestone GRP - How was your portfolio brought together? Minister Gilbert Licudi - It is largely based on my professional background and on my role as Shadow Minister for Education when we were in Opposition. In my 19 years of practice as a lawyer, I gathered signifi cant knowledge of the Justice system; I spent much time dealing with the Financial Services sector, specifi cally in relation to trust issues and companies licensed by the Financial Services Commission; I also dealt with some of the gaming operators. This is a Ministry with a diverse portfolio including 5 different areas of responsibility. The next four years will certainly bring a number of challenges. I am very excited about the work we will be doing and the programme we have put together for Gibraltar and its people. The Government will produce and steer policy and we will let the relevant offi cials do their work. So although I have a wide range of departments under my portfolio, I have an oversight from a policy point of view and a number of very able professionals to implement the policies that are made at a political level. Milestone GRP - What does the private sector bring to its side of the table?

Gibraltar’s reputation is key to our continued development. Regulation for the purpose of protection of customers who do business with entities in Gibraltar is fundamental. We have a robust regulatory regime in place and I think this is what the IMF means about the best practices in Gibraltar; this is a model that is visible to all. We believe that Gibraltar can be seen as a beacon of good practice, particularly in the Financial Services fi eld. Milestone GRP - You have identified the Funds industry as one where Gibraltar can attract more business. Through what means will you encourage this development? Minister Licudi - We have identifi ed substantial potential for growth in the Funds market in Gibraltar. We want to work with professionals in the industry to make Gibraltar one of the foremost jurisdictions in Europe for the establishment of Funds. The Experienced Investor Funds Regulations which were in place when we took office required that administrators of Gibraltar Funds had to be based in Gibraltar. We felt that this was an inhibiting factor which limited the number of fund administrators one could choose from, in particular for very large funds requiring substantial organizations to administer them.

Minister Licudi - We have a wealth of talent in Gibraltar. We see the development of Gibraltar as a partnership between the Government and the private sector. The public sector provides the infrastructure and the legislative framework needed whilst the private sector drives the economy by providing the expertise and the necessary investment for Gibraltar to thrive. We have encouraged and will continue to encourage initiatives and ideas which the private sector can bring to the Government. Whether it is a case of amending legislation or bringing in new provisions, we want to hear what it is that the private sector believe they need. Clearly, there will be policy initiatives which will be driven by Government but it is vital that we listen to the professionals in the private sector.

Following discussions with professionals in the industry, we agreed that it was necessary to relax the rules so that large funds could use reputable and substantial administrators based in jurisdictions of equivalent standing to Gibraltar. The new regulations will also allow Funds to re-domicile to Gibraltar yet continue to use their existing reputable administrator. This represents a significant advantage for Funds moving to the EU, particularly with the advent of the Alternative Investment Funds Managers Directive which is due to be implemented by July 2013. The introduction of the new regulations is an example of the operation of the partnership between the public and private sectors which we want to promote and encourage.

Milestone GRP - The International Monetary Fund (IMF) has recently stated that Gibraltar is “at the forefront of best practices”. What does this mean in the Financial Services sector, for instance?

Milestone GRP - What changes are planned for the Pension Schemes sub-sector?

Minister Licudi - Gibraltar is a low tax jurisdiction fully compliant with all international standards of transparency and cooperation. When we came into offi ce in December 2011, Gibraltar had signed 18 Tax Information Exchange Agreements, the fi rst one with the United States in 2009. I have since signed two more TIEAs with Malta and South Africa bringing the total to 20.

Milestone GRP - Do you identify a particular challenge with promoting the development of the Online Gaming sector alongside the Financial Services industry, for instance in terms of reputational risk? Minister Licudi - There are always reputational challenges. That is why we need to continue to be vigilant and adhere to and, if necessary, improve on our regulatory standards whether in the Online Gaming Industry or any other sector of Gibraltar’s economy. We must always keep an eye on reputational risk and the issues that could have an impact on our reputation. Over the years, Gibraltar has built a good reputation in the Financial Services sector and in the Online Gaming sector. The fact that we have attracted major operators and we have become a leading jurisdiction in the world suggests that there is a regime in place which people can feel comfortable with. Reputational risk in Online Gaming can be managed by continuing a selective and cautious approach to licensing with approval given to only high quality operators. We have built an excellent reputation as one of the world’s foremost jurisdictions in Online Gaming. Gibraltar is a brand name which is recognised throughout the world and we expect to keep attracting leading operators who want to benefi t from the numerous advantages which Gibraltar has to offer. Milestone GRP - What do you forecast for 2012 and 2013 in terms of Gibraltar’s GDP and other key indicators? Minister Licudi - There has been a fi nancial crisis that has hit many countries, but Gibraltar has been able to cope very well and maintain positive economic growth as a result of Gibraltar's size and our ability to adapt. We have no doubt that the resilience of the Gibraltar economy and the new measures we are implementing to attract new business for Gibraltar will continue to create economic growth and generate the kind of revenue that Gibraltar needs in order to meet its social programmes and objectives, in particular in education, housing, social services and employment. Milestone GRP - Is inﬂation a concern in Gibraltar? Minister Licudi - There is always the need to keep an eye on infl ation but we do not see this being a problem for the future. Milestone GRP - What approach are you implementing for Gibraltar in terms of Education? Minister Licudi - There are a number of initiatives that we are taking with regards to Education. We have always recognized 4,0 3,5 3,0

Minister Licudi - We believe that we can attract to Gibraltar a number of QROPS (Qualifying Recognized Overseas Pension Schemes). We are looking at amendments to legislation in order to be able to attract pension schemes that are established outside Gibraltar. This should generate new business for Gibraltar. We believe that we can create a competitive framework which will make Gibraltar an attractive jurisdiction for QROPS transfers.

2,5 2,0 1,5 1,0 0,5 2001 Inflation

2002

Infl ation

2003

2004

2005

2006

2007

2008

2009

2010

2011

Source: GSO

Source:StatisticsOffice

Gibraltar 2012

Financial Services

that Gibraltar enjoys a very high standard of Education but it could be further improved. There is a need to engage more professionals within the Education system and we are embarking on a programme where the number of teachers will be increased by 14% by the next academic year. This will provide new skills for pupils to benefi t from. It will also provide employment for a signifi cant number of qualifi ed teachers. We are also embarking on a wider educational programme through the establishment of degree-based courses that will be offered in Gibraltar both for local students and with a view to attracting international students. We are working towards the establishment of a University of Gibraltar. We are already in discussions with internationally recognised institutions with which we expect to be able to develop a partnership for our University project. We also believe that it is fundamental to encourage our students to pursue further education beyond the curriculum offered by our schools. We already offer Government scholarships which pay tuition fees and provide maintenance grants for all students who enrol on an undergraduate degree programme. We will be extending the scholarships this year on a mandatory basis to all students who wish to pursue postgraduate studies as well as those who want to stay in Gibraltar but undertake a course

milestone GRP

through distance learning. The Government attaches much importance to investing in the future of our youngsters. Milestone GRP - You have confirmed your attendance at the Centre for Global Dialogue and Cooperation’s (CGDC) AGM in May 2012. What would be your message to the audience of the CGDC meeting in Vienna this year, which includes Heads of State, leading international business people and opinionshapers in a variety of fields? Minister Licudi - Our message is simple; Gibraltar is a small jurisdiction but one which is an important player in the world market. It is a jurisdiction that punches much higher than its weight in the Financial Services and Online Gaming sectors and we are recognized as such. We will be expanding Gibraltar’s business base and will develop new products which will produce growth for those currently operating in Gibraltar and will also attract new operators. Gibraltar benefi ts from being part of the EU with access to a market of over 500 million people. Its location, access to the EU market, statutory and regulatory regime, communications infrastructure and professional resources available make Gibraltar a very attractive jurisdiction from which to do business.

Eﬃciency and Eﬀective Regulation

Maintaining Gibraltar’s reputation as a stable financial centre Interview with Mr Marcus Killick, Chief Executive Officer of Gibraltar’s Financial Services Commission and Mr David Parody, Deputy Chief Executive Officer of Gibraltar’s Financial Services Commission

Prior to his current appointment as the fi rst CEO of Gibraltar’s Financial Services Commission, Marcus Killick has held positions such as Director in the International Regulatory Services Team of KPMG UK, the Head of Banking, Trusts and Investment Services at the Cayman Islands Monetary Authority, and the Deputy Chief Executive of the Isle of Man Financial Supervision Commission. He is trained as an English barrister and is also called to the Bar of the State of New York. FSC Deputy Chief Executive Offi cer David Parody has over 17 years experience as a regulator and has previously served as the Commission’s Head of Banking Supervision. His expertise in IT was instrumental in designing the FSC’s risk-based methodology used to supervise all types of fi nancial services providers in Gibraltar. Milestone GRP met with the pair to discuss Gibraltar’s resilience through the fi nancial turmoil affecting Europe, the FSC’s role in maintaining Gibraltar’s reputation and strong position as a fi nance center, and areas of opportunity for new products and international synergies with Gibraltar’s fi nancial services industry.

Milestone GRP - In light of the current events unfolding in the Eurozone, please tell us about Gibraltar’s unique position within the EU and the impact this has had on the development of the financial sector? Mr Marcus Killick - Gibraltar has a unique position within the European Union, and indeed it has suffered far less than many other jurisdictions within the EU. In fact, we have continued to grow as a jurisdiction, the Finance Centre has continued to develop and new businesses have been coming down here. The absence of social problems, unemployment and other issues that exist in many other EU countries has proved attractive. We have been mindful of the problems being suffered by Greece, Spain, Portugal and Ireland. As the European Union is one economic community, what affects one jurisdiction, inevitably has an impact on others to a greater or lesser extent. Nonetheless, because of our position we have a broadly spread economy, covering not only fi nancial services, but also online gaming, tourism and shipping. We have certain elements that are fairly robust against economic downturns. Looking at our area, the Financial Services environment, we have only recently developed a Funds industry. There was no industry of any real substance until 2007 when new legislation

and regulation was brought in to encourage experienced investor funds. Since that time we have seen a growth in the number of administrators and funds. That, in turn, is representing a good basis from which we can build on the introduction of the Alternative Investment Fund Managers Directive. Also other European directives make it more attractive being within the EU than being external from it but trying to sell services inside the EU. We have already seen interest from funds re-domiciling from places like the Cayman Islands to Gibraltar. We also have developed sectors such as insurance for instance. The attraction for businesses coming here is not only due to the lower tax regime but also because of the pool of talent available. We do feel that our strength is a mixture of a benign climate both in terms of economic environment and weather itself. Gibraltar has always been seen as an entrepreneurial jurisdiction where people are interested in doing business, with a much lower level of bureaucracy than in other EU countries. At the same time both this Government and the previous one have been very fi rm in protecting Gibraltar’s reputation. This is a jurisdiction of 30,000 people. We cannot physically take on large volumes of employment in fi nancial services businesses. We always fi nd that there are businesses that may wish to come here but they are not attractive to us because we are not prepared to put our

Gibraltar 2012

Financial Services

milestone GRP

reputation at risk. Occasionally problems occur obviously. But the Government, the Regulator and the Industry are keen to defend what has taken years for this jurisdiction to attain; that is, good quality fi nancial services delivery. Milestone GRP - Is there an example to be taken from Gibraltar’s performance through the global financial crisis? Mr Killick - In searching for solutions to the current crises one should not overlook the simple solutions. It is a danger that all one does is to place a new regulation over the existing one. This strategy may not prove to be successful. I believe that there are some simple fundamental solutions that if accepted and implemented would not only assist with the current issues but also go a long way to prevent the future ones. Their simplicity makes them unattractive to some, but actually their simplicity of concept does not mean it is simple to implement. A lot went wrong at the board level of many organizations because they did not understand what they were running, and the risks of running it in the way they were doing it. A board leads an organization giving strategic directions. If it cannot understand the strategies of its own organization, it cannot lead it. If the boards did their job properly, many issues could be resolved. If the board led the culture and behaviour there would not be bad selling behaviour lower down. If the board preaches and practises good ethical behaviour that translates into the organization’s actions. If it is only interested in the profi t in an individual division, that division will try to maximize its profi ts whether in the short term or not. In turn, it will take risks that the board is not aware of. Therefore, an ethically well-run board will solve many of the current problems and prevent future ones. Milestone GRP - In terms of the sheer size involved and resources required, is there a challenge for Gibraltar to adapt

350

to the volume of international regulation that is being implemented at the EU level?

Milestone GRP - How autonomous is the Financial Services Commission?

Mr Killick - Every jurisdiction in the EU is challenged with the sheer volume of directives and regulations emanating from Brussels. There are also international initiatives coming from the International Organization of Securities Commissions and the International Association of Insurance Supervisors as well for instance; these are hitting not only the industry but also regulators themselves.

Mr Killick - The Commission is a wholly independent organization. We are not only independent of the government; we are independent of the Industry itself. We are not connected with any other regulatory body; we are not subservient. We are a competent authority in the EU in our own right. Being independent does not mean we do not have stakeholders. Our stakeholders include the Government, the industry, the regulatory community worldwide, and we are also accountable.

At the FSC, we are a number in the mid 40’s in terms of manpower. This implies that our team has to be more broadly spread in terms of their competencies. We cannot have an individual or a team exclusively dedicated to applying the capital requirements directives to the insurance side, for example. Nevertheless, we do have a system by which we have the capability to make sure that the necessary directives and regulations are implemented appropriately and in the correct time scale. We obviously work very closely with the new government and the Finance Centre itself. We have a process to make sure directives are transposed in time. We have also developed Centres of Excellence within this organization, where an individual develops a particular specialism. We work and collaborate with our fellow regulators, such as the Financial Services Authority in the UK, to make sure that our resources are placed where they are most effective. It is not our role to reinvent the wheel, therefore some work can be done by the Financial Services Authority or by others and then we can adapt things to suit the particular context of Gibraltar. We do not have the same level of input in the formation of directives; we simply do not have the resources with regards to that. However, where there are things that signifi cantly impact Gibraltar, we do make our representation. Every country within the EU struggles with what Brussels is producing. Our size as a regulator may be slightly different if compared with other jurisdictions, which just means we have to fi ght smarter.

Auditors

Banks

Insurance Companies

Insurance Inter-mediaries

Investment Firms

Insurance Managers

Money Services Business

Company Managers / Professional Trustees Occupational Retirement Schemes

Indeed we have a statute that requires that we are independently reviewed every few years; we also, as members of a number of international organizations, are subject to reviews by them. We are also subject to reviews by the International Monetary Fund (IMF) on an occasional basis as well, the most recent one being 4 or 5 years ago, from which Gibraltar got a very high rating in terms of its compliance with international regulatory requirements. So we are wholly independent but we are accountable both nationally and internationally, and we are very aware of the needs of our stakeholders. Milestone GRP - What new financial products are being developed in Gibraltar? Mr Killick - The Commission as a regulator does not generally take a prime role in the development of new services. We are in a privileged position from where we can see what developments are going on in other jurisdictions. We are keenly concerned to ensure that Gibraltar continues to develop an effective fi nancial services sector that meets the needs of the international community. As well as the funds, there is a project relating to Shariah-compliant products. There is also the possibility of developing multilateral trading platforms; there are developments in terms of the insurance industry, and the Alternative Investments Fund Managers Directive. We are also looking at other potential marketing or consumer-led opportunities. To date, Gibraltar has been very EU and predominantly UKfocused. But there is no reason that the set of skills and businesses that have been developed cannot be pushed into other jurisdictions. We facilitate all the fi nancial services industry players that wish to take their products and services into other EU jurisdictions or in jurisdictions outside the EU. We do this not by marketing it, but by playing an assistance role, by making sure that the reputation of Gibraltar is such that those countries welcome Gibraltar’s service providers. We also do it by talking directly to the regulators of the other jurisdiction themselves so that they can be reassured that what they are allowing in their jurisdiction is well regulated and supervised, hence that there is proper cooperation between ourselves and the other regulators.

300 250 200 150

50 2001

2002

FSC Regulated Entries

2003

FSC Regulated Entries

On the other hand, we are aware of the role of the Industry. We need them to ensure that we are not bureaucratic where it is not needed, do not inhibit the sense of growth and quality growth of the sector. If the regulator does not know the Industry and vice versa, there is simply confl ict. This is what we mean by partnership: collaboration rather than confrontation. Sometimes you need to take enforcement action and we have never hesitated to do so. Last year, for example, we took action in getting a GBP 6.5 million order against a fi rm and its directors. We also did a number of enforcement operations together with the Gibraltar Police in respect of unlicensed bureaux de change. We are ready to take action when it is necessary, but we regard it as a last resource. Milestone GRP - What are the strengths and weaknesses, the opportunities and threats of the Gibraltar financial services sector at the moment? Mr David Parody - Our fi rst strength is the entrepreneurship shown by our Industry, the ability to hit niche markets with niche products very quickly. Our second strength is the ability to react very quickly to market forces as regulators or government in terms of implementing legislation. With regards to opportunities, Gibraltar has huge opportunities to tap into the European market; there are many opportunities that we have to exploit more. Moreover, given our small size, it does not take much to make an impact on our economy. Our size can present a weakness too, in the sense that we are a small jurisdiction whose membership within the EU is driven by the UK‘s membership. This means that occasionally our ability to raise our interests independently is restrained. This is not a fault of the government or anyone else but rather a refl ection of the fact that we are a jurisdiction of just 30,000 people. This is why the government is doing this outreach at making sure that we are communicating with our colleagues within Europe and elsewhere. What we cannot do by stamping our feet, we do it by quiet persuasion. With regards to threats, the behaviour of Spain always presents a threat to Gibraltar, but it also presents opportunities. Spain should see Gibraltar as the natural international Finance Centre of the Iberian Peninsula. What the Channel Islands do for London, for instance in terms of material benefi ts of placing funds, we could do it for Madrid if the Spanish realized the opportunities we could present them and not just the other way around.

Milestone GRP - How do you see the role of the FSC as a partner of the industry rather than simply as a regulator?

100

proved more successful. This does not mean that the regulator has a soft touch. There is a lot of confusion as regards to the ways to enter into a partnership where you have the same objectives and that of being subservient to the industry. The partnership is one of equals. The Industry knows what our role is, that is to keep the game clean and competent.

2004

2005

2006

2007

2008

2009

2010

2011

Source: FSC

Mr Killick - We believe that here has been too much of a ‘them and us’ attitude between regulators and the industry. That is a global phenomenon, particularly at times of economic stress, where regulators have come down very harshly on the industry. Rather than confl ict, a more collaborative approach would have

Gibraltar 2012

Financial Services

milestone GRP

like Gibraltar to become a centre for the establishment of the hedge funds operations themselves, which is of course licensable under EU regulations. We would like to see the alternative investment management side emulate the path we saw in the insurance sector in terms of growth and critical mass. Milestone GRP - What features does Gibraltar offer investors from the financial sector looking for a European base for their operations?

Gibraltar - EU Financial Services Centre Reformed and Transformed

Interview with Mr James Tipping, Finance Centre Director, Government of Gibraltar

James Tipping has been the Director of Gibraltar’s Finance Centre since September 1999. He is responsible for strategic planning including input into the Government’s response to the various international initiatives, product development, and liaison with the private sector and the regulator on behalf of Government. James previously worked for 14 years in international investment banking in London, New York and Latin America. He commenced his career at Samuel Montagu, later becoming a Director of the Global Emerging Markets Division at West Merchant, the investment-banking arm of WestDeutsche LandesBank. He sat down with Milestone GRP to discuss the reform and transition Gibraltar’s fi nance industry has been through, and the opportunities for investment arising from them.

Milestone GRP - What impact have the reforms of the last 15 years and increased global integration in general had on Gibraltar’s economic growth and diversification?

from predominantly low added value private client work to much more sophisticated corporate activity. The private client side also evolved to much higher value business.

Mr James Tipping - I think that our transition from a so-called ‘tax-haven’ to a low-tax international fi nance centre really began towards the end of the 1990’s. At the time, there was an international consensus, especially amongst large countries, that what was perceived as the predatory nature of tax havens had to change. This went far beyond the small jurisdictions and involved greater international cooperation and a massive step in terms of exchange of information for tax purposes for example. It was then signalled that the model, which had been applied to many countries for decades, whereby a country in which a person’s assets were deposited had no interest in knowing if these people owed taxes in their home states, had to change.

To take a concrete example on the corporate side, the insurance business has evolved tremendously since 2001 or so. At the time, Gibraltar was fairly insignifi cant in the sector and we had about 15 companies operating here. Today, we have more than 100, if you include the ones that are in cell structures, and of course all are licensed by the regulator, whether they are retail or captive insurance businesses. On the motor insurance side, about 10% of the UK’s vehicles are insured by Gibraltar insurance companies. This gives you an idea of the size and strength of a sub-sector that is not tax-sensitive and does not rely on secrecy, even though we have never had secrecy here.

Gibraltar recognized this early on and embraced a massive diversifi cation strategy, not just within the economy as a whole, but also within fi nancial services as well. So if we look back 15 years or so, the sector was not very sophisticated and involved fairly low value-added work. With the realization that the business model was going to be forced to change due to increased international cooperation and the signing of Tax Information Exchange Agreements (TIEA) for instance, there was a move

This whole process of reform, including Gibraltar’s white listing by the G-20, culminated in the implementation of the uniform tax regime in January last year. The good thing is that we have had a reasonably long period of time to adapt from the longheld business model that was around previously. Of course, this creates a lot of opportunities; indeed many countries fi nd it hard to move form the model they applied in the past. But Gibraltar’s transformation has encouraged diversifi cation, particularly in the Financial Services sector. Funds and asset management are areas that we would like to see develop quite heavily. We would

Mr Tipping - I think Gibraltar has the right set of characteristics to attract more investment management; in fact, Gibraltar is marketed in terms of its package rather than a particular aspect. Tax is set at a level that is meant to be reasonable for both the tax-payer and the Government; indeed, we are within the EU single market and regulate accordingly which comes at a cost of course. But because we are part of the EU, companies operating from Gibraltar have access to a market of 500 million people. As for hedge funds and investment management, our reputation is key because investors will look no further if they cannot do their due diligence and tick that box fi rst. Then regulation is the second most important aspect. In fact, it is a sine qua non prerequisite as the type of investors Gibraltar wants to attract are big-ticket investors who are looking for high levels of regulation, rather than easy or quick opportunities. This is the modern way and it illustrates Gibraltar’s transition quite well, especially if you consider that private investors 15 years ago were looking for the opposite, as they would have elsewhere too. Other factors play a role too of course; for instance the level of personal taxation which is benign here, especially if you compare it with the UK. Lifestyle also plays an important role and Gibraltar offers a lot; our climate is very pleasant and the hinterland gives easy access to Spain and Morocco. These are important advantages in an industry such as Hedge Funds that does not rely on location; and of course, our direct connection to London is a great advantage too. Frankly, if you put all of this together, I think it is very hard to fi nd somewhere else within Europe that ticks all of those boxes, especially for an industry such as funds and investment management. And to be realistic, given Gibraltar’s own restriction in terms of space, this is a good industry to develop, as it is not human resourceintensive. It makes more practical sense to attract businesses, which will bring their intellectual capital, spending power and develop organically. Of course, being inside the EU is a great advantage too when it starts to build walls for these types of

activities; people will want to be inside these walls and Gibraltar is very well positioned to capitalize on its assets. Milestone GRP - What does the Finance Centre have to offer BRICS countries and other emerging economies in this context? Mr Tipping - We offer a gateway to the European Union. The regulation hurdle is tough, as we want to ensure applicants know what they are doing and are of the highest quality. But a Gibraltar licensed entity, such as a bank or an insurance company for example, has access to the entire EU market automatically; by passporting its services with a simple notifi cation, a company can access this market or even set up branches in different countries. For instance, a Gibraltar-licensed bank has established a branch in London, passported from Gibraltar under the Common Market framework. So if a fi rm is looking to do business within the EU and does not already have a base, then Gibraltar is a very real alternative from which to springboard into Europe. In the Insurance sector for example, I think this makes sense. Moreover, we recently signed a TIEA with one of the BRICS countries (TIEA signed with South Africa on 2 February 2012) and several more are on the cards. Milestone GRP - To what extent would you say the Gibraltar model could inspire other nations around the world? Mr Tipping - Gibraltar came to the realization that the world had changed quite early. This was true across the board, from the Government to the regulator and private sector. That realization and the resulting need for action were clear to the vast majority of the industry in Gibraltar. There are other countries around the world that have only woken up to that realization after years of denial and this is a terrible shock for them. Gibraltar signed up to the OECD principles of information exchange and transparency in February 2002. Even though we did not do anything about it for a number of years, change was on its way and there was no reversing the process. Ideally small places are able to adjust very quickly and be fl exible. Moreover, many fi nancial services fi rms are living in a relatively hostile environment, and an environment where the politics of envy rule, which is very trying for them. Here, the Government is 100% behind the development of Financial Services and wants real investment in the sector. Gibraltarians want their children to study fi nance and be involved in the sector which is a very positive framework emanating from the population as well as the Government. This is not something you will fi nd everywhere at the moment.

From Gibraltar Throughout Europe: Passporting Explained Passporting of fi nancial services is a European Union mechanism which allows for fi rms authorised to provide fi nancial services in one jurisdiction to provide them in another without the need for authorisation in this second jurisdiction. This it can do by establishing a branch or providing cross-border services. In order to do this the fi rm is required to notify its home member state supervisory authority that it wishes to provide these services in a named jurisdiction. Firms who are authorised by the Financial Services Commission have the right to passport their, banking, investments and insurance services throughout the European Union & European Economic Area. Gibraltar is incorporated into the European Union by virtue of the United Kingdom’s membership. Under Article 299(4) of the Treaty of Rome – which established the European Community – the provisions of the Treaty of Rome are applied throughout the European Territories for whose external relations a Member State is responsible. Source: Gibraltar Financial Services Commission

Gibraltar 2012

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Gibraltar as an Overall International Finance Centre by Professor Michael Mainelli FCCA FCSI, Executive Chairman, Z/Yen Group

Global

and Mr Mark Yeandle, Associate Director, Z/Yen Group

Z/Yen Group conducts considerable research into the competitiveness of financial centres. The output of this research is the Global Financial Centres Index (GFCI). The GFCI rates

and ranks 77 financial centres in various categories, drawing on instrumental factors and financial centre assessments from an online questionnaire survey.

Broad & deep

Relatively broad

Relatively deep

Emerging

Global leaders

Global diversified

Global specialists

Global contenders

Chicago

Amstersam

Beijing

Luxembourg

Frankfurt

Dublin

Hong Kong

Seoul

London

Shanghai

New York

Singapore

Moscow

Paris Tokyo Toronto Zurich

Transnational

The GFCI Method Instrumental factors: Many factors combine to make a financial centre competitive. These factors can be grouped into five over-arching ‘areas of competitiveness’: People, Business Environment, Infrastructure, Market Access and General Competitiveness. Evidence of a centre’s performance in these areas is drawn from a range of external measures. For example, evidence about a fair and just business environment is drawn from a corruption perception index and an opacity index. 80 factors have been used in GFCI 11. Financial centre assessments: GFCI uses responses to an ongoing online questionnaire completed by international financial services professionals. Respondents are asked to rate those centres with which they are familiar and to answer a number of questions relating to their perceptions of competitiveness. Overall, 26,853 financial centre assessments from 1,778 financial services professionals were used to compute GFCI 11, with older assessments discounted according to age.

Established Transnational

Transnational Diversified

Transnational Specialists

Copenhagen

Boston

Athens

Bahain

Geneva

Istanbul

Dubai

British Virgin Islands

Madrid

Kuala Lumpur

Edinburgh

Cayman Islands

Montreal

Washington DC

Glasgow

Gibraltar

Mumbai

Guernsey

Sydney

Qatar

Isle of Man

Vancouver

Shenzhen

Jersey

Munich

Local

What distinguishes the GFCI methodology is that, rather than being based on the research team weighting instrumental factors or just taking respondents’ raw assessments, GFCI uses a statistical approach where the financial centre assessments have been used to produce the instrumental factor weightings.

The Global Financial Centres Index 2011 The top ten financial centres in GFCI 11 are:

Transnational Contenders

Established Players

Local Diversified

Local Specialists

Evolving Centres

Brussels

Bangkok

Abu Dhabi

Buenos Aires

Calgary

Warsaw

Bahamas

Jakarta

Helsinki

Budapest

Johannesburg

Lisbon

Hamilton

Manila

Melbourne

Malta

Mauritius

Mexico City

Monaco

Osaka

Milan

Oslo

Taipei

Prague

Reykjavik

Wellington

Rome

Rio de Janeiro

San Francisco

Riyadh

Sao Paulo

St Petersburg

Stockholm

Tallinn

Vienna

Centre

GFCI 11 Rank

GFCI 11 Rating

GFCI 10 Rank

GFCI 10 Rating

CHANGES Rank

CHANGES Rating

London

781

774

–

New York

772

773

–

-1

Hong Kong

754

770

–

-16

Singapore

729

735

–

-6

Tokyo

693

695

-2

Zurich

689

686

Chicago

688

692

–

-4

Shanghai

687

724

-3

-37

Seoul

686

679

Toronto

685

680

–

Global Financial Centres’ Profiles and Ratings (GFCI, 2011) With increased information over time, the GFCI profiles centres in terms of their links with other centres, as well as the extent and quality of the services that they offer. The 77 global financial centres are each assigned a profile on the basis of a set of rules for three measures or ‘axes’:

‘Connectivity’ this represents how well known a centre is around the world and how connected it is to other financial centres;

‘Diversity’ the breadth of industry sectors that flourish in a financial centre;

‘Speciality’ the quality and depth of certain industry sectors in a centre.

Global Financial Centres’ Profiles and Ratings (GFCI, 2011) The nine ‘Global Leaders’ (in the top left of the table above) have both broad and deep financial services activities and are connected with many other financial centres. Amsterdam, Dublin, Seoul, Shanghai and Singapore are ‘Global Diversified’ centres as they are equally well connected but do not exhibit sufficient depth in different activities to be considered ‘Global Leaders’. Similarly, Beijing is a ‘Global Specialist’, it does not have a sufficiently broad range of financial services activities to be a ‘Global Leader’. Gibraltar In the table above, Gibraltar, along with other offshore centres, is profiled as a ‘Transnational Contender’ – well known internationally but with insufficient depth and breadth of financial services to be a world leader. Offshore? Onshore? What is ‘offshore’? Many of the world’s smaller states or territories have sought to become successful financial centres by using their

constitutional independence to develop legislation, regulation and tax vehicles that attract non-resident business. Many have used their comparative advantage to create world-class expertise in international financial services. There are also a number of states that are relatively small, independent and although not geographically ‘offshore’, exhibit several of the key competitive advantages of island states. For example, Geneva, Zurich, Luxembourg and even places such as Hong Kong are viewed as ‘offshore’ centres by many who deal with them. Whatever the definition, the most enduring offshore centres offer ways of transacting essential but complex wholesale finance transactions. Arguably, there are about 15 financial centres that fall into GFCI’s ‘offshore’ category, seven of which are within the ‘Transnational Contenders’ profile. These centres often specialise in wealth management, asset management, fund management and specialist insurance. The top ten of these in GFCI 11 are:

GFCI 11 rank

GFCI 11 rating

GFCI 10 rank

GFCI 10 rating

Change in rank

Change in rating

Jersey

652

650

–

Guernsey

639

635

–

Cayman Islands

628

610

18 9

Hamliton

625

616

-2

Isle of Man

624

617

-4

British Virgin Islands

623

611

–

12 10

Monaco

593

583

-1

Gibraltar

587

584

-5

Mauritius

578

571

Malta

568

-2

–

Bahamas

550

545

-3

Gibraltar 2012

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Offshore centres have suffered significant reputational damage in the past four years. In GFCI 10 several of these centres were beginning to recover and this trend has continued in GFCI 11. Gibraltar, along with Jersey, Guernsey, the Cayman Islands, the British Virgin Islands, the Isle of Man and Mauritius, has made gains in the ratings. This recovery in relative popularity has increased as more financial professionals come to appreciate the utility of the offshore centres. Global popularity has risen but how do offshore centres see themselves? Top offshore centres achieve higher than average assessments from other offshore centres, but inter-offshore trade is hardly a way to grow business:

Offshore centres need to extend both breadth and depth, which in turn will move them towards a GFCI profile of ‘Established Transnational’. Paradoxically, the best way to be an offshore centre may be to behave like a better onshore centre, promoting long-term finance and regulatory simplicity. Attacks on the offshore centres will not disappear, particularly with the protests sweeping the world complaining about the perceived excesses of global finance. One of the offshore centres’ persistent problems is the inability to promote the positive messages of their work to the general population. Knowledgeable and sophisticated clients are happy to continue using these centres but few ordinary people understand their value.

External Assessments of Jersey

It is argued that financial flows through offshore centres increase the rate of GDP growth and employment in larger economies. However, the offshore world is linked to the state of the global markets, so transactional work will slow down as international markets slow. There are other challenges on the horizon too:

Middle East / Africa (1,3%) Latin America (0,2%) North America (4,2%)

• international regulators are sometimes accused in some quarters of bullying the offshore centres and international regulators are still focused on the activities of offshore centres – can these centres be over-regulated?

Asia / Pacific (6,2%) Offshore (57,7%) Europe (30,3%) -150

-100

-50

100

150

External Assessments of Gibraltar

The GFCI questionnaire asks respondents to name the single regulatory change that would improve a financial centre’s competitiveness. Although a large number of possible changes were named, the two mentioned most often were a reduction in personal taxation and increased predictability of the regulatory environment. The GFCI questionnaire also asks respondents how financial centres can best signal their long-term commitment to financial services. Again, stability of regulation and taxation are seen as the best signals although lack of corruption is also seen as crucial.

Similarly, a centre with a lower average assessment than the GFCI 11 rating indicates that respondents’ perceptions of that centre are less favourable than the quantitative measures alone would suggest – a reputational disadvantage. The centres with the highest reputational advantage include Singapore (+34), Shanghai (+34) and Toronto (+27). The centres with the largest reputational disadvantages are Athens (-115) and Tallinn (-110).

It is clear that Gibraltar performs well in many of the areas that financial professionals think are important. Tax rates are competitive, regulation is stable and of a good standard and infrastructure is as good as, or better than, most other centres in its category. What must Gibraltar do to boost its position in the GFCI?

Gibraltar has a reputational disadvantage of -54. Therefore, reputation is clearly a big issue for Gibraltar as it suffers from a stronger reputational disadvantage than other centres in its class. To be precise, Gibraltar’s low reputational score does not necessarily mean that the quality of its services and infrastructure are any less than a center with similar ratings, but that it is perceived as such by respondents.

In the GFCI model, one way to look at reputation is to examine the difference between the average assessment given to a centre and its overall rating (the average assessment adjusted to reflect the instrumental factors). If a centre has a higher average assessment than the GFCI 11 rating this indicates that respondents’ perceptions of a centre are more favourable than the quantitative measures alone would suggest. This may be due to strong marketing or general awareness.

Policy makers in financial centres have to decide whether to prioritise the fundamental development of a centre’s competitiveness or to bolster the reputation of the centre. This prioritization will change over time. Our research suggests that Gibraltar offers a stable regulatory environment, respectable infrastructure and a skilled professional base, but that currently Gibraltar needs to address the issue of reputation as a priority in order to be seen as a more competitive financial centre.

• the World Bank is showing increased scrutiny of the use of corporate vehicles to conceal misuse of funds – will this impact on offshore business? • the EU crisis – will investors start a flight to safety and use offshore funds more and if so which centres will they choose?

Middle East / Africa (1,6%) Latin America (0,3%)

Gibraltar Gibraltar is a British Overseas Territory and a self-governing and self-financing parliamentary democracy within the European Union. Gibraltar is a separate legal jurisdiction and its Parliament is solely responsible for the enactment of all domestic laws and for the transposition of European Union directives.

North America (1,9%) Asia / Pacific (4,3%) Offshore (65,4%) Europe (26,6%) -150

-50

150

250

350

450

Top offshore centres have tried to attract long-term finance and regulatory simplicity, rather than competing solely on tax mitigation and secrecy. Clever offshore centres that enable longer-term financial planning with ‘Long Finance’ structures (structures that can endure for a generation or two) benefit from avoiding the capriciousness of larger nations’ domestic agendas. A large nation can change tax rules at short notice. Well-regarded offshore centres have achieved a reputation for stability in their tax rules and remember that financial professionals hate surprises. Z/Yen’s offshore work indicates that the leading centres have identified several sub-strategies to support ‘long finance’ strategies: • stronger promotion and showing that larger nations do have shortcomings with long-term planning and capricious regulatory change; • tackling long-term skills shortages with better training of indigenous populations rather than relying on imported skills; improving power, transportation and communications infrastructure; • subsidizing and hosting high profile conferences and events, simplifying visa and work permit processes; • increasing service levels both for those entering the centre and long-term residents;

As a British Overseas Territory, Gibraltar matches UK standards in financial services regulation. Most of the banks established in Gibraltar are branches of major UK, European or US banks. Much of the banking activity in Gibraltar is directed to asset management for high-net-worth individuals, partially because Gibraltar has actively tried to attract such people with special tax regimes. Gibraltar’s financial services sector contributes approximately 30% to the GDP of Gibraltar. Gibraltar’s financial services are showing growth in several different sectors - insurance, reinsurance, fund management and investment services. There is no stock exchange in Gibraltar and it has not been as widely used for corporate financial holding purposes as some other jurisdictions, so that corporate financial services are not as well developed as private services. The Gibraltar Financial Services Commission regulates investment business in Gibraltar and is organized by industry groups, with separate divisions for insurance, fiduciary services, banking and investment services. What must Gibraltar do to become more competitive? GFCI respondents are financial services professionals from all over the globe. They say that the most important areas of competitiveness are now (in order) personal and corporate tax levels, the stability and predictability of regulation, the quality and availability of staff and general economic conditions.

Gibraltar 2012

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A Look at Gibraltar’s Neighbours

Europe’s situation and the Rock’s position within it by Mr Tim Harris, Chief Investment Officer for the UK, Lloyds TSB Private Banking Policy solutions to the fi nancial crisis of 2008-9 included an explosion in public sector debt across many countries, as governments across the world bailed out their respective banking systems to differing degrees. Unencumbered by the legacy of high local debt levels, many less damaged economies within the developing world are expanding at attractive rates. However, the developed world in general must manage growth initiatives alongside high public debt burdens, which must be seen to be manageable to retain the confi dence of markets. For example, we have already seen both the US and France lose their AAA debt ratings, according to the major credit rating agencies. Gibraltar fi nds herself sitting close to a most heterogeneous European economy. The contrast between Gibraltar’s strong growth and external account balances and her near neighbours is quite stark. Despite the commonality of monetary policy across the currency union that is the Euro Area, the fi nancial crisis of 20089 has left very different legacies from north to south, and east to west. While we expect Germany and the UK to avoid recession in 2012-13, such a call is looking a close run in France and we expect Spain, Portugal and Italy to see their respective economies contract through the current year. In extremis, we expect the crisisridden Greek economy to contract by 5% this year, which would effectively reduce its GDP to 20% below pre-crisis levels. With an austerity programme underway to lower budget defi cits, it is diffi cult to argue for growth on any reasonable time horizon there. The more challenged countries in the Euro Area (Greece, Portugal, Ireland, Spain and Italy) face two challenges. They need to regain competitiveness and correct large public-sector defi cits and debts. Addressing these ‘twin imbalances’ within a monetary union confronts a ‘Catch 22’ scenario: dealing with one imbalance is likely to exacerbate the other. Within a single currency union a country does not have the option of devaluing its local currency in order to refl ate its way out of trouble. Regaining competitiveness relies largely on running lower infl ation than the Euro Area average to adjust the real internal exchange rate. But stronger nominal GDP growth is also needed to address fi scal problems and put public debt on a sustainable path. The low infl ation required to regain competitiveness will exacerbate fi scal diffi culties. Thus, we do not expect to see lower than average infl ation and higher than average growth in any of the above countries this year. Impact on dept-to-GDP in 2020 Impact on dept-to-GDP in 2020 from from weaker-than-base-case growth weaker-than-basee-case growth 12

Weaker* potential growth raises debt-toGDP by 5-10 percentage points by 2020

10 8

6 4 2 0

POR

ITA

IRE

GRC

FRA

ESP

GER

Source: Goldman Sachs Source: Goldman Sachs. * weaker is relative to the IMF base-case for Portugal, Ireland, Greece, Italy, France and Spain (1% pa for Portugal, 0.5% pa for the other countries)

The point of balancing debt reduction against GDP growth is made within the chart below. An econometric analysis by Goldman Sachs models the impact that a 1% per annum reduction in GDP growth in Portugal and 0.5% per annum reduction across other European countries might have on public debt levels by 2020. This highlights how governments have to balance fi scal prudence against the loss of growth. Many developed countries have yet to regain the level of economic output of 2007, which would imply a permanent loss of growth potential across the developed world economies. These issues resonate with Gibraltar’s closest neighbours. The Spanish government has recently defi ned its own austerity budget, which aims to reduce the annual defi cit from 11.2% of GDP in 2009 to 5.3% this year and 3.5% by 2015. That should deliver stability in the eyes of the money markets, which is the critical objective, given Spain‘s need to refi nance public sector debt at less than penal rates. 10-year Spanish bond yields of 5.8% compare with similar maturity debt yields of 1.8% in Germany and 2.9% in France. Without the confi dence of public markets, the burden of debt servicing becomes ever heavier in a self-fulfi lling fashion. Austerity shows markets that a country can manage its total debt requirements, but the consequence of a public sector squeeze on investment in tandem with probable higher tax and excise income mean that an economy is driving below its growth potential. Thus, we expect Spain to remain in recession through the middle of 2012, with a contraction of 1.5% for the full year likely. The prospects for recovery in 2013 depend not only upon a strong implementation of the austerity plan, providing a stable base for future investment, but also upon the world economy picking up. Given that a mature economy, such as Spain, relies heavily upon consumption and hence consumer confi dence for growth, we must look for an upturn in business behaviour to manifest itself in labour markets, where offi cial rates of unemployment are at Euro Area highs of more than 23%. Fears of debt contagion place Portugal under close market scrutiny. It has one of the highest stocks of public debt in the region at well over 90% of GDP. Lack of growth and unresolved macroeconomic imbalances cast doubts over this sovereign’s solvency and the viability of its adjustment programme. Regaining competitiveness is a daunting task, especially as both the public and private sectors are deleveraging. While the Portuguese government has a good track record of implementation to date under the EU-IMF support programme, we believe that low productivity and deeprooted structural problems are unlikely to be resolved by 2013-14. Public debt thus looks unlikely to us to stabilize by the time Portugal is due to return to the markets for refi nancing in the second half of 2013. Since IMF involvement requires 12-month ahead-of- funding assurances, Euro Area countries may need to decide by mid-2012 whether to commit additional fi nancial resources. The Euro Area has issued strong rhetoric in support of Portugal and concern about potential contagion to other peripherals reduces the likelihood of Portuguese private sector write-offs in 2012. However, Portugal retains a propensity to upset global investors through this year.

Gibraltar’s largest trading partner, the UK, also continues on its course of managed austerity. The government has been unable to reduce the public sector net borrowing requirement in real terms over the last two years. With £200 billion budgeted for social protection spending out of a total budget of £683 billion in 2012-13, it is clear that reducing this number is critical to balancing the books. That depends upon growth and the government’s tax and investment policies remain pragmatically focussed on attracting inward investment. For example, following the latest cuts in headline corporation tax rates to 22% by 2014, the UK supports one of the lowest such rates in the developed world. Nonetheless, we expect the UK economy to stagger along at a 1% growth rate for some time. The good news here is that, alongside Germany, the UK has one of the most open economies in Europe. The US is running at a 2% growth rate in an election year, when we would not expect too many austerity measures, and Asian economies are averaging 5-6% growth rates. These factors should help both of these key European economies. In summary, the nationalisation of private sector debts has bestowed a legacy upon Europe that will take an economic generation to resolve. Some countries are adjusting better than others. However, the fact that the Euro Area retains just four AAA rated countries tells its own story. We foresee much graft ahead from here. How does this affect local economic performance? Spain and the UK are by a distance the two largest trading partners of Gibraltar, representing 89.4% of imports of all non petroleum goods from

European Union countries in 2010. On a broader scale, the UK and Spain represented 41.3% of such imports from all countries. However, Gibraltar imported nearly 2.9 times more than it physically exported in 2010 by value. Thus, it is protected to a degree from the direct impact of soft demand across key trading partners. As the economic crisis has engulfed Europe, Gibraltar is broadening its trading ties; while European trading partners exported 16.7% less by value to Gibraltar in 2010, on the other hand imports from all other countries rose by 25.1%. Gibraltar achieved an estimated 6% GDP growth in 2011 and the government expects to increase economic growth in 2012 and throughout its four-year term of offi ce. The key driver to Gibraltar’s economy is the service sector, which has been growing at a rapid rate, even as export activity has fl attened. There seems little sign of a slowdown in tourism and other service sectors are fi nding Gibraltar an attractive place to do business. Financial services already account for 30% of Gibraltar’s GDP, and according to the Minister in charge, Hon. Licudi, “whilst this fi gure is not set to rise, the cake can get bigger and Gibraltar can have a bigger slice”. The current development of the global Online Gaming market could also benefi t Gibraltar’s own industry, which already hosts the industry’s leading operators and represents about 20% of the economy. Such specialisation has proved a protection from the cold winds blowing across Europe and we believe that Gibraltar remains well placed to attract foreign direct investment, which is the basis of continued domestic growth.

The Rock of Gibraltar with Spain in the background.

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milestone GRP

Boards as Modern Drivers for Change

The evolution of Gibraltar’s finance sector’s boards by Mr Marcus Killick, CEO, Gibraltar Financial Services Commission One of the most difficult jobs as a regulator is dealing with the volume of hate letters every day. However, I have got a routine and have normally finished writing them by lunchtime. Indeed, over the past few years, regulators have moved from quiet anonymity into the spotlight of public anger, alongside politicians, bankers and anyone in the financial world with the temerity to earn a bonus. Individual blame is irrelevant; we are collectively accountable. This is not the first financial crisis, “Fat cat” bankers have been blamed in the past, and the edifice of modern regulation is built upon the shattered ruins of previous regulatory structures. So we stop banks from lending, pile on more rules and restrictions, and epitomise Einstein’s definition of insanity: “doing the same thing time and time again, and expecting different results”. Let me put to you a different model. It is based on the beliefs that more regulation is not necessarily better, that more complicated financial products are not made less risky by more complicated regulation, that consumers are entitled to make bad investment decisions if they do so in knowledge of the risks they are taking, that light touch regulation is not inferior to heavy handed regulations. Let me call it the Gibraltar approach. Firstly, let me be clear, as part of the EU we are constrained in what we can do. We cannot choose to ignore the plethora of directives and regulations emanating from Brussels. We must, and do, comply with international standards. We hold the reputation of our jurisdiction dearly. Our approach is not some fundamentalist libertarian experiment. It is based upon the basic premise that, where possible, the simpler we keep things, the less likely they are to fail. Let me take as an example corporate governance. Corporate governance is, in essence, the way in which a company is directed, administered and controlled. All companies have a form of governance, whether they recognise it or not. It may not be very good but it does exist. It was the failure of such governance that, to me, represented the primal cause of our recent crises. Not the regulatory structure and not the appalling lending decisions by some banks. These were merely visible symptoms of the underlying malaise. Financial institutions, regulators and governments simply failed to properly understand and mitigate the risks they were faced with. To be exact, in the case of financial institutions, their boards failed. I have never met Fred Goodwin or the others, but I suspect they would still have preferred to have been in control of their empires. I am sure Fred liked being a knight and took pride in being Scottish Businessman of the Year so many times. I am convinced Chuck Prince (former CEO of Citigroup) regrets his, “as long as the music is playing, you’ve got to get up and dance” comment regarding subprime lending. These were not evil masterminds set out to destroy western capitalism. They were not criminals, despite a desire by some to make them such. Their failure was in the way they ran their companies, a failure that had catastrophic consequences.

Yet this failure occurred at a time when the importance of corporate governance was already well known. Requirements, whether rule based (Sarbanes-Oxley) or principle based (The UK Combined Code), were already well established. Listed companies had Audit Committee, Risk Committees, Nomination Committees, etc. The separation of the roles of Chairman and Chief Executive had been accepted as the norm. The importance of the role of Non Executive Directors (NEDs) was understood. Yet, for all this, governance still failed. Why? What was not understood by the industry or its regulators was that these were merely structures; their effectiveness wholly dependent upon the behavior of the board itself. If the board did not behave correctly then the protection the structures could have provided became a veneer. What use is a risk committee if those on it don’t understand the risks being taken? What good is separating the Chairman and Chief Executive when one is weaker than the other and does not properly fulfill its separate role? What good are NEDs that do not constructively challenge the Executive? My belief is that our regulatory approach should be to regard boardroom behavior as one of the keys to our assessment of those we license. It is not a difficult concept, does not require reams of regulations (indeed, behavior cannot be dictated by regulation) and it does not need a heavy hand. However, it is cultural in nature and is, initially, uncomfortable for many.

is merely one of the factors; nationality and industry background are others. Yet it must be based upon skill and what the individual brings as a person, not because they will make up the numbers. In Gibraltar we have that capability. Whilst small in size we have a highly diverse culture. Similarly we are not solely reliant on one economic sector so we can cross-fertilise talent between areas so giving us diversity. By way of example, the former Government Financial and Development Secretary has become a highly successful CEO of the leading local telecommunications company and a NED of one of the large gaming companies. Similarly, the number of senior females in the finance sector continues to grow. Within the Financial Services Commission itself approximately half the senior employees are female. Such diversity is based on talent, not quotas. Another area we are working with the industry on is the transition process of small owner-managed businesses as they grow and have to change their corporate governance structures to ensure they remain fit for purpose. Some successful small firms struggle, as it requires the existing management to accept the limitations of its present structure. Sometimes it is our presence and focus on this that helps difficult but beneficial changes to be made. We do not believe it is our role to run the businesses we license but rather to understand the business and ensure it is run well. Some regulators blur the two; this is dangerous and presents risks for the future. In respect of the role of NEDs, the importance given in the Gibraltar supervisory structure to “authorised directors” of Expe-

rienced Investor Funds, has helped raised the profile of this role generally. Given the importance we place on board behaviour, the NED plays a key role. We wholly endorse the Institute of Directors’ view of an NED; namely that their role is to provide a creative contribution to the board by providing objective criticism and are appointed to bring the following to the board: • Independence

• Impartiality

• Special knowledge

• Wide experience

• Personal qualities

Someone once said that NEDs should be treated like fridges; “fill them with food and drink and hope they keep quiet”. To me this role, so long undervalued and under utilised, has come of age. They have become the eyes and ears of the stakeholders’ interests and, as regulator; we are one of those stakeholders. Financial services do not operate in a vacuum. There have to be regulations and supervision. The public expects the institutions in which they place their trust to be safe. To date, the history of regulation has been patchy. Having been involved in regulation for 25 years and a regulator in a number of jurisdictions for over 15 of those, I accept my share of the blame. Yet I do believe there is a way we can avoid Einstein’s definition. Get the organisation culture right, get the boardroom behaviour right and the rest will follow. However, I may be being too simple for the current trend. Anyway, back to my hate mail.

The process has to be one of changing the culture of organisations so that bad board behaviour is regarded as unacceptable. Bullying on the board is no more acceptable than in the workplace. NEDs who fail to properly fulfill their role should be no more immune than employees who fail to do their job. Boards should assess themselves and be assessed just as members of staff are. Board meetings should not be comfortable places for the Executive but they should be constructive places. Historically regulators have given inadequate consideration to board behaviour in corporate governance. It is, however, now rising in profile. For example, Sir David Walker’s report on the governance of banks and other financial institutions, published in November 2009, states: “Boards and board behaviour cannot be regulated or managed through organisational structures and controls alone; rather behaviour is developed over time as a result of responding to existing and anticipated situations”

There is also the issue of boardroom diversity. There has been much written on the small percentage of female directors. There have been targets set and some have proposed minimum quotas. I find the last proposal patronising and repellent, but the need for boardroom diversity (and not just along gender lines) compelling. This is not because I see the boardroom as a battleground for social justice but rather many board failures stem from “group think”, where too many people from too similar backgrounds share a common world view and therefore wholly fail to think outside the box. Diversity of talent and approach helps prevent this. Gender

Gibraltar 2012

Financial Services

milestone GRP

Insurance Companies by Type

Gibraltar’s Insurance Industry Yesterday, today and tomorrow

by Mr Chris Johnson, Chairman, Gibraltar Insurance Association & Director, Robus Group Gibraltar has been a home to insurance companies for over 40 years, however it is only in the last ten years or so that the impact of becoming part of the European Single Market has been felt. At the beginning of 2012, Gibraltar boasted 65 insurance entities, the main component being non-life insurers.

9% Life

68% Non-Life

23% Captives

those relating to insurance were no exception, giving rise to a great opportunity for the insurance sector. By 1998, Gibraltar had enacted all the necessary European Directives and had put in place a regulatory framework that had allowed the UK Foreign and Commonwealth Office to declare that Gibraltar’s regulatory body was a “competent authority” within Europe, and therefore able to license insurance operators to passport into the rest of the European Economic Area. This means that an insurance company which has its head office in Gibraltar, and is licensed by the Gibraltar Financial Services Commission, can insure risks in another EEA territory (the “host state”), without the need to apply for a licence in that territory.

Hidden in these figures are some 40 cells active in Protected Cell Companies, meaning Gibraltar has well over 100 insurance company clients, in addition to 28 insurance intermediaries and 7 insurance managers. Gibraltar now accounts for some 10% of the UK motor insurance market, a bigger percentage than Lloyd’s of London, traditionally a major player in that area. So how has Gibraltar grown over the years, and what has driven this success story? In the very early part of the 21st century, Gibraltar had not yet established itself on the European scene, and insurance companies numbered only around a dozen. However, the hardening market in 2001 and the passing of Gibraltar’s own Protected Cell Companies Act in the same year sparked off interest in Gibraltar, which the practitioners on the Rock at the time, who had been working hard to gain name awareness for Gibraltar, were able to convert into hard business.

But why would the investors in an insurance company want to set up in Gibraltar, as opposed to elsewhere? There are a few reasons.

Gibraltar is therefore now a “low tax rate” environment, as opposed to a tax-free zone, which is in keeping with its positioning as a mainstream, reputable onshore domicile.

The Regulatory Advantage Gibraltar’s Financial Services Commission (FSC) was established on 16 January 1991, in response to an ever more demanding supervisory world. Since then it has played a substantial and vital part in the development of the Rock’s insurance industry.

We’re here to help One of the things most visitors first notice on coming to Gibraltar (apart from the fact that a road crosses the airport runway) is the can-do attitude espoused by the business classes here.

Over the next few years, the rate of entry of insurers into Gibraltar was rapid and, whilst the initial flood has slowed to a steady trickle, the domicile is still growing, driven by a number of factors. The European Key The key to Gibraltar’s success has undoubtedly been opening the doorway to the European Single Market for Insurance. Gibraltar is part of the EU by dint of being a dependent territory of the United Kingdom, with derogations only from the common customs tariff, VAT rules and the Common Agricultural Policy (there being no agriculture on the Rock). In everything else Gibraltar is obliged to transpose all EU Directives, and

In other EU territories, regulatory bodies are faced with a large number of regulated entities and have to consider carefully how to apply their resources to supervise those entities in the most efficient way possible. This often leads to a formulaic approach to the regulatory process, especially the assessment of capital levels and the application of rules. Gibraltar’s FSC is no exception in that it has to ensure its regulatory processes are efficient and that levels of capital within insurers are sufficient to meet EU minima at the very least, and usually higher to reflect the risk presented by each enterprise. However, working in a much smaller market enables the FSC’s

Non-life

Captives

60 13 13

2010

2011

24 10

2001

2002

2003

2004

2005

2006

2007

Insurance Companies by Type

2008

2009

Source: FSC

Gibraltar has been a finance centre for over 40 years, has repositioned itself to fit in with an ever-changing regulatory and compliance world, and is home to a number of business professionals who are ideally suited to provide services to insurance entities.

The new regulatory regime of Solvency II will have a frictional cost impact on Gibraltar insurers, as in all European territories. However, the FSC is in the process of boosting its resources to handle the increased complexity of regulation and the principles of regulatory dialogue and accessibility will remain one of Gibraltar’s differentiating features.

Under Services, the insurer simply underwrites the risk crossborder, either dealing directly with the customer or via an intermediary in the host state. He may employ third-party firms for administration and claims handling, especially if volumes of individual customers are expected to be high, and he will be taxed in the home state i.e. Gibraltar.

Establishment provides that an insurer may establish a branch in the host state where it wishes to write business. The branch is fully responsible for transacting the business which the insurer underwrites, would have sufficient infrastructure of its own to do so and would pay taxes on the profits derived from that business.

Life

Gibraltar insurers find that it is much easier for them to have a dialogue with the FSC than it would be with their counterpart in one of the main European territories, and the FSC is keen to maintain contact at a practical level with its licensees, with application of risk measurement techniques and a planned programme of onsite visits. This accessibility and availability to discuss matters rather than the formulaic application of rules have meant Gibraltar is perceived as a business-friendly domicile, without diluting the consumer protection embodied in a firm regulatory regime.

The T Word For the first few years of its growth as an insurance domicile, Gibraltar had the benefit of (potentially) a zero tax rate. This was surprisingly not that much of a driver for a number of corporate investors, who would in any case be taxed under increasingly sophisticated Controlled Foreign Corporation tax nets, but there were some who were able to derive a tax advantage. In recent years, EU and OECD tax philosophy has focused on the “harmful tax competition” supposedly represented by territories having zero-rate schemes, and Gibraltar consequently passed in 2010 an all-new Income Tax Act, under which the headline rate of tax is now 10%. This is still competitive with a number of European domiciles and the effective rate can be even lower with the application of tax breaks, such as exemption of investment income, which are available specifically to insurance companies.

The insurer can do this under the EU concept of either Freedom of Establishment or Freedom of Services. According to the most recent financial information available (2010), Gibraltar’s insurers were writing £2.5bn of Gross Premiums, with assets held of some £6.4bn.

approach to be much more accessible and its application of the same rules more tailor-made for the circumstances of each licensee.

As the insurance sector has grown, insurance managers and companies have built up a pool of trained and experienced staff, and the industry organisations, such as the Gibraltar Insurance Association and latterly the Gibraltar Insurance Institute, have played a significant role in educating the wider infrastructure of lawyers, accountants and other professionals about what is needed to nurture and grow the industry in Gibraltar. Telecommunications have benefited from the demands of the gaming sector, and insurance reaps the benefit, along with other technology support and support services. What Else? Gibraltar has its own statutes and legal system, based on the familiar system of English law. It is a Sterling territory (currency is GBP); the official language is English, though many employees are bi-lingual in English and Spanish. It has easy access from the UK and other European centres, with a recently built airport signalling its Government’s intention to attract flights from all around Europe, and a land border with the European mainland. And after school? When the working day is done, it’s nice to know relaxation is at hand, and with premier golf courses, excellent restaurants and five star hotels all within easy reach, plus 300 days of sunshine a year, could there be a better place to domicile an insurance operation than Gibraltar?

Companies by type

No of authorisations

Gross Premiums (£ million)

Net Premiums (£ million)

Total Assets (£ million)

Life

216

205

1,010

Non-Life

1,824

1,100

3,473

Captives

498

336

1,933

Reinsurers

Total

2,539

1,642

6,416

Insurance Companies, 2010

Source: FSC

Gibraltar 2012

Financial Services

milestone GRP

The Use of Protected Cell Companies by Insurance Companies and Funds

by Nigel Feetham, Partner, Hassans International Law Firm & Visiting Professor, Nottingham Law School, Nottingham Trent University The PCC Evolution The proliferation of protected cell company (PCC) legislation – a fairly recent creation in offshore jurisdictions including Gibraltar, Bermuda, the Cayman Islands, Guernsey and in the ‘onshore jurisdictions’ of various US States – has been vital to the international recognition of the protected cell regime. Although most commonly utilised as a captive insurance company, the legal structure has also been used for collective investment schemes, and in other areas such as ‘repackaging’ (and structured finance transactions). The idea of one corporate entity representing a number of different economic interests is nothing new, and it is not the case that such companies can only operate under a legislative regime for protected cell companies. While the concept of a statutory regime for such companies may be relatively new, the basic mechanics by which they perform their function have been widely used by the banking, insurance and fund sectors for many years. In the insurance and umbrella funds sector, cell-type structures were a feature in the market long before PCC legislation was ever introduced. Such structures rely on contractual arrangements between the various participants. It is therefore common to refer to them as contractual cell companies. In truth, contractual cell companies and PCCs within the statutory regime can (and do) coexist side by side. The objective of cell-segregation can, therefore, be achieved through common law contractual principles without the need for legislation, as it had for many years before the PCC came onto the scene. Despite the common ignorance today of what a PCC is, it is no different in its intended effect from the tools already widely used in markets of all kinds. What is a PCC and how does it perform its function? The intended effect of the PCC statutory regime is to restrict the ability of a cell participant to enforce his claim against all the assets of the PCC. When PCC legislation was first introduced, it was sometimes customary to speak of cells as if they were separate legal entities; in fact, they were not. More recently, Guernsey has introduced legislation to do precisely that – as seen with the socalled incorporated cell company (ICC). But, typically, PCC legislation, while recognising that there is only one legal person, legislates the effect of a contract between the parties by providing for the segregation of cell assets and liabilities and restricting creditor enforcement to what are known as cell assets. This applies to both voluntary and involuntary creditors. The economic (but not the legal) effect of a cell is, therefore, broadly similar for the counterparty to the taking of a security interest over particular assets. Due to the nature of these companies, they do attract special consideration. There can be no doubt that the critical test of a PCC will come where there is a cross-frontier element (including insolvency) and the company has assets abroad. It is clearly impossible to give a complete global picture of the integrity of

such structures. While contract law, driven by the needs of international commerce, tends to harmonise over time, insolvency laws do not easily do so. A distinction needs to be drawn between the application of PCC legislation by a local court, and the likely interpretation of the legislation under rules of private international law by a foreign court, for example, if proceedings were instituted against the PCC in such a forum. In any action instituted in the courts of the jurisdiction of incorporation of the PCC, there cannot be any doubt that PCC legislation would be given effect. Such a court would naturally apply local law. The concern is that the protection afforded to cell assets may be lost where an action is instituted in a foreign court and these assets are situated within that jurisdiction. This, however, is not a new concern: even before Guernsey introduced PCC legislation in 1996, those involved in the discussion around the concept of the PCC identified this as an issue – but it was not felt by the Guernsey Financial Services Commission as a good enough reason for not implementing such legislation. Regulators in other jurisdictions (initially at least) took a more cautionary approach. The Isle of Man government, for example, at first decided against introducing PCC legislation and did not do so until 2004; even so, the use of the PCC was restricted initially to the carrying on of insurance business. This prevarication resulted in Guernsey having a head start over all its offshore competitors, although this was not without its challenges. Twelve months into its legislative life, PCC legislation in Guernsey came under the scrutiny of leading UK counsel, instructed by a potential PCC user, regarding the likely interpretation of the legislation by the English courts.

Guernsey cannot write insurance business direct into the EU (via the EU passport), while it is only recently that Gibraltar (as the then only European PCC domicile) began to actively engage the market, with Malta following closely behind after it joined the EU. There seems little doubt that the PCC is now an established part of the international insurance market and will continue to be so. PCC-type structures have proliferated in recent years in many jurisdictions. They have received acceptance in many international transactions, and the market for these structures is no longer the exclusive domain of captive insurers or the large banks. Instead, we are seeing an increase in the numbers of PCCs being set up for high net worth individuals (HNWIs). The PCC and the investment fund The use of investment funds as a tool for raising and investing capital, is now widely used in the international markets the world over. The large majority of such vehicles are established in zero tax jurisdictions, guaranteeing a tax-free return on its investments. Over recent years, investment funds have been the catalyst for the growth of many PCCs. They include hedge funds and property investment companies. While larger funds will invariably be set up as single vehicles (in the same way as multinationals would set up their own insurance captives), there are undoubtedly gains to be made by smaller funds pooling together under a PCC. Such structures are also fairly easy to establish. As in multi-issue Note Programmes, which were previously adopted by banks over many years for repackaging deals for institutional and very wealthy individuals, the documentation has become very standardised and easy to produce. In the EU, Luxembourg and Dublin have both made provision for segregated cell-type structures for use by investment funds. A number of jurisdictions have also implemented ‘experienced investor’ (otherwise also known in some jurisdictions as ‘qualified

The PCC structure can clearly be a very useful tool in international transactions where investing in a single corporate entity, via separate classes of shares with differing investment objectives and to which specific assets are attributed, is essential. Fund managers in particular have set up PCCs to introduce the platform to their clients. For each separate investment a new protected cell is set up. The promoters can in fact use the PCC for any business transaction based on the investment objectives of its investors. The investment management role can be delegated and performed by the fund manager. The investors have the economic rights over the cell and are also exposed to the risk of loss in respect of the activities of the cell. The promoters, on the other hand, retain the ownership risk related to the PCC and its core assets in order to obtain the benefits of the PCC’s management. There is a significant case in favour of the PCC as a means of raising and segregating funds within a single vehicle. The PCC life company The PCC is also an efficient vehicle through which to execute life policies for the account of separate cells supported by segre-

A simplified illustration of a Protected Cell Company

In the context of an EU insolvency of a PCC insurance company domiciled and incorporated in the EU (in Gibraltar, for example), cross-frontier applications to or from other EU countries would now be governed by the EU Insurance Insolvency Directive. As a general rule, therefore, an EU-based PCC insolvency should be recognised throughout the EU and, accordingly, PCC legislation would have to be respected. In the context of a non-EU insolvency, the House of Lords’ unanimous decision in McGrath v Riddell [2008] UKHL 21 came to the aid of the PCC. The House of Lords considered whether an English court should remit assets, when faced with a request to do so by a foreign court, when that foreign court could arrive at a radically different distribution of the assets (to the UK) of the insolvent entity. The House of Lords ruled that the English assets of the HIH Group must be remitted to the Australian liquidators to be distributed in accordance with Australian insurance insolvency law. The request from the Supreme Court of New South Wales had been declined by the court at all instances (including the Court of Appeal) on the basis that creditors would not be treated according to the statutory pari passu principle then applying in England.

investor’) funds legislation, aimed at streamlining and relaxing the burden of regulation in funds sold only to experienced investors. Such investors are not deemed to require the same protection as retail investors who invest in such funds, informed as to the risks that they take. In general, this relies on a system of selfcertification by relevant industry professionals, with local lawyers and fund administrators in particular assuming the central role of ensuring statutory requirements are satisfied (via a process of registration with the local regulatory body). Within the EU, Gibraltar has been at the forefront of the development of a regulatory framework for experienced investor funds (EIFs). The typical fund is established as a bespoke PCC to raise money for specified investments.

Umbrella Fund Cell D

Cell A

High Risk Strategy

Cell B

Medium Risk Strategy

Cell C

Low Risk Strategy

Unsurprisingly, the PCC structure has not been widely marketed in Europe. This is because the existing companies established in

Gibraltar 2012

Financial Services

gated cell assets. The PCC structure is suffi ciently fl exible to also permit cell assets to be managed by separate investment managers selected by individual policyholders (mainly HNWIs). There are some life policies which are structured with the underlying portfolio being units in a fund of funds, or even a fund linked ‘Note’ or portfolio bond. In this structure, in essence, the HNWI obtains exposure to the underlying portfolio through a life assurance policy. This type of company looks similar and performs a similar function to an ‘investment fund’. The big difference is that the product offering for regulatory purposes constitutes insurance, even if it has some of the characteristics of an investment ‘wrapper’. To qualify as life assurance, it is ordinarily suffi cient if there is a right to benefi t which is related to life or death. As a consequence, investment products that include provision to pay out a benefi t on death or survival to a certain age should qualify as assurance. Such a structure (which is essentially a hybrid between an umbrella fund and a life company) allow HNWIs to organise their personal, tax and fi nancial affairs through the medium of a bespoke life assurance company. The bespoke company would be established as a PCC where, in return for the payment of premium (for example, handing over investments), an ‘insurance policy’ replaces the investment portfolio which in turn sits in a segregated cell. Each segregated life sub-fund is then invested using asset managers arranged for and approved by the PCC. Through the use of separate protected cells, the assets are linked or tailored

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to the cashfl ows of each individual policy. An alternative to a ‘life wrapper’ in the UK is to use a SIPP as a ‘pensions wrapper’. Linked life policies, in particular, lend themselves well to the concept of the PCC, given that policy benefi ts are highly correlated to the value of a defi ned pool of assets. For linked policies, generally, there is no need to encourage diversifi cation. If asset values decrease, then the policy values decrease. This correlation eliminates an important source of risk for an insurance company. In essence, a PCC life company allows an investment wrapper for investors to transfer existing funds, bonds and equities with an insurance product. The general features of such a structure within the jurisdiction of incorporation are: • no tax on investments held within the wrapper; • no tax on sales or purchases within the wrapper; and • no tax on deposit interest. Some jurisdictions in turn provide tax benefi ts for policyholders, namely no tax on dealing within the wrapper and tax-free withdrawals. Interestingly, a number of jurisdictions who do not currently have PCC legislation are in the process of consultation with a view to implementation.

International Transparency and Cooperation Gibraltar’s 20 TIEAs

by Mr Ghuozi Foo, Secretariat Administrator, OECD’s Global Forum on Transparency and Exchange of Information for Tax Purposes. Gibraltar is a member of the Global Forum, a 108-member organisation responsible for promoting the implementation of the international standard for transparency and exchange of information for tax purposes. This standard was developed under the original Global Forum, which was established in 2001. In 2009, the Global Forum was restructured to become a consensus-based organisation where all members are on equal footing serviced by a selfstanding secretariat based in the OECD’s Centre for Tax Policy and Administration. The Global Forum monitors jurisdictions’ implementation of the standard through a robust and comprehensive peer review process involving an examination of a jurisdictions’ legal and regulatory framework (Phase 1) and practical implementation (Phase 2) of the standard. The Global Forum’s main outputs are the reviews of its members and non-member jurisdictions. To date, it has completed 70 reviews and many more are in progress. Gibraltar has participated in the work of the Global Forum since its inception. It committed to the international standard for exchange of information for tax purposes in 2002 and has participated in all of the Global Forum’s annual assessments. In 2009 it became a full member of the restructured Global Forum. Gibraltar’s Phase 1 peer review took place in 2011. This was a comprehensive and thorough process involving the participation of the Gibraltar authorities, the secretariat, peer assessors and the Global Forum members. The peer review report was adopted by the Global Forum in October 2011 and is now available at http://eoi-tax.org/jurisdictions/GI. Overall, the peer review results showed that most of the elements necessary for effective exchange of information were in place for Gibraltar. These include the availability of ownership information on legal entities and arrangements, bank information, access to information and a relevant network of exchange of information partners. However, the legal obligations for relevant entities and arrangements to maintain accounting records were deemed to JURISDICTION

DATE SIGNED

Indeed, this is the new international tax environment and Gibraltar has kept up with these developments through its close engagement with the Global Forum. But having a robust exchange of information regime is more than just about a jurisdiction’s ability meet its international obligations – the elements that are key to effective exchange of information are also essential for a jurisdiction’s administration and enforcement of its own domestic tax laws. Such elements include the availability of ownership, accounting and bank information, as well as ensuring the tax authority’s access to this information for its own tax administration purposes. To this end, we believe that building up strong systems that ensure the availability and accessibility of information has a key role to play in effective tax administration and it is our hope that the peer review process was helpful to Gibraltar in indentifying aspects of its legal and regulatory framework that could be improved. Gibraltar’s progress in implementing the international standard demonstrates its commitment to tax transparency and being a responsible member of the global fi nancial community. Gibraltar’s Phase 2 review, which examines the practical aspects of its exchange of information regime, is scheduled to commence in the second half of 2014. It will also assess Gibraltar’s implementation of the recommendations made in its Phase 1 review. We look forward to continued cooperation and working with Gibraltar on tax transparency and exchange of information matters.

DATE ENTERED INTO FORCE

Australia

26 Aug 2009

26 Jul 2010

Austria

17 Sep 2009

1 May 2010

Belgium

16 Dec 2009

not yet in force

Denmark

2 Sep 2009

13 Feb 2010

Faroe Islands

20 Oct 2009

8 Jun 2011

Finland

20 Oct 2009

6 May 2010

France

22 Sep 2009

9 Dec 2010

Germany

13 Aug 2009

4 Nov 2010

Greenland

20 Oct 2009

24 Dec 2009

Iceland

16 Dec 2009

not yet in force

Ireland

24 Jun 2009

25 May 2010

Malta

24 Jan 2012

1 Apr 2012

Netherlands

23 Apr 2010

1 Dec 2011

New Zealand

13 Aug 2009

13 May 2011

Norway

16 Dec 2009

8 Sep 2010

Portugal

14 Oct 2009

24 Apr 2011

South Africa

2 Feb 2012

not yet in force

Sweden

16 Dec 2009

3 Jul 2010

United Kingdom

27 Aug 2009

15 Dec 2010

United States

31 Mar 2009

22 Dec 2009

Countries with which Gibraltar has signed Tax Information Exchange Agreements

be insuffi ciently comprehensive and it was recommended that Gibraltar take steps to address this defi ciency. Gibraltar’s active participation in the work of the Global Forum and the peer review process is important because Gibraltar is an important fi nancial centre, both in Europe and globally, and provides the platform for a large volume of fi nancial transactions. Effective exchange of information for tax purposes is necessary to ensure that the laws in Gibraltar are not misused to facilitate tax evasion. Under the Global Forum’s peer review process, all jurisdictions are on a level playing fi eld, subject to the same rules and obligations under a clearly defi ned standard, and no jurisdiction may seek an advantage over another by not fully implementing the standard.

Global Forum member

agreement meets international standard

agreement not yet reviewed

Source: OECD‘s Global Forum on Transparency and Exchange of Information for Tax Purposes

Gibraltar 2012

Financial Services

milestone GRP

On the Rock with Space to Grow Based in Gibraltar, insuring across Europe Interview with Ms Penny Hudson FCII, Managing Director, R&Q Caledonian Gibraltar

Penny Hudson has worked in the insurance industry since 1987 for both insurance companies and brokers, dealing with life and general insurance. She has licensed and managed a variety of insurance vehicles including European direct writers, captives, life and general protected cell companies. Ms Hudson is a Chartered Insurer who completed her Fellowship of the Insurance Institute in 1996 when she set up Caledonian Insurance Management Services Ltd (now R&Q Caledonian). She served as Chairman of the Gibraltar Insurance Association from 2007 to 2010 and was actively involved in the launching of the Gibraltar Insurance Institute in 2009. She has also been involved with Financial Action Task Force and IMF evaluations of Gibraltar and has worked with Gibraltar’s FSC and Government on numerous occasions. Milestone GRP met with Ms Hudson to discuss the evolution of Gibraltar’s insurance sector, R&Q Caledonian’s growth within it, and the effects and opportunities coming out of new directives regulating the sector.

Milestone GRP - What factors have contributed to the success of Gibraltar’s Insurance sector in terms of the size of the market and its profitability? Ms Penny Hudson - In the beginning Gibraltar was the new place to be. When the 2nd and 3rd Life and Non-Life Directives were brought in by the European Union, Gibraltar became a new place, with a new flexible system, and a tax efficient jurisdiction from where it was possible to do business all over Europe. Gibraltar grew its capabilities along side the changing legislation in order to create the professional infrastructure it has now. At the same time the Financial Services Commission was being founded and insurance was a significant area of growth for the private sector and the Government. We all had a common focus to bring that specific business into Gibraltar and those same people are here today. So, back in the 90s, it was the right people in the right place and at the right time. We were using new legislation, flexibility, tax efficiency and lower costs compared to other member states. One of the main reasons for the great success of the sector here is the fact that people come here to run their own business and are therefore very focused on the bottom line. Milestone GRP - What trends have emerged in the Insurance sector since Gibraltar became part of the European Single Market (ESM) for Insurance, and how do you see Solvency II affecting this? [Editor’s Note: Solvency II is an EU Directive concerning the amount of capital EU insurance companies must hold to reduce the risk of insolvency. Once approved, it is scheduled to enter into effect on January 2014.]

Ms Hudson - With the ESM for Insurance, Gibraltar presented a new possibility. Gibraltar is one of the few places where you can have a European life insurance company with a cell base. So I am also, at present, Managing Director of London & Colonial, which writes a cell-by-contract product. In the mid 90s, UK legislation allowed a package product where you had to buy an annuity from your pension and it had to be in the EU. This meant that a company like London & Colonial could come up with a specific product that was extremely popular, that was nowhere near a tax avoidance product, but gave more flexibility.

Therefore, more product innovation was created in Gibraltar. In addition, many motor underwriters moved to Gibraltar to benefit from their knowledge and the ability to grow smaller portfolios in a competitive arena. Since the new European legislation, any insurance company within the EU can write anywhere in the EU. Now, because of Solvency II, there is quite a strong possibility that you will need a higher capitalisation. Therefore, the bigger companies that were not necessarily in Europe could represent a bigger market for us, if they have access to relevant capitalisation. A lot of people come to me who do not have the capitalisation to set up in Europe, but they want to write business in Europe.

Milestone GRP - What categories of clientele do you deal with, and which countries are represented within it?

service providers throughout Europe, and a network of people doing business in Europe.

Ms Hudson - In the beginning, our biggest market was the UK. Our flexibility and efficiency encouraged people to move their business here whilst writing it in the UK. It was not very long after that though that we started building up an international clientele including North and South America, Eastern Europe, Spain, Italy, France and other areas of Western Europe.

Milestone GRP - Are you seeing new opportunities emerge from new areas and markets around the world?

Examples of the types of clients we have include London & Colonial, which was set up in 2001. They write life annuity business, with just under half a billion dollars in assets under administration. We also have one of the largest motor insurers, which writes business under the Freedom of Establishment basis. We also have an American client, with its own risk management team, which was using a major insurer in Europe. However, they felt that what they were being charged for the services they were being offered was not as good as they would have liked. They write their own Group risks throughout Europe, and for us this has been invaluable in gaining a huge body of knowledge on doing business all over Europe. We have dealt with the DGS (Spanish regulatory body) in Spain and with the Tax Office in Germany, just to mention a few. We have gained this huge amount of knowledge whether it is about paying premium tax or sorting out claims. Over the last ten years, we have built up close relationships with other

Ms Hudson - At first I was on my own and then with local shareholders, but from 2010 we became part of a much larger group, Randall & Quilter (“R&Q”) who are based in the UK, are listed on AIM, and do business globally. They are extremely focused and entrepreneurial, and they have four main divisions: insurance investments, insurance services, underwriting management and the captive insurance/company management division that covers, at present, the US, Norway, Jersey and Gibraltar. The Group also deals with a variety of run-off businesses, which R&Q would also like to bring to Gibraltar. Being part of the Group gives us a much bigger infrastructure to work with and a great potential for expansion. We see potential opportunities arising from Latin American markets; from companies there that feel they may have exhausted their local markets and are looking for new ones in Europe. They may already do business with London but they are looking at basing themselves in Europe to expand their market in order to deal with both sides of the Atlantic. Gibraltar is a perfect location for South American companies as all companies here have bilingual staff. We also tend to be less bureaucratic and this is one of Gibraltar’s many great strengths.

Then, I have other clients coming, saying that they are big enough and want to do business with those smaller clients in Europe. So it is the same market but with different people at different levels because of Solvency II and the cost of corporate governance. Matching partners is part of the interest. These are the two main trends: either clients who know their business very well and want to control it themselves, they have their own managed business and they set up on their own; or companies that have done very well in their own country and want to replicate this by writing a new product through Europe. Gibraltar, moreover, offers the benefits of flexibility, access to the Financial Services Commission and tax efficiency. In terms of the effects Solvency II will have on the market, I usually tend to be conservative, but I have been pleasantly surprised by recent new enquiries coming into Gibraltar. Entrepreneurs always appear to rise to challenges. Like in all economic cycles, there are people who are able to take advantage of downward cycles. Right now there are companies taking advantage of setting up insurance companies with higher levels of capital. So, if Solvency II comes in, and depending at what level, there is a certain amount of consolidation to be expected together with a number of new players. Many countries will have to cope with this new legislation and its requirements, and newcomers can benefit from having a head start. They will already have done the research, and they will come in knowing and providing for it. While in the past we would get smaller clients that were looking at doing business only in the member state they came from, and maybe expanding later, we are now starting to get bigger clients looking to do business all over Europe right from the start. It is not a huge change but rather a subtle one.

Gibraltar 2012

Financial Services

milestone GRP

Banks

Milestone GRP - So, EU directives and legislation do present opportunities…

EU Directives Presenting Opportunities Fund Relocation to Gibraltar

Mr Hogg - Yes, very much so. Due to AIFMD managers, advisors and investors need to consider where they manage their assets and where they invest their assets. Before AIFMD using the Caribbean model was the norm and many managers and advisors would not have been so enthused to recommend EU finance centres. Gibraltar, being a member of the EU through its status as a British overseas territory, has to adopt changes in the EU legislation and directives as they become. Gibraltar is fully compliant in respect of EU investment business and funds legislation.

Investment Firms

12 10.2

10.3

£ (billion)

8 6 4

10.7

10.3

2.9

1.9

9.8

£ (billion)

We anticipate that there will be a change in the global investment and funds industry whereby EU managers and investors will wish to manage and invest in EU structures as opposed to the Caribbean structures that were used during the 1980s, 1990s and the early part of this century. Gibraltar is a viable option in the EU for such investment and fund business. Gibraltar cannot be all things to all men. However, it is a very well regulated, credible EU finance centre. Gibraltar will not be the largest finance centre in the EU, however, we aspire to be the best EU finance centre and we, GFIA, believe that we are well on the road to being the best.

3.7

3.6

2.8

9.2 2.2

7.1

6.9

1.2

1.4

6.2 1

5.9

5.5

5.2

6.5

6.7

7.8

8.4

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

6.6 1.4

2 0

Funds, Assets Under Management

Gibraltar Financial Services Commission

Funds – Assets Under Management, 2010

Source: FSC

Insurance companies have been using the PCC in Gibraltar for many years and funds have been using the PCC since the enactment of the original experienced investor funds regulations during 2005. It is a very versatile structure since it allows a manager to create a singe investment house within which there can be several different cells (funds) with different investment and risk parameters. The said manager could trading equity long and bonds in one such cell, and equities short and derivatives in another cell. As such, the manager can provide investment products for clients with differing risk and return appetites within one structure. It is a very powerful piece of legislation.

Interview with Mr Adrian Hogg, Chairman, Gibraltar Funds & Investments Association Adrian Hogg is a Director of Grant Thornton Fund Administration Limited. He has been involved in the accountancy profession since his graduation in 1994 with a Bachelor of Arts Honours Degree in European Finance and Accounting where he majored in Accountancy, Finance and Economics. Adrian is a Fellow of the Institute of Chartered Accountants in England and Wales. Prior to joining Grant Thornton Gibraltar, he worked for five years in the British Virgin Islands. He sits on the Finance Faculty of the Gibraltar Society of Accountants and GFIA's Funds Sub-Committee. He is a Statutory Auditor and holds a Company Manager license issued by Gibraltar's Financial Services Commission in relation to the provision of directorships to Experienced Investor Funds. Milestone GRP met with him to discuss the current state and potential of Gibraltar’s Funds sector.

Milestone GRP - Could you introduce us to GFIA and its role in Gibraltar’s Funds sector? Mr Adrian Hogg - The GFIA has in the region of 100 members and represents investment managers, investment dealers, banks, brokers, funds, and all those associated with the funds - from the administrators to the directors. GFIA’s objectives are to encourage the exchange of information between members and the relevant authorities in order to achieve common goals, to establish a recognized medium of communication between GFIA and the Government, the Finance Centre and the Financial Services Commission, as well as to encourage and promote the continuing education of its members and finally, to promote adherence by its members of the principals of investor protection, corporate governance, compliance and professionalism in investment and fund activities. We are constantly in dialogue with the Government and the Regulator to improve conditions for investment and funds business. We present workable, marketable initiatives to both the Government and the Regulator as we, the practitioners, are aware of what will serve to improve the competitiveness and relevance of Gibraltar’s investment and funds business. An example as such is the recent significant change to Gibraltar’s experienced investor funds regulations that was largely a GFIA initiative that after lobbying the Regulator, Finance Centre and the Government, came into force on 12 April 2012.

Milestone GRP - How do you envision the EU’s Alternative Investment Fund Managers Directive (AIFMD) affecting Gibraltar’s Investment Fund sector? Mr Hogg - The AIFMD is expected to come into force in 2013 and it represents a very significant piece of legislation to be passed for investment business and funds in the EU. AIFMD contains new rules on the marketing of alternative investment funds in the EU by both European and non-European managers, and also lays down rules for the marketing of those funds to professional investors within the EU. For those that market funds in the EU AIFMD provides the quandary of whether or not to keep the fund in a domicile outside of the EU, re-domicile existing funds to the EU or to create funds afresh in the EU. Re-domicilation is often the method of choice as it should be a seamless transition without triggering a taxable event and it allows established managers to maintain their track record. Changes to the experienced investor fund rules in Gibraltar could trigger interest in the state as a location for hedge fund managers and companies, attracting re-domiciles and start-up funds. Under the Financial Services (Experienced Investor Fund) Regulations 2012, various improvements to the original 2005 regulations have been made, including the opportunity for large funds to use fund administrators based outside Gibraltar as long as where they are based has oversight equivalent to that in Gibraltar. The regulations also allow funds to re-domicile to Gibraltar.

From an opportunity point of view from Gibraltar’s and Europe’s standpoint (as Europe will gain the marco economic benefit of increased investment and fund business being undertaken in the EU as opposed to the Caribbean), AIFMD is making managers, advisors and investors alike pause for thought when setting up an investment structure and consider setting up in the EU and specifically in Gibraltar. The effect of this is that more wealth is going to be held, managed and controlled by European citizens in the EU. From the point of view of structures that are already in existence, the quandary is whether or not to keep the fund in a domicile outside of the EU, re-domicile existing funds to the EU or to create funds afresh in the EU. Re-domiciliation is often the method of choice as it should be a seamless transition without triggering a taxable event and it allows established managers to maintain their track record The new 2012 experienced investor funds regulations are re-domiciliation friendly.

Milestone GRP - Is there a limit on how much Gibraltar can grow and how much investment it can absorb in the coming years? Is that a concern? Mr Hogg - I do not think so if we look at other successful small jurisdictions such as Singapore and Hong Kong and consider the size of the City of London. The size of a jurisdiction does not need to be its limiting factor. Milestone GRP - Do you think Gibraltar’s success through the last few years holds a message for the international business and investment community?

Milestone GRP - What would you highlight as key legislations and directives that have been passed here, such as those governing Protected Cell Companies (PCC)?

Mr Hogg - Gibraltar made the decision many years ago to undertake its business in a very controlled and regulated environment. When the decision was made to do so it was not a view held by all. The cautious, controlled, regulated approach and environment that has been fostered has been excellent for Gibraltar. Corporate governance and regulatory control have become ever more relevant and desired in the EU and elsewhere. Gibraltar got it right many years ago when it decided to go down that path. For manager, advisors and investors alike, visiting Gibraltar is easy and the investment business participants are professional, knowledgeable and approachable. When visiting Gibraltar the investment business service providers and the regulator can be visited all in one day. It is this kind of closely controlled environment that is key to Gibraltar’s business model. All participants in Gibraltar’s investment business work to protect the reputation and integrity of their business, and by doing so are creating an environment that allows for controlled growth. It is the kind of self-regulation that all investment business participants foster for the benefit of all.

Mr Hogg - The Protected Cell Company structure is multijurisdictional. It can be found in the Channel Islands, the Caribbean, and under different names: Segregated Portfolio Company, Incorporated Cell Company, or PCC. We have had this system in place in Gibraltar since 2001.

In the EU there are many choices and much competition, which creates strong investment business and products. Gibraltar has investment products that are relevant, that work and that are applicable. Gibraltar is an EU finance centre ready for the future.

The changes are all positive from Europe’s point of view. AIFMD will result in more managers managing more within EU structures and investors investing more of their wealth within the EU with the increased corporate governance and regulatory control of EU regulators. It’s a good thing for investors, who ultimately are the benefactors of investment business, who are able to invest in greater controlled regimes within the EU. It is widely expected that AIFMD will create a fundamental change in the international funds industry whereby funds that are marketed in the EU are domiciled in the EU. Gibraltar, with the modernisation of its experienced investor funds regime, is ready for the change.

Gibraltar 2012

Financial Services

Regulatory Changes Improving Competitiveness Experienced Investor Funds Regulations 2012 by Mr James Lasry, Partner & Funds Team Leader, Hassans International Law Firm After nearly seven years, Gibraltar’s Experienced Investor Fund regime has been updated and modernised in a continuation of the partnership between the industry, the Financial Services Commission (the “FSC” and/or Regulator) and the Government of Gibraltar. Prior to 2005, Gibraltar’s Fund industry comprised a handful of funds regulated under the, then, Financial Services Ordinance 1989 and a few dozen private funds. Whilst the regime of the former worked in practice, it relied heavily on obtaining derogations from the Regulator. This made the process of authorising a fund somewhat cumbersome. On the other hand, the private funds industry grew fairly rapidly. Private funds in Gibraltar are not regulated and can only be offered to an identifiable category of persons whose number is fifty or less. Although there are no actual statutory requirements for the production of audited accounts, a prospectus nor the engagement of a fund administrator, the industry practitioners very much insisted on these as a matter of professional investment protection and proper corporate governance. Then, to meet the demand of certain funds that had grown and wished to market themselves to external investors, the industry proposed to Government the enactment of the Financial Services (Experienced Investor Funds) Regulations 2005 (the “Regulations”). These regulations ultimately codified what had become the practice with private funds and added a few elements to allow the funds to be marketed more extensively. Generally, investors into Experienced Investor Funds (“EIFs”) were limited to experienced investors which were defined as investment professionals, investors who had €1million besides the value of their residential home, or investors who invested €100,000 or equivalent. It is important to note that these conditions are not cumulative so it is sufficient for an investor to comply with just one of them in order to be able to invest in a Gibraltar EIF. The Regulations also required the engagement of two Gibraltar based directors who are authorised by the local Regulator to act as fund directors. They also required the appointment of a local fund administrator. The authorisation process was particularly attractive as a fund was allowed to begin trading on the basis of a legal opinion issued by local counsel stating that the fund was properly established in accordance with the Regulations. A fund would have to notify the Regulator within fourteen days of its commencement of trading. The notification would be accompanied by the company’s constitutional documents and Private Placement Memorandum and a regulatory fee of £2,500. The regime worked very well and is probably one of the most flexible regimes within Europe. After almost seven years of practice the industry requested certain amendments to the regime to increase its competitiveness and ease of use. The main areas of change are the permission to use foreign fund administrators in certain circumstances, the expansion of the definition of experienced investors and the addition of an optional pre-launch authorisation scheme.

In April 2012, the Financial Services (Experienced Investor Funds) Regulations 2012 were signed into law by Gilbert Licudi QC, Minister with responsibility for Financial Services. The principle amendment of these new regulations is that under certain circumstances, foreign fund administrators are eligible to act for Gibraltar EIFs. In an attempt to enable funds, especially some of the larger and more institutional funds, to use brandname administrators, the regulations established a process whereby a foreign fund administrator can be authorised by the Regulator, with approval of the Minister, to service EIFs. There will be an actual list of authorised fund administrators produced which will be approved by the Minister. It was also proposed to expand the definition of experienced investors such that in addition to the existing classes of experienced investors, funds would be able to admit investors who are; • A participant who has invested an aggregate of €100,000 in one or more Experienced Investor Funds; • Professional clients under MiFID as defined under the Financial Services (Markets in Financial Instruments) Act 2006; • Investors who invest €50,000 and who have been advised by a professional adviser to invest in the fund, and the fund’s administrator has received confirmation of such advice. The adviser needs to be regulated to provide advice in the jurisdiction they are based in; and • Investors who are investors in funds which were established outside of Gibraltar and were aimed at professional or sophisticated investors and which funds are subsequently re-domiciled to Gibraltar. This is seen as an important addition because, in light of the Alternative Investment Fund Managers Directive (“AIFMD”) which is scheduled to come into force in 2013, there is the expectation that a significant number of Caribbean funds will consider re-domiciling into an EU jurisdiction such as Gibraltar, in order to avail themselves of the marketing advantages of European domiciled funds. The amendments to the Experienced Investor Fund regime in Gibraltar are anticipated to improve the competitiveness of the Gibraltar Fund regime while keeping the interests and objectives of investors and the Regulator intact. It is also anticipated that the new regime will be more user friendly for the more institutional funds. The funds industry in Gibraltar has matured over the last decade and has drawn on experience from clients and staff from other jurisdictions as well as developing significant home-grown expertise. Funds are now seen as one of the pillars of the Finance Centre in Gibraltar along with insurance, banking and private client work. Gibraltar’s size and the efficient communication between the industry regulator and Government have allowed it to develop into what is arguably the best experienced / expert fund regime in Europe and certainly the one with the greatest flexibility and quickest time to market.

Financial Services

milestone GRP

Trust and Company Management

The Rock Reaching Out

Interview with Mr Ian Le Breton, Managing Director, Sovereign Trust (Gibraltar) Limited

Interview with Mr Alan Kentish, Chief Financial Officer, STM Group/STM Fidecs

Milestone GRP - The main trend over the last decade has been global integration and compliance. How has this impacted Gibraltar's economy and how has it impacted the Trust and Company Management industry in particular?

Milestone GRP - Financial markets have been erratic. People are concerned with where to put their money and risk is a big concern. Is this impacting Gibraltar given that many of the companies that are based here sell their products elsewhere?

International reach and depth of service

Mr Ian Le Breton - Looking at compliance, we are regulated by the Financial Services Commission (FSC) with a strong but, at the same time, cooperative hand. They have turned what could otherwise have been extremely onerous, difficult to implement policies, into something that remains costly and time consuming, but is done with a cooperative spirit with them. From time to time we have discussions with them, and the relationship is good. I describe it as a hand in hand approach, not a hand in glove one. It is a partnership type of approach. There is lot of new regulation to take on, and other international groups, the OECD, IMF, the EU, are going to impact us. You need to have a pragmatic view and simply live with this, and even the Government cannot do anything about it. We work with this, whether we like it or not, we have to move with the times and we do it fairly successfully. That means that Gibraltar can look to the world and say that we comply with all these groups; we are signing all these TIEAs, we might soon have double tax agreements, and weâ&#x20AC;&#x2122;ve moved from being considered an offshore financial centre to what it is now an international specialised financial centre. Milestone GRP - Gibraltar and the Government are often described as agile and nimble. Do you agree with that characterization? Mr Le Breton - It is very true. Agile and nimble, but also positively reactive is the type of word to describe it. Proactive too, as we tend, in Gibraltar, to identify trends and adapt to them. That is what we do in Sovereign and a number of firms with whom we share the space in Gibraltar, too. We need to reinvent ourselves as we go along, and any firm like us that does not have this approach is going to find themselves falling behind because legislation and rules are changing all over the world at all times. So if you cannot be agile and nimble then you are lost. That takes us back to our small but perfectly formed nature. It is not difficult to talk to the Government's departments, even to members of the Government themselves, if we need to, quickly. Obviously legislation changes take time but we certainly have a good rapport with these people and that means that we can be agile and nimble. Milestone GRP - How has the global downturn affected the growth of the company? What areas are you are developing? Mr Le Breton - We have certainly seen growth despite the economic downturn. In the last 4 years our staffing has grown by 10% or more. As for our product here, it is certain that

there is an increasing depth to our services. We do a certain amount of work on the personal pension side, particularly the UK transfers, the Qualifying Recognised Overseas Pension Schemes (QROPS), and Qualifying Non-UK Pension Schemes (QNUPS), which is a different model altogether but has similarities. We are expending our marine division that is based in Gibraltar, looking at yachts, and last year we established an aviation division. Again looking at clients with big jets, big yachts; these are the types of clients we need to approach anywhere. So our strategy is to use these subsidiary groups to look at markets in a slightly different way. Milestone GRP - How have Gibraltarâ&#x20AC;&#x2122;s infrastructure developments contributed to these specific opportunities, such as the registration of yachts or aircraft? Mr Le Breton - The growth of Gibraltar's infrastructure is extremely useful to us. For Sovereign it is important that the infrastructure continues to develop in Gibraltar, not just for the business itself, but also for our staff. It is important that they continue to find this an attractive place to live and work. From Sovereign's point of view, we are one of 25 offices but we were established here in 1987. So here is where everything started and it continues to be our largest base. Milestone GRP - Are there any limitations to operating here? Mr Le Breton - There are limitations. We are never going to land a jumbo jet at the airport, so are we going to set up direct links with New York with 300 people on board a plane? No, we will not. But, using this as an example, we have infrastructure that is not right here but just a short drive up the road in Malaga where we have a full international airport, so that is not a real limitation. We have a wonderful time zone advantage, the climate is great, and this is important since people are attracted to Gibraltar for its climate and lifestyle. A lot of people like our firm are doing what they can to build it up. We have a lot of competition out there, but generally overall we are doing a good job. I encourage executives from wherever they are in the world to come and have a look. Milestone GRP - As a well established foreigner in Gibraltar, what do you see as existing misconceptions about the place? Mr Le Breton - One area I want to work on is the impression that Gibraltar is just open for the British. That is not the case. Brits make up a percentage of the client base, but just a percentage of it, and that is a message I want to get across. We are ready to build our market from around the world. Europe is obviously a main area of course, but there are advantages for other parts of the world, too. Gibraltar is a good place to headquarter a company and maybe the CEOs from around the world may want to start considering that, and then come to talk with us when they do.

The EU and farther abroad

Mr Alan Kentish - A lot of Gibraltar has grown up through the traditional Trust and Company Management business, usually in offshore structuring and looking after high net worth individuals, who are typically internationally mobile. Moreover, it is not necessarily the money that it is actually held in Gibraltar that is incredibly pertinent. You often have a structure that has a family trust but the banking is done in the City of London. What Gibraltar has managed to achieve pretty well is to provide the facility, the vehicle, the wrap-up and the infrastructure, and then tap into the experts out of the jurisdiction, or locally, that will do things such as investment management. The average Trust and Company Management individual will not do investment management. Gibraltar is reasonably short on banks in that banks that are here are typically branches, rather than separate stand alone subsidiaries. Milestone GRP - What are Gibraltarâ&#x20AC;&#x2122;s major strengths and its weaknesses at this stage? Mr Kentish - At this stage, one of its biggest strengths is being part of the EU. It is very clear that around the world, there is that concept that the age of the tax havens is over. It has become a dirty word, it does not work, and has not for a number of years. Therefore, being part of the EU, Gibraltar is a legitimate jurisdiction for tax planning and structuring. With such things as passporting, well-written insurance companies, insurance intermediaries, it becomes a powerful ability to base in Gibraltar and passport out. I see that as one of the key benefits. We need to make sure, nevertheless, that if we are passporting, into Poland for example, they recognize our passporting right. To date the ability to tap into the Regulator is a key criteria of moving forward. In the UK, if you try to get a ruling from the FSC, chances are that it is going to take you from 6 to 9 months. On the negative side, because of the regulations and because the UK can look over our shoulder, there is a slight paranoia that we must double tick all the boxes to ensure that if the UK comes to investigate, the firewall will stand up. It is a difficult thing to say, but I think the regulation here is more user friendly than in the UK, although I think it is getting more and more difficult now. As Gibraltar has progressed and has moved itself up in terms of credibility, it becomes more difficult to have an answer, as the more you have to protect, the more careful you are first. It is just that there is a concern that the UK can look over your shoulder, whereas in any other EU country, no one has the right to do that.

of tax structuring and the lack of any double tax agreements. More and more international clients require the certainty of having double tax agreements in place. Double tax treaties would help us to ensure certainty in terms of structuring. This goes to the extent that there is an argument on the insurance side, that if you have a branch in the UK, you have to pay taxes in the UK and potentially you might not get tax relief in Gibraltar. So, there are some challenges and agreements that need to be ironed out. Milestone GRP - How do Trust, Company Management and Tax Planning firms fit in the Gibraltar economy today? and what are the factors that have contributed to this mini boom we are experiencing right now? Mr Kentish - There are two things that have to be considered. First of all, Gibraltar has done very well to reinvent itself since the days when the Ministry of Defense (MoD) employed most people. It went through the usual phase of tax planning wherein you set up an offshore company and you did not tell anybody about it; those days are long gone. I think Gibraltar has picked up a certain amount of business just because of our PLC. We have a honey pot of clients down the coast, and those are the people who exactly fit our profile. They are looking to retire overseas, they may have concerns and may need an Anglo-Saxon way of dropping off their assets, as well as a common law to protect their structures to do what they want with their assets, even just as part of their will. So that is the start of the typical Trust and Company Management business. What Gibraltar needs to do now is to see itself as a finance centre for the EU and to do this Gibraltar has to be very strong in demonstrating it is part of the EU. That is pretty straightforward, in terms of dealing with the UK, Ireland or any EU jurisdiction that has a sizable English-speaking population. But if you try to explain to a Frenchman that Gibraltar is part of the EU, the first thing he will do is to take the list of European countries and say that Gibraltar is not on it. You then have to explain that it is because of its association through the UK. So we have to strengthen that communication. And we have to not only target the UK but even beyond, even South America. It is a natural progression to look at those markets that Jersey or Guernsey would not be involved in, because they do not have the Spanish-speaking individuals.

I think the weakness is not knowing where we really sit in terms

Gibraltar 2012

Financial Services

milestone GRP

A Stable Sector in Rough Seas

Banking supporting Gibraltar’s Growth Interview with Ms Emma Perez, President, Gibraltar Bankers’ Association

Emma Perez trained as a certified accountant with KPMG, qualifying in 1996 and working in both the audit and fiduciary departments. She later joined the finance department of Credit Suisse (Gibraltar) Limited in 1997. Emma joined SG Hambros Bank (Gibraltar) Limited in May 2001 as the local accountant and was promoted to director in November 2002, then to Managing Director in May 2006 and Chief Executive Officer in 2011. She played a key role in the acquisition of the ABN Amro private banking business in Gibraltar, doubling the size of the local SG presence. Emma has been president of the Gibraltar Bankers’ Association since January 2011 and is also a member of the Gibraltar Finance Centre Council. Milestone GRP met with Ms Perez to get her insight into Gibraltar’s banking sector, it’s development and the advantages it derives from Gibraltar being within the EU.

Milestone GRP - How would you describe the Gibraltarian Banking sector? Ms Emma Perez - Gibraltar has seventeen licensed banks locally, two retail banks along with a number of private banks that provide standard private and retail banking services. There are a couple of Swiss private banks and a French bank, which mainly deal with the international sector; then we have the other players who generally act in the local market. We have one locally incorporated bank and all others are multinational corporations, so we work very closely in line with the relative procedures and requirements. t

Milestone GRP - Are opportunities such as Islamic Banking or Green Banking available in Gibraltar as we have seen them evolving in other countries?

The Gibraltarian Banking sector works in accordance to all EU directives and we are fully transparent. We follow the EU directives in relation to anti-money laundering and in relation to all the requirements that are needed to take the Financial Centre forward. For example, we have just signed our 20th Tax Information Exchange Agreement (TIEA) with South Africa, showing our flexibility and our willingness to move forward and rid ourselves of the stigmas of the past.

Ms Perez - Islamic Banking has been on the radar for a while now especially due to our proximity to Morocco. The Financial Services Commission and various lawyers have been talking about it for some time, in terms of the legislation, for instance. There are certainly interesting opportunities for Gibraltar in terms of funds, another big sector we need to move into. Shariacompliant funds, for example, will be something interesting to look at in the future.

Milestone GRP - How are international trends and EU directives such as Basel III or MiFID (Markets in Financial Instruments Directive) shaping Gibraltar’s Banking sector? Do any challenges or opportunities arise from these directives?

Milestone GRP - Asset Management and Funds have been highlighted as areas that present opportunities for growth. How do you see them evolving and what role do you see banks playing?

Ms Perez - Being onshore and part of the EU is a benefit for us, as this will reassure the client that we follow the EU directives. Some of the directives that have come up now have changed the way in which business is done. MiFID introduced new ways of communication with the client, and the way all fees are divulged to the client. While these directives make things fully transparent for the client, they imply a lot of changes for the business and rises in terms of the costs, but it all means reassurance for the investor.

Ms Perez - The Finance Centre has just announced that the jurisdiction will not be restricting the administrators of funds to be solely registered in Gibraltar. It will be done on a selective basis, but global players will be able to come to the market. Banks will be taking on custody services for the Fund industry. Some banks have taken on more of these funds than other banks. This segment is very beneficial for the jurisdiction and we need to play on that more and to be able to assist the funds. If we want funds to grow we need to provide all the necessary services. Banks need to take on the more complex types of scenarios, which are becoming more commonplace.

Milestone GRP - What impact has the financial crisis had on the banking sector? Have any opportunities emerged from it? Ms Perez - There is definitely an interest in Gibraltar for organizations structuring through Gibraltar, especially with the new tax regime. Being onshore and in Europe does create opportunities that other jurisdictions may not have. Nonetheless, our banks have all have been suffering from the mitigation and diversifi-

cation of risk. In particular, a number of institutions, being part of multinational groups, have been suffering to a certain extent from cost cutting and redundancies. However, overall, Gibraltar has been sheltered from the rest of the world’s economic woes, as we are a small economy and it is therefore easier to manage. Moreover, we can count on strong sectors such as Online Gaming and Shipping to contribute to the economy.

On the Asset Management side, we are ideally set up to support the Asset Management sector here, but more on a custodian basis. There are some banks that have specific platforms to cater for Asset Managers coming in, and external Asset Management is a key type of business that a lot of banks are looking at.

Milestone GRP - Why do you think certain stigmas remain attached to Gibraltar despite the transformations on the ground?

would also represent a great channel for investments in the rest of Europe. Some local companies in Gibraltar are already dealing with Russia, so there is already a good channel created with some of our intermediaries locally. With regards to the Banking sector, emerging markets may be synonymous with high-risk business. As a matter of fact, it is more challenging for the private sector to attract that sort of business because of the extra background work required in these circumstances. So while we appreciate it and support it, when it comes into practice it becomes a challenging task for banks.

Ms Perez - It takes a long time for people's perception and trust to evolve, but we have seen some good business coming to Gibraltar. I think we do not publicize that enough and promote the abilities we have here. International marketing is a key area that needs to be developed, and this is already a topic of discussion in the Finance Centre. By improving the marketing we can make sure that people become aware of what we can do for the clients here. We are recruiting people to take on the marketing side more specifically and in order to streamline what we market. They will certainly be charged with marketing a set part of the Financial Services sector, going to the UK, trying to raise interest there but also from the BRICS countries, for instance.

Milestone GRP - What would be your message to international bankers about what Gibraltar has to offer?

Milestone GRP - Is there a specific type of bank you could attract from emerging markets? Ms Perez - Obviously, it would be good to have banks coming from some of these emerging markets. We will support anything that the Government is trying to push through. It

Ms Perez - With regards to opportunities, there is the need to make Europe aware of our capabilities and the benefits of passporting; making Europe aware that Gibraltar is an EU jurisdiction, onshore and fully transparent with OECD and EU directives, regulations and requirements. The challenge is to raise the profile of Gibraltar and its reputation to ensure that it is a player within the global Financial Centre world. There is such a high concentration of professionalism in Gibraltar that we only need to show what we are capable of.

Year

Cash

Balances with & Loans and Advances to Banks

Loans and Advances

Investments

Other Assets

Total Assets

2001

6,635

3,854,945

1,198,768

16,961

126,829

5,204,138

2002

7,788

4,113,943

1,300,700

18,464

115,126

5,556,021

2003

8,495

3,046,822

1,629,648

201,992

22,459

4,909,416

2004

10,679

2,763,150

1,772,733

187,224

31,740

4,765,526

2005

38,025

3,390,693

1,974,226

198,316

50,816

5,652,076

2006

9,868

4,536,277

2,080,912

266,375

44,795

6,938,227

2007

8,746

5,219,535

2,429,145

410,799

132,287

8,200,512

2008

9,890

8,877,377

2,861,493

297,747

273,262

12,319,769

2009

16,824

9,278,820

3,023,263

1,486,056

363,547

14,207,358

2010

19,350

3,851,397

3,033,018

1,944,146

55,978

9,387,126

2011

33,140

3,159,210

1,205,594

61,340

9,020,574

Credit Institutions – Assets, £ (000’s)

Source: FSC

Year

Current Accounts

Deposit Accounts

Total Deposits

Balances from banks

Other Liabilities

Total Liabilities

2001

874,694

1,606,541

2,481,235

1,746,770

976,133

5,204,138

2002

657,984

1,807,877

2,465,861

2,349,582

740,578

5,556,021

2003

729,876

1,923,320

2,653,196

1,700,347

555,873

4,909,416

2004

965,327

1,691,179

2,656,506

1,700,298

408,722

4,765,526

2005

1,018,750

1,896,837

2,915,587

2,235,103

501,386

5,652,076

2006

1,193,855

2,428,179

3,622,034

2,783,640

532,553

6,938,227

2007

1,372,428

3,014,320

4,386,748

3,288,329

525,435

8,200,512

2008

1,355,175

2,833,547

4,956,716

7,145,466

123,199

12,319,769

2009

2,012,157

2,730,249

5,194,245

8,044,041

62,083

14,207,358

2010

2,281,654

1,841,621

4,512,829

3,712,338

31,544

9,387,126

2011

2,420,667

1,950,481

4,786,976

3,266,478

47,140

9,020,574

Credit Institutions – Liabilities, £ (000’s)

Source: FSC

Gibraltar 2012

Financial Services

milestone GRP

Trends in the Banking Sector

Gibraltar as Base

Interview with Mr Marvin Cartwright, Regional Head - Gibraltar and Corporate Banking, RBS International / NatWest

Interview with Mrs Marina Dominguez Steglich, PHD, CEFA,

Interview with Mr Mark Johnson, Country Manager,

Head of Private Banking, Lloyds TSB Private Banking Gibraltar

Lloyds TSB Bank Gibraltar

Milestone GRP - What trends have marked Gibraltar’s Banking sector in recent years? Where do you see the Industry now? Mr Marvin Cartwright - Over the last 20 years Gibraltar has seen consolidation of the Banking market, especially around the retail environment, where the retail captive market remains relatively small. So whilst it is a pretty stable and secure environment for banks to lend and carry out activity, the reality is that for the returns that banks seek in their markets of operation, Gibraltar is a small market. There are only two very dominant players in the retail space, which are ourselves and Barclays. The main banking environment therefore is private banking. Private banking has seen some success over the years. In Gibraltar there are some major players whose focus is on private wealth, discretion portfolio management and investment management. Milestone GRP - Many in Gibraltar identify being part of the European Union as one of the jurisdiction‘s key assets. This comes with many requirements in terms of regulation and compliance. How has this affected the Banking sector and has it presented new challenges or opportunities? Mr Cartwright - The challenges are constant. The pace of change accompanied by the sheer volume of activity that is happening within the regulatory landscape is immense. Along with the many benefi ts of being in the EU, one of the challenges we face is the sheer scale of operations required to adapt to that level of regulatory activity, and for a small jurisdiction it will always be a challenge. On the other hand, Gibraltar over the last decade has benefi ted signifi cantly from being in the EU. As the whole landscape is evolving in terms of regulation oversights, being part of the EU will be more than benefi cial. Indeed, Gibraltar over the last decade, not as a result of the crisis, has positioned itself as an onshore fi nancial centre and that has laid the ground for a good solid future in as much as we can pick up business looking to go into Europe. We can also give our customers and investors the peace of mind that we follow EU standards and regulations. At the same time, we are nimble enough in terms of our size to quickly adapt to changing legislation. We are still keen to bring customers in, while some of the other major mature centres are quite full. Probably in terms of value for money Gibraltar will remain competitive over the next years to come. Milestone GRP - In line with this process of compliance and global integration, Gibraltar has signed 20 TIEAs (Tax Information Exchange Agreements) so far. Do you see these impacting the Banking sector? Mr Cartwright - From a banking perspective it is still early to talk about the impact of TIEAs on our economic activity. Nevertheless, as all our fi nancial services collegues, we benefi t indi-

rectly from them. It is all part of the process of making ourselves white listed; deemed to be a country that undertakes its fi nancial services activity in a responsible and progressive manner. It is all about reputation and the signing of TIEAs will bring practical benefi ts in due course. At present it is about building that international recognition that Gibraltar is an onshore player with high standards of regulation and transparency. Milestone GRP - North to South migration from Upper Spain to the Gibraltar and Costa del Sol areas is on the rise. Do you see this trend continuing in the future? Mr Cartwright - Yes. Although Spain is currently going through diffi cult times, we expect that as soon as normality returns traditional expatriate areas will continue to grow. Spain and Portugal have been growth areas for the last 25 years, so as the Financial Services sector on the Rock has evolved, they have been a natural hunting ground for some of the private banks here and will continue to be so. However, there may now be more drive for the private banks to look further afi eld. Some of them now go into Western Europe, presenting more opportunities in the future.

Passporting Private Banking across the EU Milestone GRP - How would you describe Gibraltar’s Finance sector?

Milestone GRP - What section of the market has Lloyds TSB Bank (Gibraltar) focused on?

Mrs Marina Dominguez Steglich - Gibraltar is a small place, in terms of its size and population, and has maintained a good level of diversity in terms of the Finance sector’s offerings. It has therefore not been reliant on one particular type of business and that has given Gibraltar a huge advantage. There has been a move away from an antiquated system of offshore banking, transforming Gibraltar into a modern and transparent European fi nance centre.

Mr Mark Johnson - Lloyds TSB Bank (Gibraltar) Limited has focused on expatriates. We have grown that business effectively in line with our business prognostics since 2008, so from that perspective things have gone very well. Whilst the number of expatriates leaving the UK may have declined over the last two years, the base of potential customers and the existing ones across the European Economic Area is still very substantial, something in the range of a million English speakers within that area. Therefore, from that point of view, we have a big market to go after. We started out on this journey but we still have got a long way to go. We have found the business has grown and Gibraltar itself seems to have handled the dislocations of the last 3 or 4 years better than other jurisdictions.

Banking is important to the Finance industry, but certainly it is not the sole support of the sector. Banking, Insurance, Funds - these are the three main pillars of the Finance sector, per se. Also, the players in Gibraltar are all big names. They have proper offi ces in Gibraltar, are well staffed, well resourced and connected with their global networks. That gives Gibraltar a big edge. There are also many local fi rms that have managed to create a great name for themselves in the international arena. Milestone GRP - What is Lloyds’ structure in Gibraltar?

Milestone GRP - The Banking sector has experienced tremendous growth, and so has the economy beyond the Financial Services sector. What are you expectations for the coming years? Mr Cartwright - It is nice to believe that Gibraltar will continue to grow, and given the exponential growth and success we have seen as an organization in Gibraltar over the last 5 years, we hope the trend will persist. A degree of reality is required and, notwithstanding that, there is a reasonable degree of optimism, because we continue to grow at steady numbers and we see that going on for the next few years. We also have received a ‘newness’ of life with the new government and its fresh ideas. With regards to the UK, there is a greater desire to market the jurisdiction, so hopefully with the new tax regime, as well as the great strength of being onshore in Europe, Gibraltar’s future will remain bright. The way the economy works here is incredible. Even if it has a small economy, one of the things Gibraltar is admired for, when we are benchmarked against our peer group, is our great diversity. In the Channel Islands, for example, the concentration of risk in terms of reliance on fi nancial services is far more predominant than what we have here. With regards to the Gaming sector, for example, the Government has encouraged blue chip players and real growth in terms of employment. Nevertheless, they are quite keen to make sure that we balance the books and make sure that no single sector becomes overly dominant because otherwise the domino effect of anything going wrong would be more severe. The economic novelty must have worked. For a jurisdiction with no agriculture, it has done very well.

Mrs Dominguez Steglich - There are actually two Lloyds TSB banks in Gibraltar. My bank is a full branch of Lloyds TSB Bank Plc. in the UK, focused on the Private Banking sector. The other Lloyds TSB presence in Gibraltar is actually a Gibraltar incorporated subsidiary, Lloyds TSB Bank (Gibraltar) Limited. Their focus is on offering multi-currency international accounts to expatriates based anywhere in the EU, with a clear focus on the British expatriate community and the Anglophiles. Milestone GRP - What were the reasons for your focus on Private Banking? Mrs Dominguez Steglich - There are perhaps two aspects that make Private Banking interesting in Gibraltar. One is the locally based high net worth individuals who decide to relocate to Gibraltar, and have property and live here in order to take advantage of the Category 2 Individual status. Private Banking is key to them since part of their move is often associated with relocating their banking arrangements to Gibraltar. This is a very important client group, but it is not the sole market that we are relying on. That has got to do with Gibraltar being part of the EU. As an EU jurisdiction, we have the entitlement to go into Europe and passport our services and products. So for Private Banking the target is the core of wealthy individuals who physically reside in Gibraltar, and the close periphery, such as southern Spain, Sotogrande, Marbella, and the whole Costa del Sol area. There are many wealthy British expats living in Portugal as well. The majority of the expatriates living in these areas are Brits. As a British bank offering Private Banking services for high net worth individuals, this is a big opportunity.

Milestone GRP - What role do Gibraltar’s passporting rights play in your business model? Mr Johnson - They are fundamental to our decision to create a business here in the fi rst place. We were conscious that the opportunity of being within the EU would allow us to make use of EU directives, particularly the Banking Consolidation directive and the associated investment directives. So the whole passporting concept was fundamental to what we do. Milestone GRP - How have consumer demands changed over the last 2 years? Mr Johnson - We are seeing continued appetite for Sterling products from customers, which is not surprising given the variations in the Euro zone. So, Sterling continues to be a reference currency for the majority of our customer base. This benefi ts Gibraltar as well, having the same currency here. We provide facilities in Euro as well but Sterling is the key driving currency for our customer segments. We are also seeing a desire from customers for safety and security in terms of savings accounts. There is a willingness to explore investments with a low risk profi le. So, a cautious approach from the investor, and a willingness, where products make sense, to consider saving and investing. We expect, as the economy improves over a period of time, to see greater appetite for more investments with a more assertive risk profi le, but not in the immediate future. 6,000 5,000

£ (million)

Consolidation and steady growth

4,000 3,000 2,000 1,000 0 2000

2001

2002

2003

2004

Total Bank Deposits Gibraltar – Total Bank Deposits

2005

2006

2007

2008

2009

2010

Source:FinancialServicesCommission Source: FSC

Gibraltar 2012

Online Gaming

milestone GRP

Mr Montegriffo - Most of the e-gaming companies based in Gibraltar are in fact the largest and some are publicly quoted companies in the sector. In this respect, (although the operation of online gaming companies is similar in many jurisdictions), it is probably true to say that those based in Gibraltar include the best resourced in terms of the different elements of the business that constitute an online gaming activity.

Carefully Managed Growth Quality over quantity

One feature of the Gibraltar licensing model has always been that Gibraltar operators are required to have a physical and substantive presence in Gibraltar. Gibraltar has never adopted a model that allows most or the entirety of the operation to be outsourced to third countries. Whilst, therefore, the number of operators in Gibraltar is relatively low (currently just over 20) compared to other jurisdictions, the employment base represented by this sector is reasonably large both as an empirical fi gure (over 2,000 individuals) and as a percentage of Gibraltar’s overall employment base. It should be noted that Gibraltar has very low unemployment and in fact provides employment for many EU and non-EU nationals that are attracted to Gibraltar for work. The reason Gibraltar’s licensing model requires a substantive presence is to ensure that there is regulatory accountability to the authorities in this jurisdiction in relation to activities undertaken from Gibraltar.

Interview with Mr Peter Montegriffo, Team Leader & Partner, Hassans International Law Firm

Peter Montegriffo’s area of expertise is in commercial and private client matters, and he has also advised on numerous fi nancial services, regulatory and trust related matters. He was closely involved in the IPOs of various Gaming companies established in Gibraltar, which have been listed on the London Stock Exchange. Peter has also been closely involved in drafting numerous changes to Gibraltar's legislation in trusts, fi nancial services and gaming areas. Mr Montegriffo was also Gibraltar's Minister for Trade and Industry, with responsibility for economic development and fi nancial services, between May 1996 and February 2000. He met with Milestone GRP to go over the evolution of Gibraltar’s Online Gaming sector and the jurisdiction’s approach to its steady and stable growth.

Milestone GRP - What brought about the development of the Online Gaming industry in Gibraltar? What are the main highlights in the history of this still relatively young industry? Mr Peter Montegriffo - The history of remote gambling in Gibraltar goes back to the early to mid-nineties when initially a number of betting operations relocated to Gibraltar in order to take advantage of Gibraltar’s competitive taxation rates and also our position within the EU. This initial activity was effectively one undertaken via bets placed telephonically but it is probably true to say that it provided the springboard for what was then the much more extensive development of online gaming in the late nineties and especially in the early 2000’s. The history of this sector is one that has been marked by a prudent and conservative approach to its growth. Respective Governments have not sought to grow this sector beyond what is appropriate at any given time. The authorities have needed to carefully consider reputational risk and also the fact that such a growing and strong sector inevitably focuses resources, such as manpower, telecommunications and professional services, away from other important sectors of the economy, such as financial services. Milestone GRP - What legislation governs the industry in Gibraltar?

Mr Montegriffo - The legal system in Gibraltar is entirely based on that of England and Wales. Whilst we are a separate jurisdiction, our statutes and the common law are very similar to that which applies in England and Wales. Gibraltar legislation in the areas of gaming, taxation and company matters therefore follows in many respects aspects of the relevant legislation across the United Kingdom. In the area of gaming specifi cally, the Gibraltar Gambling Act 2005 closely mirrors the provisions of the United Kingdom Act on which it is modelled. The Gibraltar regulator also imposes standards of conduct and regulation that are among the very best in the world and which are constantly evolving having regard to the fast development of the industry. The Act sets out the requirements in relation to licensing. A full business plan, details of the promoters, management arrangements and proposed technical infrastructure are all necessary ingredients of an application.

Milestone GRP - What distinguishes Gibraltar in terms of legislation of protections and guarantees available for gamers on issues such as gains, anonymity and addiction, for instance? Mr Montegriffo - Gibraltar’s legislation makes provision for detailed rules and codes of conduct. The Gibraltar regulator has published a series of codes relating to online gambling. These can be requested from the Licensing Authority. Gibraltar, in line with the other leading international regulators, constantly reviews its codes of conduct and regulatory requirements. Its operators are also required to adhere to best practice and to ensure the highest levels of consumer protection in every respect. In this regard, both Gibraltar and many of its operators are at the cutting edge of best practice and industry developments. Milestone GRP - What impact has the online gaming industry made in Gibraltar and on its economy in general? Mr Montegriffo - There is no doubt that the online gaming sector now represents a major sector of Gibraltar’s economy. It is probably true to say the industry accounts today for about 20% of Gibraltar’s GDP and a signifi cant amount of direct revenue to Government and, as noted earlier, a good portion of Gibraltar’s employment base. Just as signifi cantly, the employment base in question is one that is highly diversifi ed and has brought skills to Gibraltar in the area of e-commerce, payment processing and technology, which did not exist 10 years ago. This provides an excellent base for the development of an e-commerce economy given that many of the skills are transferrable across a number of different sectors using interactive means of communication.

As noted earlier, Gibraltar has adopted a selective approach in determining who to grant a licence to. In order to avoid unnecessary expenditure and time, it is usually possible to obtain a fairly early indication from the regulator as to whether a licence application is likely to succeed.

Milestone GRP - How is Gibraltar looking to expand its e-gaming industry?

Milestone GRP - What distinguishes Gibraltar’s Gaming companies from others in terms of their operations?

Mr Montegriffo - Gibraltar already has a reasonably diversifi ed e-gaming industry although it is true to say that most of our

operators have a European client base, in the United Kingdom, in particular. As you know, there are a number of very interesting and potentially huge opportunities opening up in various jurisdictions including the United States and also more broadly in Europe, as Europe’s fragmented regulatory regime becomes more cohesive. Other opportunities in Asia and Latin America are also noteworthy. I understand the recently elected Gibraltar Government is keen to explore further how Gibraltar’s industry will be diversifi ed but very much within the framework of the conservative and prudent approach which has historically been adopted. There is no doubt that the extension of gaming services into broader entertainment and social gaming will also provide a huge boost to the industry in Gibraltar and to operators based here. Milestone GRP - How does the gaming sector contribute to Gibraltar’s international image? Mr Montegriffo - There is no doubt that historically gaming has been regarded as a sensitive area raising particular public policy considerations in various countries. This has also been the case in Gibraltar and the care taken is reflected in the approach adopted in licensing and the measured growth of the sector. It is true, however, that gaming as a social phenomenon is changing dramatically. The proliferation of channels of availability, and also the explosion in social games more broadly, is making the gaming experience much more part of mainstream entertainment than might have been the case, other than for soft gaming such as lotteries or bingo, two or three decades ago. In terms of international image, therefore, a properly licensed and regulated gaming sector should enhance and in no way detract from the credibility and reputation of a jurisdiction. In any activity, excess and exuberance will lead to difficulties and reputational damage. One of the safeguards of an e-gaming operation is the fact that all transactions are recorded and therefore open to constant monitoring and verification. Gibraltar’s association with some of the leading publicly quoted online entertainment groups has also been extremely important in enhancing the jurisdiction’s reputation as one open to serious, well regulated business enterprise. Milestone GRP - How much work needs to be put in to defend the right of Online Gaming companies established in Gibraltar in the context of EU threats and access to new markets? Mr Montegriffo - The industry has always worked very closely with the authorities in defending the rights that exist under European law and more broadly to provide services to clients around the world. This is an uncertain and evolving area and until legislation in various countries, and indeed at a broader European level, becomes clearer, a great deal of caution is required. Gibraltar’s attitude is to fully cooperate with all other reputable international regulators. It has, however, always been the view of the Gibraltar authorities that it is vital to defend the legitimate interests of Gibraltar and any economic operator based in our jurisdiction. To this end, the Gibraltar Government and industry have worked over the years in various areas, including fi nancial services and gaming, to properly defend Gibraltar’s EU and broader rights of access to international clients.

Gibraltar 2012

Online Gaming

milestone GRP

Global Online Gaming Revenue

Milestone GRP - How does Gibraltar specifically add value compared to other jurisdictions, for instance, in terms of regulation, the agility of its key institutions and its infrastructure?

35 30

US$ (billion)

Mr Anderson - The Government of Gibraltar understands the online gaming industry and its professionalism. The infrastructure required to run the industry has been improved enormously. This improvement has only transpired due to the empathy the Government has with the industry.

Online Gaming leaving nothing to chance Interview with Mr John Anderson, Deputy Chairman, Gibraltar Betting & Gaming Association

John Anderson is the Deputy Chairman of the Gibraltar Betting & Gaming Association (GBGA). He is also Non-executive Director of 888 Holdings plc; where he was CEO from 2000 until 2006. During that time he took 888 Holdings to become a member of the London Stock Exchange. Prior to joining the group in 2000, John had been CEO of Burford Holdings plc – a London Stock Exchange listed company. He had taken Burford Holdings private via an MBO and still holds the post of Chairman. John had joined Burford in 1996 from Ladbroke Group plc, where he had been a main Board Director. Ladbroke Group is a FTSE 100 London-listed company where he had spent 26 years. John is Non-executive Director of several other gaming and property companies, and also holds the post of Chairman of the IGC, an international industry body for betting and gaming.

Milestone GRP - Why was the GBGA created and what role does it play in the Online Gaming industry? Mr John Anderson - The GBGA was formed in 2004 to act as an industry body whose interests were aligned with best practice. It represents its members only as an industry spokesman and we have very carefully avoided representing an individual company on its own. We feel that this maintains the integrity of the GBGA, which is fundamental when it is talking to Government bodies or any other bodies who have an interest in the industry. For instance, we as a body pushed for a regulatory system to be brought in and all our members were in agreement. This actually costs us very little as a by-product. We at the GBGA consider that the more regulated and transparent we are, the more profi table we will be. After all, transparency and regulation remove the cloud of mistrust in an ever-changing industry. The GBGA’s remit has grown from time to time dependent upon whether or not there are industry issues to address. On a constantly changing canvas it continues to carry out its roles and maintain its position as a highly respected body in the world of business. Milestone GRP - How does GBGA work to promote a level playing field for the operators and access to appropriate entertainment for consumers?

Mr Anderson- The GBGA is an industry body in that it works for the benefi t of all its members. It does have a small number of behaviorally important membership requirements but these are precipitous and not toxic. In this way our members all share the same goals of the GBGA, which are, for instance, to agree upon methods and procedures giving us best practice operationally. This gives the marketplace a level playing fi eld on which each operator can build. Milestone GRP - How do you compare the operators in Gibraltar to other operators elsewhere with regards to best practices, innovation and technological development? Mr Anderson - I have always said that Gibraltar has the “crème de la crème” of the industry operators. The line up of operators is a who’s who of the industry, including many who are London Stock Exchange members. This situation is due to the Government being very selective about who they grant a license to. That being the standard which exists, it will be of no surprise to know that regulation has been welcomed and the business systems have been continually upgraded by all, in order to give best practice to all solutions from a technological development point of view and a consumer protection position. I have often made the point that our systems are probably amongst the best in the world and anyone who visits our facilities will soon see this.

5 0

2002

2003

2004

2005

2006

2007

Global Online Gaming Revenue Source: H2 Gambling Capital

2008

2009P

2010E

2011E

2012E

Source: H2 Gambling Capital, 2009

Mr Anderson - The future of the industry is an interesting topic. Regulated markets are now the future if not the norm. Looking at ten years ago, regulation hardly existed. This regulatory market situation will continue into the future.

Mr Anderson - I have often said that the two most important words in our industry are ‘trust me’. Trust is vital for brand building and customer numbers. Once you have trust your membership numbers go up and people come for a long lifetime value with the operators. It is clear in the industry that fi rst-mover advantage sticks and lasts for some time. Once customers come, based on the trust factor, they will stay for some time. We in Gibraltar sell an entertainment experience and if necessary we even teach people how to play enjoyably and responsibly and how to appreciate the games over a long period of time. As I stated earlier, this is part of our transparency and regulation.

Milestone GRP - What impact does Gibraltar’s Online Gaming sector have on consumers in terms of service & entertainment, responsible gaming and trust? How does this contribute to the ‘acceptability’ of Online Gaming as a legitimate and successful business?

Regulation and Transparency to Build Trust

Licensing will be more and more diffi cult for operators with fewer start-ups due to the high entry cost barrier. This will leave only the best operators left standing and this can only help Gibraltar’s operators. Milestone GRP - What can be learnt from Gibraltar’s success? Do you see opportunities for other jurisdictions to replicate it?

Milestone GRP - What is the future for the industry globally, in terms of diversification, licensing, regulation and the opening of new markets?

Mr Anderson - We have proved in Gibraltar that the case for online gaming is sound. The model we see in Gibraltar is a good one and is likely to be copied, especially in the world environment of fi nancial crisis in which we fi nd ourselves. In fact, the case is extremely compelling and Europe and the USA are adapting to take on board the industry with all the benefi ts it has.

Global Market for Online Gaming Geographical Distribution 2010 / Expected Growth 2011

Online Gaming Global Market

Market Share 2010 & Projected Growth 2011

North America Share: Growth:

20,7% 0,0%

Europe Share: Growth:

Africa Share: Growth:

44,2% 15,2%

Share: Growth: 1,2% 12,2%

Central & South America Share: Growth:

Asia & The Middleeast

3,2% 10,3%

25,9% 5,6%

Oceania Share: Growth:

4,8% 6,9%

Source: H2 Gambling Capital, January 2011

Source: H2Gambling Capital, January 2011 Gibraltar 2012

Online Gaming

New Momentum for a Successful European Online Gambling Market by Ms Sigrid Ligné, Secretary General, European Gaming and Betting Association The European online gaming and betting industry is at the forefront of eCommerce. The sector grows at a steady pace and is expected to reach €13 billion in Gross Gaming Revenue in 2015, up from €8.5 billion in 2010. It is also a new market, coming on top of the traditional offline gambling market, which is predicted to grow by more than 10% to €79 billion over the same period. Last but not least, with 45% of the global online gambling market, Europe has developed a unique leadership position in the online economy. For the first time, Europe has produced a number of global Internet champions, something which has up to now been the preserve of US-based corporations. Against this backdrop, it is even more surprising that policymakers in the EU have been so slow in reacting, especially as European consumers have been voting with each ‘click’ of their mice. Gibraltar has been one of the very few jurisdictions in the EU that has recognized these developments early on and now has the considerable advantage of being an early mover and an experienced regulator. Today we see a flux of Member States regulating, or planning to regulate, the sector. But most regulate from a purely national perspective, without taking into account the inherent cross-border nature of the sector. Whilst gambling is an activity that is, and should be, subject to strict statutory regulation, the piecemeal European Gaming fashion in which the national legal frameworks are developing is not sustainable. Many of these frameworks are contrary to the fundamental principles laid down in the EU Treaties, but many also fail to provide a 2012P competitive regulated offer to the consumers. With the costs for a single EU operator to obtain and maintain just one French license being €8.7 million, even if the operator is already licensed in other Member States, it is unrealistic to assume that such an operator can compete with unlicensed operators that do not have to meet this burden. If the offer isn’t attractive enough, the consumer will easily find his way to the better odds on the internet.

134 concrete standards for, inter alia, the prevention of underage gambling, fraud and to protect consumers in general. EGBA strongly supports the political involvement of the European legislator and the development of a European framework for online gambling. Consumers in the EU should have access to an attractive and competitive offer and rely on properly regulated services that provide all consumers in the EU with a high level of consumer protection. EU-licensed operators should be able to have access to the internal Market without having to acquire 27 licenses and fulfill similar requirements in every jurisdiction. Not just as a matter of principle, but also to be able to compete with unregulated offers and thus keep the consumer off the black market. A European framework will not appear overnight. In the meantime, operators will have to deal on a daily basis with the national regulations that directly affect their operations. Even though the announced Commission Communication is much welcomed, the European Commission does need to take its responsibility as Guardian of the Treaties seriously and actively pursue infringement proceedings against those Member States that cross obvious “red lines” of non-compliance with EU law. Building trust and confidence between European regulators is essential. The European Commission is currently setting up a regulatory cooperation mechanism that will facilitate communication Market and regular information exchange amongst national regulators. EGBA welcomes the efforts of the Gibraltar Gaming Commission in bringing its considerable experience and knowledge to these European Gaming Market meetings, helping to build an EU framework for online gambling. Online Market share 11,9% Gross Revenue: €11 billion

2012P

Online 7,65% €6,5 billion

2008

Offline 88,1% €82 billion

A European regulatory approach is inevitable; carving up the Internal Market into 27 mini internet markets is simply no option. The EU is the only effective and realistic level at which to regulate Offline 92,35% an internet industry. The recent report of the European Parliament €78,5 billion on online gambling in the Internal Market and the Commission Source: H2 Gambling Capital January 2009 European Gaming Market European Online Gaming Market Outlook Communication on online gambling that has been announced for June 2012 show that European policymakers are starting to take 20 ownership as discussions on the direction of the policy are getting underway.

H2 Gambling Capital, January 2009

The discussion doesn’t start completely without a basis. Gambling is covered by a number of European laws, including the 3rd anti-money laundering, the data-protection and the unfair commercial practices directives that apply to all EU-regulated operators, including those licensed by Gibraltar. The European Committee on Standardization (CEN) published a workshop agreement on Responsible Remote Gambling Measures in 2011, providing

US$ (billion)

Source: H2 Gambling Capital January 2009 5

2003

2004

2005

2006

2007

European Online Gaming Market Outlook

2008

2009

2010P 2011E 2012E 2013E 2014E Source: H2 Gambling Capital, January 2011

Source: H2 Gambling Capital, January 2011

2008

Online Gaming

milestone GRP

That company has been very successful in taking clients not only in the Gaming industry but elsewhere, and it is a very successful stand-alone company. It has its own management and fi nance.

Global Online Gaming as Percentage of all Global Gaming Revenue 10 9 8 7

We are innovating all the time, we are looking at what changes, and things are changing very quickly. Smart phones changed the business yet again, and we expect 60% of our business in two years time to be on smart phones and pads. So it is something we will have to work on. But I think we have the best application for mobile in the world now, and we have developed it ourselves. Milestone GRP - In times of economic downturn, is there a stronger case to be made for the Online Gaming sector to be legitimized and properly regulated?

The Rock’s First Online Gaming Licensee Good numbers in the books 15 years on

Mr Chandler - We are in dialogue with 3 countries that have not regulated, licensed or taxed that much at the moment, and none of them are European. So it is an interesting period of development at the moment. We are in the entertainment business and strongly believe governments should regulate, tax and license this industry.

Interview with Mr Victor Chandler, Chairman, Victor Chandler International

Victor Chandler is the Chairman and founder of BetVictor. Established in 1946, BetVictor has over half a million customers in 160 different countries. Mr Chandler recognized the growth in international markets at an early stage and relocated to Gibraltar in 1999 to be able to offer sports betting free from the 9% tax levied in the UK. In 2006, the Racing Post wrote that Chandler is “arguably the most famous bookmaker in the world”. Milestone GRP sat down with Mr Chandler to get his perspective on his company’s development, its transition to Gibraltar and how he sees the Online Gaming industry taking shape.

Milestone GRP - What are the milestones and the key decisions that have been taken since the 1920s and have contributed to making Victor Chandler International what it is today? Mr Victor Chandler - The big milestone has been moving here to Gibraltar, and the most important thing for our business is technology. That has changed all businesses but in particular ours, because now we can be available on every device, whereas before we had only the telephone. So the internet and now the iPad, the iPhone and all the devices that are available to people changed our business. The most signifi cant thing for us is that it allows us to cross borders as long as we have got the languages and the ability to take money. In fact, one of the dependencies is always your ability to get the payments, probably one of the most important things. Gibraltar has allowed us to do this because it is regulated; this enables us to have a platform to engage with clients all over the world. Milestone GRP - You were the first licensee in Gibraltar about 15 years ago. What prompted you to come to Gibraltar at the time, instead of setting up elsewhere? Mr Chandler - I looked at six or seven locations, from South America to Antigua to the Channel Islands, and here the license was already available because it belonged to the owner of the casino that had cleverly got a betting license when it got the license for the casino. It was impossible to have licenses in some places and others had bad telephony. Moreover, the fact that

this was an English speaking country made it easier for us. So we went to look at many jurisdictions: Grand Bahamas, Antigua, Puerto Rico, Jersey, Guernsey, the Isle of Man and Malta. We got a very good reception here. I do not think the Chief Minister had any idea of how the industry would grow at the time and neither did we. No one envisaged what would happen with the internet and how quickly things would change. But 12 years is a short period of time in a business life. Milestone GRP - Is innovation something that has always been part of Victor Chandler or is this something that has come about more as an obligation? What has been your approach to staying ahead technologically? Mr Chandler - It was fairly late in life that I came here and I have a long history in the UK, my father and my grandfather before me. My business in the UK was very similar to their businesses: telephone and betting jobs. There are two industries that have pushed the internet forward, that is Porn and Betting. Porn has nothing to do with Gibraltar, but this industry’s evolution on the internet was the one we followed and watched what it was doing as far as payments were concerned. They developed cloning software before anyone else, so even though this was not an industry we wanted to go into, we watched them push forward. I now own a separate company called Intelligence Payments Group (IPG), which developed a payments system that is worldwide and Payment Card Industry (PCI) compliant, linked up to every bank system and credit card payment system in the world.

Milestone GRP - Where would you like to see markets opening up to this industry and to which would you orient your expansion? Mr Chandler - There is a lot of lobbying to be done with the UK, there are a lot of territories there are open to us. The US is going to work gradually but I do not see them opening up for sports betting for a while. They are opening up for poker but their lobby against sports betting is very strong. We are looking more East. Historically we were the fi rst one to break into the Chinese market, which is a market that has expanded. But minor players in the market, like the ones from Taiwan or Philippines, have also reacted to that. There is business for lots of players out there. Just have a look at the size and population of the two major players, which are China and India. Even though there is a huge gap between the wealthy and the poor, there is business to be done there, as there is in Europe. France would not be one of the countries to consider because of their tax regime, and if Spain went down a similar path it could not be considered either. In the gaming world, sometimes the smaller the tax, the more the revenue the country gets. But a lot of the governments have not been educated to that fact. Milestone GRP - What is key to the future of the Online Gaming industry? Mr Chandler - Certainly more game diversity. If you can fi nd me a new poker, I will be very interested because someone will

5 4 3 2 1 0

2002

2003

2004

2005

2006

2007

2008

2009P

2010E

2012E

hit upon something. Poker had a huge growth and it is now tailed off and the market is contracting noticeably. Although it still has potential in the US, as far as the UK and Europe are concerned the market is contracting by 60%. So you have to fi nd a new one. This is what the industry is looking for. Milestone GRP - How would you judge the market in terms of barriers of entry? Mr Chandler - It would be very hard for anybody to break into the industry from scratch now. The barriers to entry are very high and the investment has gone into the hundreds of millions in each individual company. You cannot get anywhere without being pretty big. You cannot supply the product without a huge investment, from infrastructure to hardware, software, and the biggest investment you make is in staff. Putting a group together to build a business now would be very diffi cult. Milestone GRP - You’ve been operating successfully in Gibraltar for quite a while. What would you tell other businesspeople across different sectors about Gibraltar? Mr Chandler - Gibraltar is a small place so you have to fi t in. Historically, I have had a very good relationship with the Government. I cannot say I have got as close a relationship with the new Government as I had with the previous one, but it is only because we have not known each other for the amount of time I spent with the other one, but I am sure that it will change. The best relationship is when they need you and you need them. We have a good record of employment of local people, and bringing in talent, and they have been very fl exible. We try to bring in as many local people to work with us as we can, but historically it has been accepted that, for example, if you need a Chinese speaking developer, you are not going to fi nd it in Gibraltar. Therefore, they have stretched things for us in allowing us to get work permits very quickly, understanding our problems. The previous Chief Minister said to me I had nine lives when I had problems and that I had only used one of them up. I am sure I will have a similar relationship with this new Government.

Internet

Mobile phones/Other

Internet Protocol Television

2003

€4.8 bn

€0.78 bn

€0.32 bn

2008

€5.9 bn

€na

2012

€7.32 bn

€3.51 bn

€1.33bn

Projected Increase

152.5%

450.0%

415.6%

Share of Online Gaming Market by Device

2011E

Source: H2 Gambling Capital, 2009

Source: EU Public Consultation on Online Gambling in the Single Market, 2010

Gibraltar 2012

Online Gaming

milestone GRP

Milestone GRP - What advantages does Gibraltar offer the Spread Betting industry? Mr Brown - A great thing of being here is the fi nancial regulation. It offers our customers the protection of knowing that the business is regulated while also legitimising the business. In ProSpreads’ case, we are subject to dual regulation, from both the Financial Services Commission and the Gambling Commissioner at the Government. You could actually argue that we are subject to tri regulation, in that our parent company, London Capital Group, also has oversight of our business.

Straddling Finance and Gambling A bet that’s paying off

In the UK, fi nancial spread betting companies are just regulated by the Financial Services Authority and not the Gambling Commission, as spread bets are recognised as a fi nancial product and regulated accordingly. As ProSpreads was the fi rst fi nancial spread betting company to set up in Gibraltar, it was deemed necessary for both regulators to monitor the business; however it would make sense in the future for the Financial Services Commission to take over as the sole regulator. Milestone GRP - You have a unique trading platform. What does that deliver for the high net worth individuals you serve?

Interview with Mr Simon Brown, Managing Director, ProSpreads Simon Brown has over 25 years experience in the fi nancial trading industry. He started on the London Stock Exchange and then moved over to the London International Financial Futures Exchange (LIFFE) market to trade derivatives. Simon’s experience in the trading world resulted in him running the proprietary trading arm of one of the biggest futures and options brokers globally. Following his career in trading, Simon moved to setting up and running trading businesses. He founded one of the fi rst institutional electronic brokering businesses in London, followed by launching the fi rst white label fi nancial spread betting business, which Simon sold in 2007. Following the disposal of his spread betting business, Simon took over the running of ProSpreads, his current position, with the business being acquired by London Capital Group in 2008. Milestone GRP met with him to get his insider’s perspective on the potential for spread betting and ProSpreads’ approach to the industry.

Milestone GRP - Spread betting sits at the crossroad of the financial world and the betting world, two industries with very strong presences in Gibraltar. How would you define ‘spread betting’? Mr Simon Brown - Spread betting started in the 70s by a gentleman called Stuart Wheeler, who started making markets on the price of gold to other city traders, via his company IG Index. Over the next 30 years the spread betting industry started introducing bets on other products, including indices, commodities currencies and single shares. The traditional investor’s modus operandi was to buy and hold stocks and shares; however when the stock market tech bubble burst in 2000 the huge collapse in share prices made investors look for ways to capitalize on falling prices, as opposed to just rising prices. So they fell on this product called spread betting and that was really the launch of spread betting for the mainstream investor and trader. It is now the number one product for people who want to speculate on fi nancial markets in the UK. Now, if you want to buy Vodafone or Apple shares, you can either buy the shares themselves, or you can buy a bet on the shares. These fi nancial bets are defi ned as derivatives, and the companies who offer them are regulated by the Financial Services Authority in the UK and the Financial Services Commission in Gibraltar. In addition to these derivative products being traded on margin and

Mr Brown - Speed and transparency. We have some clients who trade a thousand times in a month. So when the markets are moving in a very volatile fashion, as they have been over the

last couple of years, speed of execution can be the difference between a profi table trade and a losing trade. To give you an example, a client will press a buy button on the platform, which will instruct us to send a message to the exchange to hedge, and once executed inform the client that he has his bet. All this takes place in a matter of milliseconds. So when the market is moving rapidly, a one second delay could mean a big difference in price of execution. Gold is a perfect example as it can move 50-100 points in a minute and therefore a delay in executing the client’s bet could result in an unfavourable price being achieved. So for active traders, especially the ones who like volatility, speed is everything. Because our prices are directly referenced from the actual fi nancial market place, our clients have comfort in the transparency of knowing that our price is the market price. Milestone GRP - What is your development strategy? Mr Brown - Innovation and international expansion is our focus over the next two years, as our client base at the moment is predominantly UK based. We are launching other products that are very similar to spread betting but more appropriate for the international client base. Continental Europe, the Middle East and Far East are target areas for our phase one international expansion program and I expect our advanced technology and quality of service to create a healthy international client base.

being bets, there is no capital gains tax on any winnings for UK tax payers. So you can see why utilising spread bets to gain exposure to the fi nancial markets is very popular in the UK. Milestone GRP - How did ProSpreads come to be based in Gibraltar? Mr Brown - The founders of ProSpreads (and myself) used to trade futures and options on the open outcry markets in London for about 20 years. Following the demise of the open outcry markets in London and the introduction of electronic trading in 1999, the founders moved overseas, and decided to set a business up in Gibraltar. Given that technology had fi rmly taken over the fi nancial markets, they thought they would provide a service for individual traders who used to trade on the futures market, allowing them to utilise the best trading technology to now trade from the screen. They wanted to provide an environment down in Gibraltar where the lifestyle was brilliant, the tax was effi cient and it was regulated. So they brought UK traders down to Gibraltar to work in a trading room with best of breed technology and support, to sit there and trade. The founders soon realised that not all traders would necessarily want to work and live outside the UK and therefore thought of offering a service for traders back in the UK with the same technology and tax effi ciency would be extremely popular. And as the trade would be a bet, they would benefi t from the prospect of tax-free gains.

Gibraltar 2012

Telecoms & IT

milestone GRP

The GRA carries out market reviews on the Industry, which are required by EU law. We regulate the industry and we license the radio spectrum. I regulate a limited amount of entities since Gibraltar only has 3 network operators, and 5 service providers. Milestone GRP - Is Gibraltar’s Online Gaming sector regulated under the Communications Act in any way?

Ensuring Compliance and Fair Play Regulating the Telecoms sector

Interview with Mr Paul Canessa, Chief Executive, Gibraltar Regulatory Authority

Paul Canessa is the Chief Executive Officer of the Gibraltar Regulatory Authority. He has held the post since October 2000. Mr Canessa is responsible for regulating the electronic communications sector in Gibraltar, which includes the licensing of the radio spectrum, satellite communications and broadcasting. Mr Canessa is also the Data Protection Commissioner. Paul Canessa’s background is in broadcasting, having been a television producer/journalist, and then Head of News and Current Affairs with the Gibraltar Broadcasting Corporation.

Milestone GRP - What are the Gibraltar Regulatory Authority’s (GRA) main areas of responsibility? Mr Paul Canessa - The GRA is the National Regulatory Authority (NRA) for Gibraltar, which follows the pattern of all EU Member States where NRA’s have been set up to regulate the electronic communications sector to conform with the provisions set out by the EU in the way of Directives, Regulations and Recommendations. These EU directives, together with national law, were enacted to carry out these obligations, regulate the Gibraltar market and establish a level playing fi eld for those new entrants wishing to compete in offering customers existing services or new services and products. The intrinsic purpose of the GRA is thus to regulate the market and effect fair, reasonable and non-discriminatory terms for other service providers wishing to offer services whilst maintaining competition. The GRA is an independent body; it advises the Minister for Communications. The GRA has the powers to regulate the electronic communications sector by virtue of the Communications Act 2006 and accompanying Regulations. Its role is that of a supervisory body which regulates and enforces compliance in areas such as competition and the granting and monitoring of radio spectrum licences. Not all market players will behave in the appropriate manner, some, like in all business settings, will try to use their muscle power to compete in what is now considered an unfair manner in order to get more customers or even keep existing ones. This kind of behaviour will not allow compe-

tition in the market to develop in its true sense, so the GRA has the power to put an end to behaviour that is not allowed by the legislation and detrimental to the competitive ethos of the EU. In this and all its duties, the GRA is always impartial, fair and reasonable. The GRA can and does issue Directions that require action by operators and service providers to comply with the law. A person who does not, or refuses to, do anything required of him by a Direction is guilty of an offence and liable to be fi ned. The GRA has many regulatory powers, from a role in monitoring existing and new service providers, to intervening in interconnection agreements between network providers. Very importantly, the GRA also acts as arbitrator in disputes between customers and their service provider or operator, and disputes between operators themselves. Procedures have been established which aim to resolve these disputes effectively for all the parties involved. Milestone GRP - Which of Gibraltar’s specific industries and sub-sectors do you oversee? Mr Canessa - We have two main areas of responsibility: telecommunications in all of its fi elds, which include the regulation of the Industry in Gibraltar, Satellite Communication, Radio Communication, including the granting of frequencies and licenses. I am also the Data Protection Commissioner, so it is a dual role.

Mr Canessa - The Gaming Industry does not come under the GRA. It used to, but it has now moved and comes under the Ministry for Financial Services. Part of the reason for this change is that for the industries we regulate, the EU directives require that our regulatory function be independent of the Government. In the Gaming sector it is different; there is no requirement to have independent regulation. So there was a dual regime whereby the Ministry did the licensing and the Regulator only regulated post-licensing, ensuring compliance with the licensing. So I was involved in the Gaming regulation up until early last year. Milestone GRP - Does the telecommunications legislation in Gibraltar comply with the EU’s requirements? Mr Canessa - Yes, the new telecoms reform package became law in Gibraltar on 26th May 2011. The rules governing the Telecoms sector in the EU were agreed in 2002. In this fast-developing sector, the regulatory framework needed to be revised, to ensure it continues to serve the best interests of consumers and industry in today’s marketplace. The EU formally adopted the Telecoms Reform package on 20th November 2009 and it entered into force on 18th December 2009. These new rules have an important impact, amongst other things, on competition, consumer rights, data security and spectrum use across Europe. The new telecoms rules reinforce national telecoms regulators’ independence by eliminating political interference in their day-to-day duties and by adding protection against arbitrary dismissal for the heads of national regulators. Milestone GRP - How do you assess the quality of telecommunication infrastructure in Gibraltar? Mr Canessa - Gibraltar has excellent telecommunications infrastructure. The reach of the network is 100% and there are robust fi bre networks which provide full resilience. Both Gibtelecom and Sapphire, the two largest operators, have international cable links from Gibraltar with enough capacity to meet the current and future demands of companies using Gibraltar. Milestone GRP - Gibraltar currently hosts one satellite services company. Do you see room for the growth of this industry in Gibraltar?

ADSL

Dialup

Metro

WiMAX

12000

Individual Connections

In a place the size of Gibraltar, it is easier to have only one Regulatory Authority with common administrative infrastructure, and it keeps costs down. Moreover, the requirements for both telecommunications and data protection all derive from the EU directive requirements. The EU Directives require an independent regulator and this independence is assured by establishing the regulatory authority.

9600 7200 4800 2400 0 2003

2004

2005

2006

2007

Internet Connections by Type Internet Connections by Type

2008

2009

2010

2011

Source: GRA, 2010/11

Source: Gibraltar Regulatory Authority

Mr Canessa - The market for satellite-delivered services continues to grow and even in the aftermath of the 2008 recession it became apparent that the global satellite industry was quite resilient to the effects of economic change. The demand for satellite spectrum, which is a fi nite resource, is highly sought after as the world’s geostationary orbit becomes increasingly congested with satellites providing services such as broadcasting, telephony and internet connectivity. In order to consolidate the UK space industry and encourage growth of both scientifi c and commercial satellite services, the UK Government formed the UK Space Agency (UKSA) in 2010. The UK is a leader in small satellite technology, and has world class expertise in space science and engineering but had never fully embraced the commercial side and most of the UK’s satellite operators are in fact US companies who have found the US requirements for fi ling and the associated bonds far too stringent and expensive, and have established companies in the UK and its Overseas Territories as a means to fi le for orbital locations over the USA at a fraction of the costs. The international satellite operator, SES, has established a company in Gibraltar to fi le for orbital slots across the globe, but primarily for broadcasting over the USA. We currently have fi led for over 20 orbital locations in the geostationary orbit and SES have 6 satellites operating from UK/Gibraltar slots. The satellite control centre in Gibraltar is fully integrated into SES’ global control network and employs 8 highly skilled staff who control and monitor 5 satellites and provide back-up control for another 5 satellites and the Earth station located on Windmill Hill provides direct telemetry and control of a US satellite which is part of the SES fl eet. Taking into account that the average lifespan of broadcasting satellites is about 15 years, and that Gibraltar’s control centre is fully integrated into the SES global network we are confi dent that SES will remain in Gibraltar for many more years to come. Looking into the future, there is potential to develop the use of Gibraltar for satellite hosting and we have received several inquiries from satellite companies who are considering using Gibraltar. Milestone GRP - How do you stay abreast of these new developments in the EU and globally? Mr Canessa - By reading a lot and trying to be aware of up-andcoming changes. We were asked to join the International Institute of Communications’ (IIC) International Regulators Forum (IRF) several years ago. We attend their annual events, which

Gibraltar 2012

Telecoms & IT

milestone GRP

Distribution of Registered Data Controllers

Distribution of Registered Data Controllers 5% Gaming & Betting 9% Government Department

largest market share are always much more heavily regulated than a new entrant is. Milestone GRP - How do you see the future of the GRA?

49% Financial Services, Insurance & Legal 18% Service

2% Education 11% Retail

Source: GRA, 2010/11

deal with topical issues for regulators on telecommunications and broadcasting matters. The IRF is extremely useful because it is held over a weekend, and it is a closed session for regulators and totally unattributable, so there is no public involvement, which is very useful. That is one of the main events with which we keep abreast. We also follow what happens in the EU with any changes that are coming up, because those will affect Gibraltar. We have to implement all the relevant directives and it is a huge challenge to transpose directives and ensure that they will work for a market the size of Gibraltar. But we always achieve it. We still have to implement directives and adapt them and do market reviews periodically. We have got to impose obligations on the companies with significant market power and the ones with the

Going up and high-tech

Interview with Mr Harry Pallas, Senior Manager, SES Gibraltar

3% Health 3% Bank

On the Med and in the Skies

Mr Canessa - We have recently been given responsibility for the regulation of broadcasting. The new Audio-visual Media Services Directive, was implemented here last year and gave the GRA new responsibilities in the regulation of broadcasting content. Our role will increase once Gibraltar converts to digital broadcasting at the end of 2012. This will also permit the Government to license new broadcasters. Milestone GRP - What change would you like to see in the coming years? Mr Canessa - I would like the regulation to be simpler and certainly less onerous for Gibraltar, where we have to implement an EU regulatory regime, which was never designed for a place the size of Gibraltar. But we are part of the EU family, we have to comply with the rules, and Gibraltar wants to be part of Europe. Also, to its credit and benefit, Gibraltar has a superb knack for surviving and making the best of things. As such, it has not been affected very badly by the recession. There have been reports of some effects, but Gibraltar always survives and adapts.

Milestone GRP - What does SES do in Gibraltar? Mr Harry Pallas - The business plan for SES is that we buy satellites, we have the expertise to operate them and we then rent out TV channels on those satellites to TV companies, thereby getting profit and repayment of the capital invested. To operate those satellites you need satellite control centres as well as a whole host of other activities. Gibraltar provides one of a total of 4 control centres that SES operates. We have a control centre in Luxembourg, one in New Jersey, one in Maryland, and this one in Gibraltar. So we are a control centre for the physical operation of the satellites, and this is because of the Gibraltar Governmentâ&#x20AC;&#x2DC;s requirement that when they licence a satellite, the control centre has to be in Gibraltar. Milestone GRP - Why did SES choose Gibraltar as a jurisdiction to licence its satellites through? Mr Pallas - Gibraltar was able to assist SES in obtaining slots for satellites in the correct orbit that are useful for TV communications. Without Gibraltar, you would be perhaps be looking at a one or two-year period in order to obtain clearance to place satellites in particular places in orbit. Gibraltar has been able in the past to do this generally within a six-month time frame. In a very recent case, we have done it in a two-month time frame. We do all the due diligence that companies require, and we have the expertise, the money and the previous experience of placing satellites in orbit. You have to obtain the licence from the International Telecommunications Union, which is a branch of the United Nations in Geneva. We use the office of communications in the UK, Ofcom, to assist in this but it is all an effort through the Gibraltar Regulatory Authority. Therefore, once you obtain the licence to operate a satellite in a particular slot, then that satellite has to be operated technically and controlled from Gibraltar. Milestone GRP - Why does Gibraltar have this capacity that others do not have? Mr Pallas - Gibraltar has a small and very fast Administration and Government, so that we can actually get things to market and we can assist companies very quickly to get their business plans on track. Unlike some other administrations like the USA, once you come to Gibraltar with the business plan, the Government can get it to happen, but you are the ones that have to do it. Whereas in the USA you come with an interesting business plan and you submit the proposal and the government says it is a good idea and two years down the line they publish a request for tenders and proposals. Therefore your competitors get to do it or get to compete with you for this brilliant business prospect that you

devised. So companies feel that Gibraltar is a great place to do business. Once you come in with a business plan, it is yours, it is not opened up to the competitors to come and do the same thing. If you demonstrate that you have the money, the expertise and a good idea, you can go for it. We have been very successful in this since we have got 6 satellites that are now licensed through Gibraltar. Milestone GRP - How do you see Gibraltar positioning itself as a knowledge-based economy? Mr Pallas - In many cases small can be beautiful. You can exploit niche markets by providing a good, quick service to customers, I do not know a lot about other industries, but I know we can get things to market very quickly within what we do. An example is the satellite called SES3. It was at 80 degrees west somewhere over the USA, we decided to move it 180 degrees east, somewhere at the level of Japan, serving the Indian and Chinese market. This was a relatively new satellite, had lots of fuel and we had to move it more than half way around the world, over the Atlantic and Middle East because there was more accessibility of ground stations to control it on the way there. It took us two months to move the satellite because it was three diameters away from the earth, it was a huge long journey, and we moved it as fast as we dared. The main thing about that was that Gibraltar managed to get the permissions for the slot during that 2-month period when we moved from one place to another. This would have never happened with any other administration, and Gibraltar was very agile in obtaining that and it is now the primary control satellite we fly that and it is serving the Asian market. It is a value-add for Gibraltar. What we do here brings direct cash input into the Gibraltar economy externally since we are not selling and moving money around inside here, we are receiving a net influx of money for the operations from our head company. We are not a profit centre but a cost centre for the company, and we get paid for what we do for them. In the context of a small economy like ours it is important it runs into the millions of pounds a year. We are providing that direct input into Gibraltarâ&#x20AC;&#x2DC;s economy. So if you are small and have good infrastructure, good telecommunications and a responsive agile administration, and also have an environment where you can do business, where there is hopefully little corruption, and you can get things done officially without having to wait until somebody agrees, things happen and results come in good benefits. Gibraltar being a very small economy, gives the opportunity to just focus on a few niche markets and exploits them to good effect, and does a better job than other administrations in that area. That is what we do with satellites. There is no reason why another industry could not do it; we just got here first.

Gibraltar 2012

Online Gaming Telecoms & IT & IT

milestone GRP

What has been good for Gibraltar and the company, is that ecommerce has helped Gibtelecom to raise its game as the internet businesses we deal with are very demanding organizations since every second counts for them in a very immediate and competitive environment. This has helped us advance not just the communications technology, but many other aspects of our business. The egaming companies could not have come here if the telecommunications had not been there, but since they came the infrastructure has been further developed. As an example, there used to be just one fi bre optic ring going out of Gibraltar so, if anything happened to that one link everything could be out. It never happened, but now we have several independent routes across the border to Spain - from where we drop on to different carriers. We also now have a submarine cable landing in Gibraltar. So all of this diversity and resilience has partly come about because of the e-gaming industry and its needs. But it would have come about anyway in time as businesses are increasingly dependent on communications.

Telecoms Growing in Pace with the Economy An all-round provider extending its reach Interview with Mr Tim Bristow, CEO, Gibtelecom

Tim Bristow has been the Chief Executive Offi cer of Gibtelecom since 2002, when Gibraltar Nynex Communications merged with Gibtel. He is also an independent Non-Executive Director of bwin.party digital entertainment plc and Chairman of their Ethics Committee. His previous directorships include subsidiaries of the Northumbrian Water Group plc, British Telecom plc and Verizon Communications Inc. Mr Bristow is a former Financial and Development Secretary of Gibraltar and before that was a Director at the UK National Audit Offi ce in London, where he trained as an accountant after graduating. He met with Milestone GRP to discuss the development of Gibraltar’s telecommunications sector, Gibtelecom’s position within it and the how Gibraltar is becoming an international telecommunications hub.

Milestone GRP - How has Gibraltar evolved as an IT hub? Mr Tim Bristow - Gibtelecom has always been at the forefront of technological developments. The company originates from two sources: one was always a private sector company, fi rst Cable and Wireless and subsequently British Telecom. The other came from the privatisation of a Government department, Gibraltar Nynex Communications (GNC), which became part of the Verizon group of the US. Gibtelecom emerged from the fusion of these businesses, and is now jointly owned by Telekom Slovenije and the Government of Gibraltar. The privatisation in May 1990 was therefore ahead of the curve for privatizations of incumbent telephone businesses. British Telecom had been privatized not long before. As part of that privatization contract GNC, built a fi bre optics network throughout Gibraltar. That was also ahead of the curve, and the fact that Gibraltar was able to advance the way it has, is partly because that fi bre network was built. We could not have had the fi nancial services and e-gaming industries here unless Gibraltar had this telecommunications backbone. So in that sense, I think Gibraltar has always been at the forefront of telecoms technology. Milestone GRP - How would you describe the current legislation regulating the telecoms industry in Gibraltar? Mr Bristow - Gibraltar follows the EU legislative framework, and there are a whole range of directives on telecommunications and

communications. It does not have any choice. When these directives fi rst commenced in the 1990s one could argue that derogations should have been sought for Gibraltar due to its size. But that did not happen and so Gibraltar applies the entire range of directives. This EU legislation to encourage liberalization and competition, designed for countries with millions of people, are actually transposed into Gibraltar law, and for a business of our size it creates quite a challenge and carries a cost. Gibtelecom have a turnover of about 44 million Euros. The cost of running the business – and of regulating it to EU standards and all that that requires - is quite onerous. We are spending well over a million Euros a year on licences and being a regulated entity, which is a signifi cant proportion of our turnover. Milestone GRP - What are the specific requirements of the specialized industries in Gibraltar and maybe even the sheer location that Gibraltar is to a telecommunications company? Mr Bristow - Gibraltar is a microcosm of a larger state, and all the services people have in larger places are wanted here. Gibtelecom are just a micro-version of former incumbents elsewhere, but of course the business volumes are much smaller. What is perhaps different here, compared to bigger countries, is the higher proportion of international traffi c that requires good communications networks. I think for Gibtelecom the challenge with some of the e-commerce businesses is that the internet is a very immediate and unforgiving activity.

Milestone GRP - How have your three brands evolved? Which areas offer growth opportunities and what trends do you see emerging? Mr Bristow - Our fi xed-line voice, like everywhere, is in decline. We have just as many customers because Gibraltar has been growing, but we are carrying less minutes. So there has been a growth in the number of lines but usage locally and to abroad is reducing generally, partly due to internet technologies such as conferencing type calling and email. Mobile continues to grow and we have had a 3G+ network for quite a few years. The internet is also a growing business. Compared to European standards, Gibraltar has a substantially high penetration rate for broadband. It is currently reaching over 80% of households and per capita we hit 35%. Because of the small geographical area we cover, we do not face the broadband problems that larger places experience. We do not have very long copper runs and there is lots of fi bre, so there is no deterioration due to distance. People can have reasonable broadband speed everywhere in Gibraltar. Another growth area is providing international connectivity for businesses. We do point-to-point international private leased circuits, where we take a business directly from here to say Madrid or London. The egaming companies hire dedicated internet bandwidth that takes them to where they need to operate, and this has been a substantial growth area too. We have also moved into data centres and are now the biggest providers on the Rock. We are also a landing station for the new Europe-India Gateway submarine cable project. It is this considerable business diversifi cation that has facilitated us continuing to grow. Our growth last year, in a time of worldwide economic downturn, was approaching 10%. We have been reaching - or getting close to - double digit growth for a number of years now, and part of that is because we are diversifying. Milestone GRP - What are you developing right now in terms of data centres? Mr Bristow - We have three data centres. With every new one we’ve built we thought at the time there was a risk of supply

out running demand. We are currently building two more in a facility, located well above sea level and away from the main business centres, which moves our capacity up to nearly 300 racks. But these data centres fi ll up, even before we lay the last brick, and that has happened every time. They use the latest industry standard technologies, including effi cient cooling and standby power, and are Payment Card Industry (PCI) accredited for data security. Milestone GRP - What is the Europe-India Gateway project and how is Gibtelecom involved? Mr Bristow - For many years, Gibraltar has wanted a submarine cable link, and for different reasons this did not happen till recently. In 2006, we got involved with a project called SEA-ME-WE5, which was a submarine cable that was going to be built from India to London but the consortium eventually fell apart. A small group, Gibtelecom included, became the founder-shareholders of what is now the Europe India Gateway system. It is a consortium of 16 companies, and Gibtelecom are really punching above our weight in terms of the partners we have – Verizon Business , British Telecom, C&W Communications, South Africa Telecom and Bharti, just to mention a few. Put simply, the Europe-India Gateway is a 15,000 km submarine cable system utilising next generation fi bre optic technology. For us it represents a substantial investment costing about 30 million dollars. Most of these worldwide cable projects today tend to be built by a consortium, because they are expensive and also because they involve many different places. For example, you have to be licensed to land a cable, so it works to have a partner who is located in the countries or territories concerned. Within this 15,000 km system there are 13 landings: from London to Portugal, then into Gibraltar, to Monaco France, Libya, Egypt, then through the Middle East and down to India. It is an exciting project for Gibtelecom for two reasons. First, it is the fi rst time a commercial fi bre optic submarine cable has landed here. It means we have even more route diversity because sea cables tend to be less susceptible to damage than land cables. The other exciting factor is that Gibtelecom are actually now a global carrier. Because of the amount of capacity we own, we are now a global carrier and bandwidth wholesaler. All of Gibraltar’s traffi c would currently equate to much less than 10% of the total current capacity Gibtelecom have on the cable worldwide, so we have to sell quite a lot elsewhere. For this reason we appointed an international director last year. He spends some of his time here, and a substantial amount doing Gibtelecom’s business around the world. I was with him in the southern hemisphere last week and in Europe the week before looking to develop our international business. In the long run, if we are successful, this offshore business could provide more growth opportunities. I would like to think we could join other submarine cable projects. There could be the prospect for us to connect Africa and Europe via Gibraltar, which is a project we have been looking at for some time. Therefore, if this international business grows, it may over time become as big as our domestic one. As we go forward Gibtelecom will become more and more diversifi ed, because here as the former incumbent we are highly regulated with price controls, we face increasing competition, and so it becomes a harder local market.

Gibraltar 2012

Telecoms & IT

Milestone GRP - Who are the clients? Who are you marketing to? Mr Bristow - We have to see what happens. I was in South Africa recently, partly for an EIG consortium meeting, but also using the opportunity of being there to build some relationships with some local carriers. There are cables that have been built around Africa, but eventually they have to connect to other cable systems. It is a highly competitive business, and of course the consortium members are all competitors with each other. So whilst we work together, we are also in competition. Milestone GRP - When we met Mr Isola of Sapphire, he stated that there are areas where the two companies could work together. What is Gibtelecom’s position on the possibility of such synergies existing? Mr Bristow - It is good for a former incumbent telco to face competition and for consumers to have more choice. Our competitors here in Gibraltar tend to focus on a niche market - Sapphire, apart from offering broadband services for which in part they are using our technology, I understand focus on providing dedicated bandwidth and other services to the egaming and business community. Of course there could be synergies, but the reality is that these online customers like to have different suppliers. A gaming company looks to have diverse routes, and having different carriers ensures this. So obvious areas like that, where there could be synergies that would be good for the whole economy and jurisdiction, would probably not work for some consumers. Never say never, but the reality is that in a regulated market such as this one, Gibtelecom needs to have competition and if it was not Sapphire, it would be someone else. Milestone GRP - You have been with the company for 10 years. At which stage of its life cycle is Gibtelecom and how do you see it evolving over the next couple of years? Mr Bristow - A decade is a long time, but telecom is a great business to be in here - it is a constantly developing and changing industry. We have been through a journey, where a lot of synergies were involved to merge companies together to create Gibtelecom. Although the workforce was initially reduced, on the back of the business being modernised and reshaped back then we now do many more things than 10 years ago. We are a genuine one-stop shop for all fi xed line, internet, mobile

Europe India Gateway Project Bude

and enterprise services and products, with a ground breaking single bill. Going forward I can only see us continuing to move in this direction. There is another mobile company here already and another one set to start up. In this small place this means there will be three local mobile competitors! We are just now at the stage where our broadband speeds are getting faster. Generally, if we sell four megabytes of bandwidth, it will run at four megabytes. Later this year, we are completing putting in the technology that will enable us to ramp up our broadband speeds. We envisage 40-50 uncontended megabyte connections without a problem. This same technology will enable us to put multimedia services, like TV, down the telephone lines. That could be an opportunity if we decide to go that way and if the local authorities are prepared to grant Gibtelecom a licence, or perhaps we get into a partnership with an existing broadcasting provider. There are a lot of exciting opportunities. I cannot see the telecommunications sector getting any less challenging. However, as well as opportunities there are threats, the online gaming sector being an example of both. Something is likely to happen in the European egaming space. At the moment countries are individually choosing how to license and regulate this industry, like the UK, Italy, France and Spain. Then you have other countries such as Germany , which have more restrictive laws. The technology tends to be ahead of the politics, and I think in areas like online gaming something is surely likely to happen European wide over the next decade. It could be both an opportunity for Gibraltar or a threat, but overall I believe this industry will continue to grow here. I think Gibraltar is a great place to have data centres and this is another business we can build on. Being away from the major centres of Europe provides companies with diversifi cation and Gibraltar enjoys very good telecommunications connectivity with the wider world. We probably need to make telecoms more price competitive, although the overall Gibraltar package available to business is very attractive. Our data centres business focuses on companies that have their head quarters or operations here at the moment, but we could also look to attract clients operating from outside the jurisdiction. With the submarine cable, Gibtelecom has now become a global carrier and business. We are pretty unique and that provides an opportunity, because if we do the right things and carefully, we can build a bigger international business and contribute more to Gibraltar on the way.

London London

• 16 consortium members • $700m fibre optic cable, UK to India

Marseille

• c$30m Gibtelecom investment

Sesimbra

• 15,000 kilometres • Partial activation in February 2011

Monaco

Gibraltar Tripoli

Suez Alexandria Cairo Jeddah

• Complements fibre land routes • Capacity of 3,84 terabits/second Djibouti

Fujairah Muscat

Mumbai

Telecoms & IT

milestone GRP

From Back-up to Primary Provider

Keeping the Online Gaming sector connected Interview with Mr Lawrence Isola, CEO of Sapphire Networks

Lawrence Isola is a founding member of the Fiduciary Group of Companies, one of the largest corporate and trust service entities in Gibraltar. He is a Director of Fiduciary Property Services Limited and BMI Property Matters Limited. Mr Isola is also involved in the management and development of property including Europort, Gibraltar’s largest commercial property development, as well as Atlantic Suites and Kings Wharf - two of Gibraltar’s most prestigious property developments. He is a founding member and Managing Director of Broadband Gibraltar Ltd trading as Sapphire Networks. Milestone GRP met with Mr Isola to get his views on the importance of telecommunications for Gibraltar’s economic growth and diversification, as well as his company’s pioneering role in the sector’s development.

Milestone GRP - How has Gibraltar’s Telecom sector evolved in the last ten years, and where does it stand today? Mr Lawrence Isola -The Telecom sector has evolved enormously. In the early 2000s we already had an interest in a small internet provider by the name of Gibnet, which originally introduced the internet in Gibraltar when people still did not know anything about it. The markets were not properly liberalised in Gibraltar and there was a monopoly in place. As landlords of Europort, the biggest commercial business centre in Gibraltar, we had one of the fi rst big gaming companies that set up here, 888. John Anderson was their chairman. He used to visit me often to release his frustrations because they would have an average of two hours outage every week. For a business dependent on the internet, that represented a major issue. This infl uenced our decision to invest in a much needed telecommunications company named Sapphire. Back then Gibraltar desperately needed an alternative. Not only for competitive reasons but also because at that early stage of the gaming industries growth in Gibraltar it became self evident that the quality and resilience of connectivity was crucial if Gibraltar wanted to continue to attract the business. In the early stages of the gaming growth even the Regulator struggled to impose full compliance with their licenses, which meant bringing all their services to Gibraltar because the quality of the

connectivity was simply not good enough. Sapphire soon enabled the Government and the Regulator to do just that. As a result, when we were ready, functioning and had the right service quality, more business came to Gibraltar. Gibtelecom saw real competition and in fairness their services also began to improve. My argument with those I knew in Gibtelecom was that we were all going to share in that growth because we were all contributing to it. Today everybody accepts that having several providers in a jurisdiction is not just important, it is necessary and it gives more credibility. There have been many advantages from Sapphire coming in. We have taken many risks but now we are picking up some of the rewards. Milestone GRP - Do you work with the incumbent? Mr Isola - We do, we provide an ADSL service via their ADSL lines to some homes, but we cannot compete with them. Whatever they do, we can follow, but we cannot dictate price. This goes back to the Reference Unbundling Offer, which in my view does not work. When markets were liberalised the incumbents were supposed to open up their networks and let competitors in. This did not work in the UK and it has not worked in Gibraltar either. In the early stages of Sapphire, we were supposed to be allowed to use the ducts of the incumbent for the roll out of our network but it became a total nonsense. It took me three months to decide that we had to forget the incumbent and do

it ourselves otherwise we would not have got anywhere. We would have just spent fi ve years fi ghting it. We ended up investing in our own network and that was probably the best thing that happened. So we own our fi bre network around the Rock and we also have our own 10–12km fi bre network in La Linea, Spain. Then, we rent fi bres that take us to Madrid through diverse circuits. There are huge advantages that come from being able to control and run our own network. We have solutions for DDoS (Distributed Denial of Service Attacks), which is very important for the gaming industry.

cerned, I would love the fi nancial sector to grow, as much as the gaming sector. Within the gaming sector, there is not the same level of certainty that there is in other sectors such as insurance and fi nance, these keep growing slowly but steadily. Gaming has primarily come in over the last decade and I think there are still elements of uncertainty for its long term future largely due to the fragmenting tax structures forming within Europe. Even the gaming companies themselves say that they cannot see more than 5 years ahead as there are changes taking place all the time.

Milestone GRP - At what stage of its life cycle do you see Sapphire now?

From where we are sitting we hope to help to set the standard and maybe encourage other IT-orientated businesses to look at Gibraltar more seriously than in the past now that we enjoy a new and credible low tax regime. I see a future of Data Centres housing companies from many different fi nancial backgrounds that could potentially contribute to Gibraltar’s growth and what we provide in Gibraltar on the IP front is as good or indeed better than in any other part of the world. You could say that we have the gaming industry to thank for the quality of connectivity that we enjoy today, but this has placed us well to attract a more diverse range of businesses which will require equally high standards. Therefore Gibraltar is also well placed to now attract more diverse IT oriented businesses.

Mr Isola - I would like to think Sapphire is now establishing itself as a credible primary provider. We started off being the backup to the incumbent and in most cases have now become the primary provider with the incumbent serving as the back up. Sapphire is well known in IT circles and to those that are linked to this kind of business so we do not tend to have large marketing budgets. Milestone GRP - How have you invested in technology and the consumer experience in order for Sapphire to reach that level of maturity? Mr Isola - We are a boutique provider, very focused in the service we provide primarily to gaming companies and to specialised businesses that need a particular quality of connectivity. We are continuously interacting with the gaming community and with their IT departments, so we get a lot of useful information that helps us help them. A year and a half ago, we joined LINX in London and AMS-IX in Amsterdam, the two biggest Internet peering infrastructures. Therefore, we can peer with other big bandwidth providers in places where our clients are based. For example, people that are playing in Manchester with Bwin.Party will be a hop from Manchester, to London, to Madrid to Sapphire. This increases the effi ciency of the communication, the effi ciency of the latency, without any packet loss - the less hops, the quicker and cleaner the passage. Although it was expensive to set-up, this was very welcomed by the gaming industry. We have now upgraded our equipment to carrier grade. Even though we are just a small company in Gibraltar, we are using equipment that is used by big carriers with networks that travel across the globe. The edge of our network sits in Madrid, not at the frontier, and we have our own fi bre network in Spain. We source our own IP in Madrid and have fi ve IP providers - Cogent specialises in networks that go to the Far East and Level 3 specialises in crossing the Atlantic to America. We therefore have plenty of redundancy. If there is a company in Gibraltar that is doing more business with the Far East we direct their traffi c through Cogent, which improves the latency and is more effi cient. This is one of the advantages our network gives us. Milestone GRP - The Financial sector is poised for continued growth but the Government is carefully managing the Online Gaming sector’s growth. How do you see the future along this line? Are you going to target new markets? Mr Isola - It is not for us to decide what markets to encourage, we do not really bring them here. As far as Sapphire is con-

Milestone GRP - What factor do you see inﬂuencing investment into Gibraltar and which areas do you identify as ripe for growth? Mr Isola - The tax reform will play an important part, even if it will take some time to see its effects. In the past the Government have been very selective in their choice of gaming companies and this is important but I do not think there is any harm in allowing a few more so long as they have the right qualifi cations and standards. Although available space is presently a problem for Gibraltar I believe the data centre area of business is likely to continue to grow as more IT orientated businesses choose to base themselves in this jurisdiction. We are now about to acquire a data centre and are also designing another one. I see this as a growth area. Going into data centre business is almost a form of diversifi cation within the Telecom business. We are well placed here in Europort as we enjoy infrastructure that is unequalled in Gibraltar with well-maintained back-up power stations which also back-up our sizeable cooling plant. Gibraltar needs to become a little more aggressive in the marketing of its new low tax regime with its excellent communications facilities for IT based businesses that can benefi t from these advantages. This is where I see the most obvious growth potential, which will infl uence investment into Gibraltar. Milestone GRP - Will Sapphire become a full-blown complete Telecom service provider? Mr Isola - That was always the plan and it will be the case in a few years, without any doubt. I am not sure about whether we will go into the Mobile sector. If we do, it will probably be on the back of another carrier. We are coming up with a locally novel idea for VoIP [Voice over Internet Protocol] with cloud and DR, things that are not available in Gibraltar, and wont be until we do it. I think Sapphire will be a leader in that fi eld as we are with the internet. But it does take time to do things properly and rolling out networks is not easy at the best of times. However we are getting there!

Gibraltar 2012

Telecoms & IT

Milestone GRP - You are one of the important entrepreneurs in Gibraltar, with interests in very different businesses. How do you create synergies between your different companies? Mr Isola - Gibraltar being a small place makes it more manageable to handle different interests. When you are dealing, as a landlord, with companies, in particular gaming companies that require telco and property services of one sort or another then obviously there are synergies and relationships inevitably develop in several ways. One example is the cooling plant which services the Europort complex, as well as the Hospital and Atlantic Suites. It is a huge asset for us, because it provides chilled water, which for the purposes of data centres is very important. Sapphire in partnership with the landlord developed this resilient facility to service tenants. This is an obvious synergy and has put Europort in the front line when it comes to infrastructure, which is a very important aspect of keeping business going through its redundant power and cooling facilities. Milestone GRP - Would you have a message for international

readers and the CGDC audience? Is there an example to be taken form Gibraltar? Mr Isola - Gibraltar is pretty unique. It is a very good example of a small city with different religious and cultural backgrounds mixing together and forming a Gibraltarian identity. It is a small economy but rather well run and diversified. It has the weather, the English judicial system, which is probably one of its greatest assets and it has been here for 300 years. As a Gibraltarian, my views are going to be a bit biased. I think the level of honesty in the management of Gibraltar as a country is probably exemplary. Gibraltar is a small community where nobody can get away with much. Gibraltarians are generally very entrepreneurial. There is a Latin element from Italy mixed with the English education. It is unique because it is in the southern tip of Europe. Gibraltar is open for business, and I am cautiously optimistic. Despite the uncertainties of the world, Gibraltar is very well placed to continue to grow it seems to be less influenced by the ups and downs of the wider world and I am confident about its future.

Port Services & Shipping

milestone GRP

that benefits the entire community and, as such, we would certainly not have spent €75 million on the new terminal. The Government maintains this position on the, in our view, entirely reasonable premise that the number of passengers arriving at Gibraltar by air is about 180,000 a year whilst the new terminal enjoys an annual passenger capacity of 1 million. A new or upgraded terminal could have been constructed at a more modest amount and in keeping with growth based on current figures. The people of Gibraltar have already spent the money on the terminal, however, and they have entrusted us with their public affairs, so that we will make sure that the new terminal works. In that regard, we must strive at all times to achieve two goals - the first is to maintain a solid commercial relationship based on mutual trust and direct communication with the current air carriers and local operators.

Increasing Tourist Flow and the Port’s Growth Leveraging infrastructure and Gibraltar’s attractions Interview with The Honourable Neil Costa, Minister of Tourism, Public Transport & the Port Minister Neil Costa first joined the executive of the Liberal Party in 1999 and has been a Member of Parliament since 2007. On being awarded a Gibraltar Scholarship, he studied Law & Spanish at the University of Wales, Cardiff. Minister Costa was called to the UK Bar in November 2002 and to the Gibraltar Bar in January 2003. Before being appointed Minister of Tourism, Public Transport & the Port, he was a partner of a Gibraltar law firm practising litigation. Minister Costa is also responsible for Commercial Affairs, namely Small and Medium sized Businesses. Milestone GRP spoke with Minister Costa about his strategy for developing the peninsula’s burgeoning tourism sector by establishing a strategic balance between attracting tourists into Gibraltar by land, air and sea and accommodating their stay and movements once in Gibraltar. He also discussed his Ministry’s plans for the development of the Gibraltar Port and the new Government’s vision to realise the potential presented by the controversial new air terminal.

Milestone GRP - How was your portfolio brought together? Minister Neil Costa - As an Opposition engaged in intense stakeholder engagement, we formed the view that tourism in general and the Upper Rock, in particular, had suffered from chronic underinvestment and a lack of attention for many years. By listening to the various experts and private entities, it was also clear that the tried and tested tourist product in Gibraltar, whilst sound, required a qualitative leap consistent with new trends in tourism worldwide, as well as looking toward attracting tourists from emerging markets. In Government we are more convinced than ever of the need for targeted investment, developing the existing tourist experience and a rebranding of our image as a leisure and business destination. Since being elected into office we have intensified our efforts in meeting with virtually all the relevant stakeholders in tourism to obtain their views with a very clear vision: which is to make sure that all visitors to Gibraltar, whether a business or leisure visitor, wishes to return to Gibraltar, again and again. In other words, to make Gibraltar their destination of choice. And the truth is that in Gibraltar we are very fortunate in respect of the innate and inspiring marvel of the Rock, with its network of natural and human engineered caves, tunnels, renowned historical sites, the panoramic views to North Africa and the Iberian Peninsula, as well as our links to ancient myths as one of the Pillar of Hercules. Gibraltar also constitutes a time capsule,

where, for instance, the tourist can find a Castle built by the Moors after their invasion in 711 next to tunnels drilled during the Second World War. The new Government can work on the high number of annual visitors to Gibraltar, always endeavouring to attract more as we capitalise on the Rock’s splendour, natural beauty and as we develop tourist and heritage sites – always in an environmentally sensitive and heritage conscious manner. Tourism, to our mind, is linked to the Port, as the Gibraltar Port is one of the main drivers of the economy, not least by reason of the vital importance of the cruise industry. One of our commitments is to ensure excellent services and facilities for cruise visitors. The Gibraltar Port provides, in addition, a one-stop shop for services including crew changes. When cruise passengers arrive in Gibraltar they constitute important tourists whom we hope will become regular visitors to Gibraltar. Ultimately, when tourists come to Gibraltar, whether by land, sea or air they will generate important economic activity, as well as raising challenges to our transport infrastructure. Milestone GRP - A new airport terminal was built under the previous Government. Whilst we understand this remains a controversial issue, how will the new Administration work to capitalise on this asset? Minister Costa - The airport terminal has and continues to be a controversial topic of discussion. As a centre-left Government we are concerned to spend taxpayers money in a way

lue for money criterion. As such, we are currently working with private stakeholders and the Gibraltar Tourist Board in investigating marketing initiatives that are more effective and that are linked directly to results. Milestone GRP - Do you see a potential marriage between the development of the gaming industry and tourism, for instance in terms of MICE activity? Minister Costa - Absolutely – the reality is that tourism is married to several sectors such as sports, culture, heritage and events. In fact event-led and sports-led tourism constitute vital manifesto commitments. In order to substantively progress this concept, the new Government has established an interministerial committee comprising the ministries for the environment, sports, heritage, culture and tourism. By way of example, Gibraltar now rightly boasts of a very successful annual Chess Festival, which has been going from strength to strength and which has achieved international recognition. The event annually attracts a large number of people and thereby generates economic activity for, among others, hoteliers, shops and restaurants.

The Government, through the Gibraltar Tourist Board, supports the existing air operators by way of marketing and advertising – these entities also know that we are keen to facilitate and assist wherever possible and know that we are open to meet with them at any time. Secondly, we will labour tirelessly to increase the services provided by the existing operators, on the one hand and attract new operators, on the other, not only from the United Kingdom but also from other countries both within and outside of Europe. The Gibraltar Tourist Board is fully seized of the new Government’s ambitious, but, in our view, entirely attainable business agenda in respect of the airline industry and are implementing effective systems to ensure fluid communication with the airline industry, so that we can react timely to evolving circumstances and a fluctuating industry. We also intend to target Nordic countries and Germany, which in some important respects, have weathered better the worldwide credit and financial crisis and have, on average, higher spending power per capita compared to other European countries. In addition, Gibraltar has the uniquely advantageous position of being based in the warm climate of the south of Europe.

Whilst recognising the value of annual events like the Chess Festival, the Government is committed to investigating and establishing annual events that will not only mean money spent in the shops, but which will also increase the diversity and therefore dynamism of Gibraltar’s cultural calendar. We will, where possible, also endeavour to attract events that coincide with the seasonal economic downturn in activity, such as during the months immediately after Christmas. In connection specifically with your question on the gaming industry, there is absolutely no reason why a business visitor to Gibraltar cannot become a leisure tourist. The key is to effectively market the business visitor to Gibraltar that attends to gaming or any other business.

Related to capitalising on the new air terminal is the question of marketing. As a new Government, we are firmly of the view that expenditure on tourism marketing must be driven by a va-

Milestone GRP - How do you envision the development of the cruise industry alongside projects such as the development of the port infrastructure?

Year

Different Ships

Number of calls

Passengers

2002

149

116,918

2003

167

143,508

2004

168

164,883

2005

166

188,810

2006

202

210,799

2007

227

275,993

2008

222

308,989

2009

238

348,199

2010

175

305,161

2011

187

328,636

2012

n/a

178

303,842

Cruise Ships Calling at Port of Gibraltar

Source: Port of Gibraltar

Gibraltar 2012

Port Services & Shipping

Minister Costa - We are looking at the port very closely and we feel that a lot more can be done. The Government is committed to ensuring that the Port remains a source of revenue for Gibraltar, as well as exploring new business and commercial opportunities as they arise. As a result, we are committed to invest in the Port. In fact, we consider investment in the Port and related services as one of the main gateways to develop an international business hub in order to further diversify our economy. This therefore does not just mean investment in areas related to cruise operators, although this is a central plank of our manifesto commitments, but also to develop a purpose built offi ce and commercial facility at the Port. We are currently in the process of investigating how to effectively invest in the Port’s infrastructure to maximise business potential and opportunities and provide excellent service to the cruise industry. Milestone GRP - How do you assess the position of the Gibraltar Port compared to that of its main competitors? Minister Costa - It is true that Gibraltar faces competition from emerging and existing ports. As a result it is critical, as with the airline industry, to establish effective systems of fluid communication and an ability to react quickly to unfolding and changing circumstances. The heavy investment in other competing ports by other countries makes our commitment to invest all the more vital. Again, I can say that we are fortunate that Gibraltar has a sound basis on which we can build and that there is nothing stopping Gibraltar, with the right investment in the existing infrastructure, in becoming one of the most successful transit port in the Mediterranean. At the same time, we will actively engage with local stakeholders and cruise operators to determine the feasibility of smaller vessels making use of Gibraltar as a port for partial or full turnaround cruises. Further to the comments that I made before on the new air terminal, given that it enjoys an existing capacity of 1 million passengers a year, if we succeed in attracting routes from new European destinations, there may be an option for people to disembark in Gibraltar and to stay for a couple of nights before flying back home. As a result

milestone GRP

a certain degree of turnaround may be feasible if the various strands of the Government’s tourism policy are properly nurtured and developed. Milestone GRP - Much is being done in terms of beautification of the city and cleaning up of the Upper Rock. What would you like to tell tourists about these developments? Minister Costa - The Upper Rock Nature Reserve comprises an embarrassment of riches in terms of biodiversity and fl aura; it is also the lung of Gibraltar. As a result, we are committed to commence a programme to refurbish the Upper Rock Nature Reserve to preserve and enhance this vital part of our environmental heritage. In that endeavour the new Government is lucky in the extreme to count within its ranks the new Minister for the Environment Dr John Cortes. Dr Cortes was the Director for the Gibraltar Botanical Gardens, which is not only a magnifi cent verdant sanctuary to relax and escape but which is yet another example of our historical links to Britain. As a Government it is our commitment to reinvest the money generated by the Upper Rock in the Upper Rock. The Inter-Ministerial Committee that I mentioned earlier is currently working on various ways to enhance the tourist experience on the Upper Rock whether by investing on existing sites and by considering new heritage sites that are not currently being offered to the public as a tourist experience. Milestone GRP - What is your approach to Gibraltar’s traditional markets and to new, rising markets such as the BRICS? Minister Costa - The United Kingdom is, of course, our traditional partner, not just constitutionally, but also because of important trade relations. In terms of tourism, as I have already indicated, it is also my wish to start commercial relations with Germany and other Nordic countries by, for instance, encouraging fl ights to and from Gibraltar and marketing Gibraltar as a modern, vibrant and dynamic tourist destination in the sun. The new Government has already commenced feasibility work to consider tapping new emerging markets to attract tourism to Gibraltar.

Staying Ahead of the Tide

A port leveraging its competitive advantages Interview with Mr Roy Stanbrook, Captain of the Port & CEO of the Gibraltar Port Authority

After an early career with the Royal Fleet Auxiliary Service during which he gained his qualifi cation as Master Mariner, as well as serving in a number of confl ict areas, Captain Stanbrook moved to the world of cable ships and sub-sea engineering. Becoming involved in training in this fi eld of work, it was a short move to becoming a Senior Lecturer on short courses at a UK maritime training establishment. Subsequent career changes saw him working for P&I Club and a family-owned shipping company as Operations Director. Captain Stanbrook joined the Port of London Authority in 2001 becoming Harbour Master for the Lower District of the port in 2007. He joined the Port of Gibraltar in February 2012. He is a Fellow of the Nautical Institute and a Younger Brother of Trinity House.

Milestone GRP - How would you describe Gibraltar‘s Maritime sector? What challenges and opportunities does it present? Mr Roy Stanbrook - Because Gibraltar occupies a key strategic position at the entrance of the Mediterranean and it has a good deepwater access, it is ideally positioned to provide a very broad spectrum of marine services to a very wide cross section of the Marine industry, and that is a unique selling point. Having said that, there are limits to the availability of land for expansion and that provides its own challenges in serving this Marine industry for which Gibraltar has quite rightly become famous. In terms of services, the Port offers underwater repairs, shipbuilding and repair facilities, and bunkering, which is probably the most obvious. A lot of crew changes occur here, and they are very useful to ship owners, because of Gibraltar‘s position and its excellent lines of communication to the outside world, including the refurbished airport. We do have some challenges of course, apart from the shortage of land. They mainly come from neighbouring ports where the land resources are not quite as constrained as they are here. The threats from the global downturn in Shipping have not really been felt too badly here. Nevertheless, we are getting some indications that this might be beginning

to bite in some particular sectors where payments are becoming slower, and the times between invoice and payment are getting naturally stretched. But as long as everybody stays focused, I think we have got a very rosy future ahead of us. Milestone GRP - What role do the Port Authority and the Gibraltar Maritime Authority (GMA) play within the industry? Mr Stanbrook - Gibraltar has a ship register on which there are a large number of ships. The GMA is the organization that runs the registry of shipping. It also runs the survey activities for the administration to ensure that, first, all ships that are on the Gibraltar register are maintained to standard, second, that a proportion of ships visiting Gibraltar are surveyed in accordance with the Paris Memorandum of Understanding to ensure that shipping quality is consistent throughout the world. They also deal with the yacht register because there are a vast number of large yachts, and it will be advantageous to have them on the Gibraltar register. In the Maritime sector, the Gibraltar Maritime Authority and Port Authority are the Regulators for the Port. We control the shipping and we ensure navigation safety within the Port, which includes the surrounding waters off Gibraltar as well, which also fall under my jurisdiction.

Gibraltar 2012

Port Services & Shipping

milestone GRP

Port Activity, Main Purpose of Call

Cruise

Cargo

Bunkers

Repairs

Off Limits

Other

7000 6000 5000 4000 3000 2000 1000 0

2005

2007

Port Activity, Main Purpose of Call http://www.gibraltarport.com/

2009

2011

Source: Port of Gibraltar

Milestone GRP - What place does the Port play in Gibraltar’s economy? Mr Stanbrook - A very large one. I think we have to look back at the history of the Port to get a better idea of that. Up to 2009, the Port was a Government department and did not return a profit at all; in fact it was a cost. A lot of work put in by my predecessors has brought the Port form being a Government department to a stand alone Port Authority with a much greater degree of authority, albeit still under the purview of the Minister of the Port. But it is now a profit centre. It brings a healthy return to the Government’s coffer: over 2 million pounds a year. That is a very significant return on a turnover of about 6.5 million pounds. So the Port represents quite a major contributor to the wealth of Gibraltar, when you consider that the population is just less than 30,000. That is something that we are particularly proud of.

Milestone GRP - In Gibraltar, bunkering activities are booming and the cruise ship segment is one that has seen some growth, but that the Government is focused on expanding. How do you see these two of the Port’s activities evolving? Mr Stanbrook - Cruise ships are limited by the number of berths that we have. We could always try and attract more in the winter season, but not many people want to go cruising during the winter. So the cruise season starts around about the Easter period and continues through the summer, and we have quite healthy berth occupancy during that period. We are not saturated by any means, but it will naturally cause the numbers to plateau. So that is why cruise ships have not necessarily grown. We are currently looking at options for provision of additional berthing facilities for cruise ships to enable us to build on that business. Because we provide a quality, cost-effective solution with minimum deviation from shipping range, our port is very popular for bunkering activity. Sometimes I feel that maybe some of the problems we have with bunkering are because we are victims of our own success, as we end up with ships queuing for bunkers for longer than we would like. But, of course, there are threats to that with increased storage facilities in Algeciras Bay and we are looking at how we could mitigate that risk by installing some form of storage within Gibraltar, which complies with future legislation that could potentially stop us from using floating mother ships.

Milestone GRP - What can the Port’s clients expect in terms of investment into the Port’s infrastructure?

now, and if I did I would not be sitting here; I would be going off to investors and asking for money!

Mr Stanbrook - It is diffi cult to predict. We have to do something to offset the challenges that are presented by companies who are building bunker fuel storage facilities in Algeciras. Finding a shore somewhere in Gibraltar is the only way to achieve that, and there are a number of options being considered at the moment. Having said that, the operation that is offered by Gibraltar at the moment will remain cost effective and it will remain within the law for some considerable period. So in the short term, we will provide our usual quality bunkering service, relying on the customer loyalty we have built. We are very fortunate that the Western Anchorage is a very good shelter anchorage with good holding ground, but closer to the Gibraltar side than the Algeciras one. So we still have the attraction of coming for bunkers and staying on the Gibraltar side, rather than across the bay.

Milestone GRP - You have identified the risk posed by competing ports in the region, such as Algeciras, Ceuta and Tangier. How have you sought to distinguish Gibraltar’s Port from others in the area? Mr Stanbrook - The port has spent a lot of time and effort in making bunkering operations safe. Therefore, we can provide a much better service to the ship owner, with reduced claims, and much smoother operations throughout. As far as cruise ships are concerned, I believe there is no competition because Gibraltar is Gibraltar. It is completely unique and it has a lot to offer. There are ways in which the tourist experience could be improved, but these are works in progress. But right now it is good, and it is going to be better.

Milestone GRP - What opportunities do you identify for investors?

Gibraltar is also a port of choice to have ships arrested. This is due to cost effectiveness and because we have good transport links here so that we can get crews from around the world quite easily. The Admiralty Marshall has a very streamlined system that enables the arrest of a ship, the sale and funds to be distributed relatively quickly. And it is really a case that every cloud has a silver lining because the global downturn actually has increased the number of ships under arrest.

Mr Stanbrook - Anyone investing in marine infrastructure will probably be well rewarded. There has not been a lot of physical investment over the years, so anyone that could come up with innovative ways of developing and providing needed infrastructure would be welcomed. It is all really based on the clever use of space. I don’t know quite how

Registered Vessels & New Registrations

12,000

No. of Vessels

New Registrations

400

10,000

EASTERN ANCHORAGE

350 300

8,000

250 Vessels

6,000 4,000

0 2001

Europa Point

2002

2003

2004

2005

Ships Calling at Port

2006

Ships Calling at Port

2007

2008

2009

2010

2011

http://www.gibraltarport.com/ Source: Port of Gibraltar

150

309

312

2009

2010

45 47

200

100

2,000

48 51

28 138

170

175

187

2003

2004

2005

217

249

271

2007

2008

65 2000

2001

2002

2006

Registered Vessels & New Registrations Source: Port of Gibraltar

Gibraltar Airport

Little Bay Camp Bay

Ocean Village

Dock 1 Dock 2 Dock 3 Main Wharf M.O.D. Gibdock Gun Wharf Queensway Quay Marina Coaling Island

South Mole Extention Jetty Container Berth

Bunker Volume

300

Rosia Bay

200 150 100

B Head A Head

D Head WESTERN ARM

250

(million)

Ship Registry

Tonnage Volume(milion)

North Mole

Marina Bay

0 2001

Detached Mole

2002

2003

2004

2005

Total Tonnage Total Tonnage Calling at Port

C Head

2006

2007

2008

2009

2010

2011

Source: Port of Gibraltar http://www.gibraltarport.com/

4 3 2 1 0

2001

2002

2003

2004

Bunker Volume http://www.gibraltarport.com

2005

2006

2007

2008

2009

2010

2011

Source: Port of Gibraltar

WESTERN ANCHORAGE Source: Port of Gibraltar

Gibraltar 2012

Port Services & Shipping

milestone GRP

Gibraltar’s key position as a Maritime Service Centre

Freight rate developments, 2010 - 2012

by Mr Torben C. Skaanild, Secretary General, The Baltic and International Maritime Council (BIMCO)

Containerships - SCFI

Bulk carriers - BDI

Crude oil tankers- BDTI

Product tankers- BCTI

European shipping banks are undecided regarding their future exposure to the industry, alternative sources of finance from all over the world and in many disguises have stepped in. We certainly see this trend continuing throughout the coming year.

140

The Port of Gibraltar

Today, Gibraltar’s unique geographical features have allowed it to become a maritime centre with great potential. Located at the crossroads of the Mediterranean and Atlantic shipping lanes, Gibraltar is ideally placed to provide a wide range of services to vessels of all sizes and types. Its location adjacent to the Gibraltar Straits - the western entrance to the Mediterranean - means there is negligible diversion time allowing ships to be able to berth in about an hour after leaving the shipping lanes. There are no tidal restrictions or locks to negotiate. With its large area of anchorage waters, the exceptionally weathersheltered port facilities and deep water have made the port an ideal location for all types of bunkering and related operations. This combined with its status of being outside the European Customs Union has made Gibraltar a focal point for passing ships to call in for bunkers, provisions and crew changes. The port is open 24 hours daily. The local airport is just a few minutes from the harbour, adding an advantage when effecting crew changes with frequent scheduled flights connecting it with Heathrow, Gatwick, Luton and Manchester airports along with proximity to Spanish regional airports at Malaga, Seville and Jerez. There are also regular flights to Morocco. Gibraltar is a well-placed as a bunkering hub and has for many years been a fuel-supplying port holding a strong position in the Mediterranean. A huge number of ships call at the Rock every year for different purposes. The supply of Bunkers and Luboils or water can be carried out either alongside or at the anchorage, day or night. All grades can be supplied by barge, pipeline or road tanker. Luboils are available in barrels or in bulk. Recent developments on the regulatory side, with an increased focus on exhaust gas emissions from shipping and stricter requirements coming into play, could support and develop Gibraltar’s position in a positive direction. Today ships need to carry fuel with a maximum sulphur content of 1.0% before entering into the Emission Control Area (ECA) in the North of Europe. This limit will be lowered to 0.1% sulphur by 2015. All the ships heading for Northern Europe and coming via the Suez Canal and Mediterranean will at some point need to bunker suitable fuel to be in compliance with the IMO rules in the ECA. The same could also be the case for ships heading towards the US and Canada, where similar rules will apply from 1 August 2012. This regulatory development combined with the wide range of bunkering related services available at Gibraltar and the perfect geographical location right next to one of the busiest shipping routes in the world seems to ensure a bright future for the bunkering industry in Gibraltar.

Dry docks, slipways and repair facilities are available for carrying out all types of hull and engine repairs. Underwater Repairs can also be carried out at Gibraltar. Vessels calling for lay-up or repairs can be berthed at the Detached Mole. There are also two berths of 100m in length available to vessels discharging general cargoes. Even on the recreational front, Gibraltar is well represented where berths for yachts are provided by three marinas capable of accepting vessels with drafts of up to 4.5 metres Gibraltar has all the essential peripheral services needed in connection with Marine activities - banks, hospitals, dentists, police and consuls are all available. The Spanish border is open 24 hours a day for both vehicles and pedestrians enabling easy movement of ships’ stores and provisions. A fast sea crossing connects Gibraltar with Tangier. Gibraltar is a profit-oriented capital base with low levels of corporate tax, with few restrictions in moving capital or repatriating dividends. The legal system modelled on the English structure contributes to making Gibraltar the highly regulated, globally acclaimed jurisdiction it is today. With a stable political and economic environment already appreciated by established investors and customers, Gibraltar also benefits from its membership of the EU including access to the EU financial services market. The harmonious, multicultural and English-speaking environment, (preferred by many international businesses), provides access to regional markets in Mediterranean Europe and North Africa. The majority of people in Gibraltar are at least bilingual. Global economy: A cautiously optimistic outlook supports the road towards higher growth and reinstates stronger business confidence With a 4% World GDP growth in 2011 and the prospects of a similar level for 2012, shipping will continue to be impacted by significant oversupply of tonnage in all segments, but shipowners have traded in harsh market conditions before – not an unusual scenario in a cyclical business environment – and there are of course remedies in the form of idling and recycling of tonnage to bring better balance between supply and demand, a condition for improvements in freight rates. When addressing the effects of the weak global economy on individual shipping market segments, it is first and foremost the container and tanker sectors that have taken the beating, whereas the dry bulk markets appear to have suffered less with considerably lower but, toward the end of the year, rela-

120

Index Value

Gibraltar’s strategic location at the southern end of the Iberian Peninsula explains why it has been used as a naval fortress for centuries and why so many battles have been fought over this relatively small enclave at the entrance to the Mediterranean Sea.

Vessels calling at Gibraltar can take advantage of a well-established chandlery network which can provide all other requirements for vessels. An increase in vessel calls will lead to increased ship chandlery requirements.

Dry Bulk shipping: Will this be the year where India takes off?

100 80 60 40 20

2010

2011

2012

Source: BIMCO, Baltic Exchange, Shanghai Shipping Exchange

The year 2011 had barely started before a series of unforeseen events took place across the Globe. Most of them affected dry bulk shipping negatively and the large Capesize vessels particularly were under pressure. Amongst the events were the flooding in Australia and South Africa, the triple disaster in Japan and the “Arab Spring” that also affected the supply of oil into Europe.

tively better rates. The good news is that the wheels of the world are still turning and trade is growing albeit at a slower pace; if the political will returns to the US and EU, perhaps confidence can be restored in the financial sector, a necessary condition for investments, consumption and overall economic growth. The continued high oil prices are not supportive for global GDP growth, neither are the still struggling housing markets in the US, some European countries and some Asian countries. Shipping demand will definitely benefit from a more calm and positive macroeconomic environment. So the challenges for politicians across the Globe, and especially in the EU, are still very tangible and they must focus on establishing the right economic framework. This is necessary to make growth stay around and to stimulate consumer confidence and pull private consumption to a higher level.

Half a year down the road, during which many Capesize vessels had earned less than any other dry bulk vessel size, the unexpected happened again. Strong demand for iron ore and coal from China and the recovering Japan, sourced from Brazil and Australia, ignited freight rates for Capesize vessels. A tight tonnage situation in the Atlantic basin combined with increased congestion in loading and discharging ports pushed average rates above USD 30,000 per day. A far cry from the peaks of the super cycle but surely an indication of the peak levels we have in sight for the near- to mid-term future as the supply side remains a considerable burden for the industry. The demand side is set to be relatively stable in 2012, although it’s likely to grow somewhat slower than in 2011 – at least in volume terms. Overall iron ore demand is likely to slow. Still, a lower world market price, as compared to the domestic costs of mining it within China, holds the key to provide positive demand shocks for this valuable steel ingredient. Growing demand for thermal coal from large Asian consumers is set to be a steady demand driver.

Overall ship supply: edging down from all-time high Newbuilding deliveries in 2011 surpassed an only one year old record. The dry bulk fleet topped the ranks growing by almost 75 million DWT (deadweight tonnage). Had it not been for a recordhigh level of large vessels being recycled, the glut of tonnage would have created even greater challenges to the owners. Looking forward, our crystal ball tells us that the dry bulk fleet will grow by not less than 11% in 2012, while the containership fleet is set for another year of growth close to 8%. As regards the oil tankers; crude oil tankers are facing one more very challenging year as the fleet is set to grow by 6%. Whereas the product tankers have left previous years with high inflow of new tonnage behind, to see only 3% increase of the fleet in 2012. Taking all of the three main shipping segments into consideration, none of them are able to deliver comforting sounds from a large-scale recycling potential to counterbalance the amplified pace of newly built vessels about to enter the world fleet. A potential positive surprise would come from the dry bulk segment as it did in 2011. Financing of business as well as of the order book will be key issues on every owner’s agenda. As the traditional large

Looking forward; expect the unexpected, as has been the lesson learned. The start of 2012 has been quite devastating with freight rates dragging on below the USD 10,000 per day mark for all vessel sizes; the large Capesize vessels being hardest hit. Recent very tough times in the dry bulk markets are likely to improve gradually, as the downward over-shooting of rates is corrected. Speaking about the unexpected, maybe even India will begin to influence the market as a significant importer. This would fulfil the prophecy and release a vast potential that has been simmering for a very long time and provide a much needed second major demand driver. Supplementing China as the dominant factor in the market would create a more sustainable freight market going forward. An optimist would for sure name India the best thing that could happen to the dry bulk shipping industry. In the meantime volatile iron ore export and strong demand for thermal coal is likely to characterize India’s contribution to the dry bulk markets. Tankers: Slow economic growth also affects oil demand The positive demand picture that was firming freight rates on benchmark routes in all crude tanker segments towards the end of 2011 and the first two months of 2012 is still hanging around.

Gibraltar 2012

Port Services & Shipping

milestone GRP

Currently, the growing demand for oil is coming from countries closer to the large oil producers than previously. That in turn provides fewer tonnes-miles as compared to demand originating from the Western Hemisphere. As a rule of thumb, volume demand in the East must grow by factor two to offset the decline in volumes that used to go to the West. On the oil products side, refineries in the Far East or the Middle East are coming on stream later than expected. This provides lower oil product volumes for exports than previously expected. But before the Western demand for oil in general gets back on track the potential support to the product tanker market coming from that front will not materialize. The product tanker sector holds optimistic prospects for the near-future, but its complex business and ever changing business conditions and opportunities can be difficult to forecast. But as the “demand stories” of Atlantic gasoline arbitrage, winter markets and refinery dislocation are struggling to perform to expectations, the focus has turned towards a wider range of products. Moreover, demand for oil products with a lower sulphur-content than the local refinery is capable of producing provides trading of the same product with different sulphurcontent between nations. An evidence of growing demand for oil product transports despite overall lower oil demand. Amongst the swing factors that could improve earnings in both tanker segments are slow steaming, virtual arrival, longer hauls for example to avoid the growing threat from pirates and off course a faster than expected recovery in the large oil consuming nations. World trade volume of imports of goods, %-change year-on-year 15 10 5

…and liner companies know the most effective medicine that will make the pain disappear, but not cure the decease. Idling of tonnage has recently proved its point once again as extensive cut backs of deployed tonnage on Far East to Europe/ Mediterranean trading lanes was instrumental behind the recent historical high hikes in container freight rates. Focus will now be on limiting the expected weekly drops in rates as weeks go by, bringing the market closer to the traditional high season in the third quarter. As the macro and micro economic elements recently have boosted confidence in container shipping, demand will hopefully follow up soon. For 2012 as a whole, the sector is battling on two fronts from the trenches. A bad global economic weather forecast is the main demand threat while the oversupply issue is an internal job to handle. Demand is very unevenly distributed; while the volume of inbound loaded containers to US West Coast Ports is barely growing, the intra-Asia trades and new-markets trades are growing briskly. This difference in growth rates is very illustrative for the underlying market. The battle against oversupply has to be fought simultaneously with low demand and in a tough competitive environment. On the world’s largest trading lane from the Far East to Europe it has been possible to observe the “open exchange of punches” between the market participants during most of 2011. Vessels of ever increasing sizes have lowered the cost per transported unit, and triggered a massive cascading from this trade of suboptimal vessels - this trend will only get more severe. 2012 will see another 50% increase in capacity in the segment for Ultra Large Container Ships (ULCS) capable of carrying more than 10,000 containers.

0 -5 -10 -15 2003

2004

2005

2006

2007

2008

2009

2010

2011F 2012E 2013E 2014E

Source: BIMCO, IMF.

Slow steaming of any tanker would ease the pressure from the supply side, as it remains the least bad option for the cashstrapped owner as he attempts to maintain his cash flow. Moreover, being at the right place at the right time continues to be crucial, to take advantage of any non-planned-for events that would provide a window of higher earnings e.g. shortage of prompt tonnage in the Mediterranean due to Bosporus Strait congestion. For the longer perspective; should the world decide to move fast away from using nuclear power plants for power generation – this could improve tanker demand. In the meantime, product tankers are expected to see the sun first of all segments, as the supply side pressure is easing and the complex demand picture leaves able room for upside. Whereas crude oil tankers are likely to face challenging markets for an extended period of time.

100

Container shipping: We have been here before …

A very high number of newbuilding contracts placed in 2011 have made this sector stand out from the tramp shipping segments which have avoided a repeat of last year’s astoundingly high contracting activity. Half of the new box-ships orders are for 2013-delivery which is the earliest possible delivery time. It remains unknown whether it is pressure from ship yards or owners that has pushed delivery dates closer – instead of further away which probably would be more prudent. 62 of the orders in 2011 were made in the ULCS segment.

Homegrown and Venturing Out

Born in Gibraltar but expanding internationally Interview with Mr James Gaggero, Chairman, Bland Group

Milestone GRP - What parallels can be drawn between Gibraltar‘s 300-year history and the Bland Group’s development? Mr James Gaggero - My family came in from Genoa as Italian traders to carry out business with the British garrison, as did the Maltese, Portuguese and others around the Mediterranean. Our family business was founded in 1810 by Bland, a merchant from Liverpool, who came to trade on the Mediterranean and West African coasts; it was through this sort of activity that Gibraltar developed as the port it is today. My family came in as ship agents, facilitating trade between the UK and this part of the world and eventually bought the business. Gibraltar gradually evolved from being a military base into the diversified economy that exists today. The shipping industry and the port activity in general, from the provision of bunker, safe refuge, crew changes, ship repair, towage and salvage, grew to the point that Gibraltar reached a high status. As the economy grew alongside the civilian community, we established more businesses. Milestone GRP - What set of circumstances have allowed Bland Group to grow internationally? Mr Gaggero - One of the things that sets us apart from many companies in Gibraltar is that we have worked very hard and have always been at the vanguard of going overseas to look for opportunities, very often bringing businesses to Gibraltar. So when we ran an airline out of Gibraltar and Gibraltar became stuck in a political difficulty with its neighbours, we were very quick to recognize that that was going to cause us difficulties. We therefore moved our headquarters to Gatwick.

Concluding remarks

Gibraltar was still a significant part of our operation, but it became less than 10% of the new business that we had created at Gatwick. The scale of the business grew from a few hundred thousand passengers to 3 million passengers a year; from 3 or 4 routes, we grew to 44 routes; and from 1 or 2 aircrafts, we ended up with 17. Therefore we were able to significantly grow our business scale by recognizing that Gibraltar had limitations, and not being afraid to grow internationally.

To sum up, Gibraltar’s geographical location make it very attractive for shipping companies, and Gibraltar has catered well for the industry with a variety of bunkering and repair facilities as well as a solid political and juridical framework. Last year was not kind to Far East-EU routes in the container segment, nor was it kind to westbound tanker routes from the Arabian Gulf. However, there is light at the end of the tunnel. Macroeconomic indicators suggest an end to the slump before long, especially if it is backed by the right politics. Should these positive predictions materialise, Gibraltar has great prospects of upholding and improving its position as an important maritime services centre.

When our borders were closed in 1968, Gibraltar lost a lot of its capacity to be seen as a gateway, so we went over to England, we brought in marketing companies and we promoted Gibraltar as a destination in its own right, rather than a stepping stone to Spain. This gives you a flavour of how you can either sit here and want others to solve your problems, or pick yourself up and pick your own quest for solutions beyond the frontiers of Gibraltar. That worked very well for us. It also made us less dependent on a single basket of eggs. We have got a significant variety of businesses, and that makes us much less vulnerable to shocks in our hometown. Gibraltar has done remarkably well to adapt to the changing circumstances around us. One of the greatest

successes of Gibraltar in recent years is the determination of getting the regulatory regimes in harmony with international requirements, in terms of money laundering, tax evasion or even tax avoidance. Gibraltar has dealt with them vigorously in an attempt to create a reputable and credible finance centre that is not a predator and a parasite, but actually a complimentary source of activity meeting the needs of the international community, and in harmony with our neighbours. Milestone GRP - How much did these efforts at harmonization with international requirements help Gibraltar in dealing with its sovereignty issues and to position itself internationally? Mr Gaggero - This is a critical point. You can be either a parasite where you encourage your client market to come to you as a way of hiding and creating false profit at the cost of others; or you partake in an endeavour aimed at efficiently creating a competitive jurisdiction, which is well regulated, transparent, and collects its values by attempting to do business in a legitimate way. I think the critical factor that allows Gibraltar to be a single uniform low tax regime, is that if you conduct your activity in Gibraltar in a correct manner, you will enjoy the fruits of a very efficient regime that is good for business. Gibraltar enjoys a much better reputation today as a result. And we have a community that understands what it takes to meet the needs of international investors wanting to trade with Gibraltar. Milestone GRP - What emerging trends do you foresee for Gibraltar in the region? Where can Bland Group play a significant part in their development? Mr Gaggero - Gibraltar is able to capitalize on its ‘Britishness’, its location, its culture, bilingualism and its serious attitude towards business. I am very optimistic about the future of Gibraltar. I would like to see our relation to Spain at the very least become neutral. Spain was never able to get away form its anachronistic attitude towards Gibraltar and to see Gibraltar for what it is: a good neighbour and a willing participant in generating jobs and economic activity in this region. I think if the relationship with Spain was positive, Gibraltar and the hinterland would do enormously well. Many of the offshore jurisdictions are based on islands which offer very limited capacity to grow. Gibraltar is not an island, it is attached to the mainland by the isthmus, it is a peninsula. It has all the attributes of an island offshore centre but with all the benefits of having unlimited access. It is also able to create a lifestyle for those who live and work here which is second to none. You have all the facilities here. As far as the Bland Group is concerned, we will continue to invest into this environment. But if we had a situation whereby Gibraltar started to stagnate then that would be a great sadness. I see Gibraltar as one of the key dynamos of regional economic activity and it would be a shame if we lost that desire to be number one in this area.

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Port Services & Shipping

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Milestone GRP - Which units of your business have grown more than others?

importations of equipment, employee relocations and courier requirements needed in this industry.

Mr Davis - Our shipping department continues to grow. We provide a variety of services for ships calling at our port. Customs brokerage is always on the increase.

Milestone GRP - Is international expansion part of your growth strategy?

The importation of overland freight has gradually grown and is generally made up of three sectors: • Direct weekly imports from the United Kingdom

Mr Davis - Although we are already active in the United Kingdom and in Southern Spain there are still substantial business possibilities within Gibraltar itself. Gibraltar’s progress on the Maritime, Financial, Gaming and Tourist fronts during the last ten years augurs well for the future.

• Daily imports from Spain’s Campo De Gibraltar – the neigbouring area across the border • Daily imports of European consignments via TNT.

Land, Air and Sea

Connecting all the freight shipping dots Interview with Mr Colin Davis, Operations Director, East Gate Express

Colin W Davis has extensive on-the-ground and management experience in the Logistics Industry. He specialises in customs procedures for both Europe and Gibraltar. As Operations Director he oversees the running of all the company’s import and export line hauls. He started East Gate, along with co-partner Daphne Alcantara, 17 years ago in a small offi ce at Gibraltar’s International Airport. East Gate is now one of Gibraltar’s major logistics players and currently operates offi ces and handling hubs at strategic points in Gibraltar, such as their Commercial Frontier offi ces, Depot, and offi ces at the New International Airport and the Main Depot at New Harbours Industrial Park. Milestone GRP met with Mr Davis to get his perspectives on Gibraltar’s freight and logistics sector, and East Gate’s position within it.

Milestone GRP - What services does East Gate Express offer? Mr Colin Davis - East Gate Limited is an established locally based freight forwarder that provides weekly overland services from the UK mainland and daily airfreight services. As Country Associates for TNT in Gibraltar we offer worldwide next-day document express couriers, and European road exports and imports using TNT’s extensive road network. Customs formalities for importation and exportation play a very important role within our service provision since Gibraltar is outside the European Customs Union due to its zero VAT rate status. Milestone GRP - Gibraltar has historically been a shipping hub. How would you characterize the various elements of the sector in this day and age? Mr Davis - The fact that we are VAT-free and within Europe with a great port facility naturally attracts business from maritime shipping activity. This sector creates service provision activities for many local businesses ranging from customs declarations upon importation into Gibraltar to 24/7 ship supply at port, warehousing and storage, couriers received or sent on behalf of vessels, and many other services. Bunkering services are another important area of Gibraltar’s port activities and although these are not part of our services

102

Mr Davis - Gibraltar has survived economic and political turmoil. Thanks to Gibraltar’s successful economy we are weathering the current international crisis with considerable success. The presence of the Gaming industry in Gibraltar contributes to our employment stability and our sector benefi ts from the

Set down

Picked up

300 250

Tonnes

Milestone GRP - Since East Gate’s operations are international by their nature, how have the financial crisis and European downturn affected your business?

350

200 150 100 50 0 2001

2002

2003

2004

Commercial Air Freight

2005

2006

2007

2008

2009

2010

2011

Source: GSO

they also provide a lot of spinoff service requirements for us and other local traders. Gibraltar is not a manufacturing or agricultural country. Just about everything has to be imported hence an indispensable import industry has developed with constant incoming freight requiring services from locally based freight forwarders, such as ourselves. Milestone GRP - The airport has just been upgraded and its capacity in terms of passengers expanded. Will that affect your business in one way or another? Mr Davis - The impressive new airport terminal will considerably increase tourism into Gibraltar, which will indirectly create more business in our sector. More tourism means more business both for the high street shops and the freight industry. The new Airport Terminal building will be providing us with much better warehousing facilities for the provision of air freight and courier activities. The challenge for us and the Gibraltar Government is to promote air freight activity via the airport with the objective of serving both Gibraltar and the neighbouring Port of Algeciras in Spain, which is one of the busiest ports in Europe. It will hopefully enable us to reroute substantial business coming in from neighbouring Spanish airports such as those in Seville and Malaga.

Gibraltar 2012

103

Tourism

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very safe place, and the currency has also been very important because we are not a Euro destination but a Pound destination. With all the economic problems, visitors from the UK were looking for places where the exchange rate was more favourable, or where they do not have to change their money. So that is one of our big selling points and we emphasise this in our marketing campaigns. In terms of the day trip market our main source is the area around Gibraltar - the Costa del Sol in particular, where Gibraltar is one of the biggest-selling day trips. A great percentage of our visitors are day-trip visitors. So itâ&#x20AC;&#x2122;s easy to see that we do not specifi cally have one profi le for visitors, it varies. Gibraltar is sold mainly as a short break destination, because its product is ideal for that market. Milestone GRP - Do you see opportunities in event or sport tourism?

A tourism sector ready for investment and growth Interview with Mr Nicky Guerrero, CEO, Gibraltar Tourist Board

Nicky Guerrero is a graduate of the hospitality industry and has worked in Gibraltar for the greater part of his career. He joined the Gibraltar Tourist Board in 1997 and carried out the roles of Product Manager and Sales & Marketing Manager. Nicky is responsible for all airline matters for the Government and in particular for route development work. Milestone spoke to Mr Guerrero about Gibraltarâ&#x20AC;&#x2122;s tourism products and the main challenges facing the industry today.

Milestone GRP - Based on its main tourism offerings, what category would you classify Gibraltar in as a tourism destination? Mr Nicky Guerrero - Gibraltar does not fall under one single category of tourist destination since we have so much in such a small space, and people visit us for many different reasons. We have our natural history, our heritage and the views from the Upper Rock. Our geographical location is also unique. Unique is a word that I often use when talking about Gibraltar as there are not many places where you can stand at the top of a beautiful rock and see two continents and three countries. You can also look out at the Strait of Gibraltar, which is one of the most important shipping lanes in the world, the Pillars of Hercules, the Atlantic Ocean and the Mediterranean Sea. When you walk down Main Street it is possible to see the differences in architecture, where the many different civilizations of Gibraltar have all left their mark. For example, the buildings covered in ceramic tiles have a Portuguese infl uence, the shutters are Italian, and so on. There is such as mix of architecture, with British infl uences as well. Then, our military history with barracks, walls and fortifi cations from different eras is impressive. There are not many places with such a wealth of heritage and natural history, all with the beauty of the Upper Rock in view. We have the advantage of being able to offer something for everybody, even if some aspects have to be promoted and developed. Milestone GRP - What are the main facets of your tourism marketing and outreach strategy, and which market segments do you target?

106

Mr Guerrero - Our main source market is the UK. So the UK is where we carry out the bulk of our marketing. The UK is our number one source for overnight tourism and business visitors which are very important to us. We run a campaign in the UK that is a mixture of all the marketing media available. There is our main web site - visitgibraltar.gi - that carries all the information about the destination and we also have Facebook and Twitter portals which the team in our London offi ce keeps updated and interesting for visitors and people looking for information. Our offi ce in London also provides an information and marketing service for the UK market. In the UK we do several activities. Some of them are based on road shows and tourism events and exhibitions. For example, for the travel trade we hold road shows, where we invite travel agents to come to hospitality events where they are given a destination presentation. Alongside the Gibraltar Tourist Board will be different tourism industry partners from Gibraltar and the UK that travel with us and exhibit their products and services. We also hold consumer road shows spending a couple of days in some of the largest shopping centres in the big cities. We recently carried out one of these events in Nottingham. This was primarily to promote the route from East Midlands Airport to Gibraltar, started at the end of March. We do a lot of advertising in the press in the UK. Finally, we have a representative in the UK who goes out and does destination training courses for travel agents.

Gibraltar also has fantastic sporting facilities. We are surrounded by sea, which provides opportunities for a lot of activities. We would like to see diving and water-based activities develop. At the moment we are looking to promote our niche market tourism offerings, such as bird watching. These are the markets we would like to develop. Milestone GRP - What are the main challenges the Tourist Board currently faces? Mr Guerrero - We want to develop more overnight tourism, but we do not have many hotel beds in Gibraltar, so there is the need for more hotels. How people move around Gibraltar is a challenge too. When we welcome a couple of cruise ships the impact is very big. Gibraltar is a small destination, so one of our main challenges is how to effi ciently move people to where they want to be.

Mr Guerrero - Yes. This is primarily because we have built up a day-trip mass tourism market. We have overnight tourists, but there has been less of a balance between both segments. We obviously would like to get people to stay overnight as we feel we have so many interesting products. Overnight tourists are the ones who can truly experience the product and the many beautiful attractions that Gibraltar has to offer. It is now a question of developing the product for certain sectors of the market, such as overnight tourism, as we must attract more of that type of tourist. Milestone GRP - What is the path that a typical investor would follow when willing to invest in Gibraltar and develop this infrastructure? Mr Guerrero - They may contact either the Tourist Board or Invest Gibraltar. The inquiries would then be channelled to any of the relevant departments who would start to receive proposals and take it from there. Investment proposals are usually dealt with by Invest Gibraltar, and the Tourist Board would usually work with this entity. Milestone GRP - The cruise segment has been highlighted as one that is ripe for development. What plans do you have in this regard? Mr Guerrero - One of the advantages we have with regards to cruise passengers is that there is a very short transfer time from the port to the attractions. In fi ve minutes visitors can get to Main Street and they are not far away from any of the tourism, retail and hospitality services. The airport and port are a few miVisitors by Nationality, 2010

Air Departure

Coach Park

Frontier

Spanish

Other EU

Cruise Liner Visitors

100

10 80

0 2000

For the UK, in particular, Gibraltar is a very familiar market in terms of language and it is not too far away. Gibraltar is also a

Milestone GRP - Are you in a situation where you would like to attract more tourists, but more infrastructure is needed to do so?

Tourism by Year 2000-2010

(million)

An Amazing Location and Prime Attractions

Mr Guerrero - Event-led and sport tourism are two aspects we want to develop. We have a Chess Festival that was started 10 years ago, and this has had a fantastic impact on the tourism industry in the month of January. It is one of the most important open chess festivals in the world. Its benefi ts have made us look into event-led tourism very seriously. The impact the Chess Festival has on our small destination is great, and there are things we can look at, such as music festivals, for example. We do have events in Gibraltar taking place every year that appeal to many visitors. People are looking at different things to do and experience and we are very well placed to provide these different offerings because of our uniqueness.

We are also looking at how people are travelling and how they choose to book their holiday. There has been such a shift from the traditional tour operator-led booking patterns. We have to be aware of these trends. This is why our website is responsive to Facebook or Twitter, which have become powerful marketing tools. We are faced with the challenge of looking at all the markets we serve, how they interact, how to accommodate them and how to provide the right products and services for tourists. Furthermore, we would like to see more moving forward in terms of creating visitor attractions. The majority of those are on the Upper Rock right now. We need to create a balance between tourist attractions and the natural environment, a challenge faced everywhere in the world now.

2001

2002

Tourists by Year Gibraltar statistsics office

2003

2004

2005

2006

2007

2008

2009

2010

Source: GSO

British

Gibraltar statistsics office Visitors by Nationality, 2010

Other

Source: GSO

Gibraltar 2012

107

Tourism

milestone GRP

nutes away from each other. Therefore, we would like to see the development of partial turn-around cruises, meaning we would have tourists joining ships and coming off ships here in Gibraltar, which is not that common right now. We have an initiative for cruise liners to allow them to open their facilities while they are in port. This is quite attractive to the cruise companies. Milestone GRP - The new air terminal was a controversial project and the present Government was clear that it didn’t believe it was necessary. However, now that it is a reality, what are your plans for the maximization of its use? Mr Guerrero - We need to develop traffi c for the airport. Part of my responsibilities is to manage route development, which is something I have been doing for many years. The priority at the moment is to develop more regional connections with the UK, as the UK is our biggest source market. In the last couple of years we have seen the introduction of fl ights from the North West of the UK and from the Midlands . We would like to look at other destinations in the UK since this will create new catchment areas. East Midlands Airport, for example, has many cities around it and feeding into it such as Nottingham, Leicester and Derby. We have fl ights from London Gatwick, Heathrow and Luton, which is one of the largest catchment areas for us. So we are looking to develop traffi c from the UK and from other countries in Europe. We feel there is a potential market in northern Europe. Milestone GRP - What does the new air terminal offer in terms of facilities and benefits for Gibraltar? Mr Guerrero - The new air terminal has all the facilities you would expect a modern terminal to have including retail and catering outlets. It is an improvement on the previous terminal. As far as

airlines are concerned, Gibraltar is a unique market. We have our own specifi c catchment areas, not only here in Gibraltar but in the surrounding areas as well. It is a preferred gateway for those who have properties around this area. Furthermore, Gibraltar is not only a tourism destination, but also a business centre, so we also have a lot of business traffi c coming to Gibraltar, which is obviously very welcomed. Therefore, our aim now is to develop traffi c within all segments, from more destinations in the UK, and from other destinations in Europe. Milestone GRP - What would you point to as the highlights and unique selling points of Gibraltar’s tourism offering? Mr Guerrero -There is so much to explore in Gibraltar. 'Unique' is probably the best way to describe our destination. It offers such a mix of culture, heritage, natural history, and you can walk everywhere, the views are fantastic and we have a good climate. Gibraltar offers an excellent shopping experience too and the bars and restaurants offer great products. There really is everything, I think. There are challenges as we offer such a diverse product, for all these different market segments. We are very well placed as a centre or base to explore different cultures and areas. Tourists can come here and do a two or three-centre holiday, with Africa being a short hop away. Gibraltar has always been very well placed for this sort of multi-stop tourism. Ultimately, it is also fair to say that the people make a destination. Our hospitality is very high up on the scale and we are friendly and helpful to our visitors, making them feel at home and part of the family. The place is striking, and it has a very special atmosphere. We are proud of our beautiful Rock.

Arrivals by Air

Visitor Arrivals by seas, 2009,2010

Seats Offered

Seats Used 2009

500

60,000

400

Arrivals (000‘s)

2010

70,000

50,000

300 40,000

200

30,000 20,000

100

10,000

0 2001

2002

2003

2004

Arrivals by Air

2005

Gibraltar statistsics office

2006

2007

2008

2009

2010

2011

Source: GSO

Jan

Feb

Mar

Arrivals by Sea

Apr

May

June

July

Aug

Sept

Oct

Nov

Dec

Source: GSO

Average lenght of stay, all arrivals Tourist Expenditure , 2000-2010

7 300

225

£ (million)

Days in Gibraltar

3 2

150

1 0 2000

2001

2002

2003

2004

2005

2006

Average Length of Stay – All Arrivals

108

2007

2008

2009

2010

Source: GSO

2000

2001

2002

2003

Tourist Expenditure Gibraltar statistsics office

2004

2005

2006

2007

2008

2009

2010

Source: GSO

Gibraltar 2012

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Tourism

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Gibraltar as a Cruise Port Punching above its weight

by Mr Peter Wild, Managing Director, G. P. Wild (International) Limited

Gibraltar’s present position and future prospects as a cruise port can only be understood in the context of the development of the cruise market in the Mediterranean and in particular cruising in the Western Mediterranean. Figure 1: Growth of Cruise Capacity in the Mediterranean 2001-2012 Med Total

Linear (Med Total)

East. Projections for 2012 are a little more modest refl ecting, to a degree, some reduction in capacity amongst North American operators with ongoing uncertainties leading to Americans continuing to cruise closer to home, although capacity is still expected to exceed 30 million. Royal Caribbean International is one such operator which has planned a signifi cant redeployment of capacity owing to the weak demand in this region during 2011 and because it is making a “big push” into the Asia Pacifi c markets. There has also been some reduction in capacity from European operators struggling with ongoing domestic economic diffi culties such, as operators in Spain (Iberocruceros) and Greece (Louis Cruise Lines), while Costa has of necessity had to reduce capacity, following well-publicised accidents affecting two of its ships.

45 40

Within the Mediterranean the Western segment currently represents around 40% of capacity, as illustrated in Figure 2. Gibraltar, however, also benefi ts considerably from cruises to the Mediterranean from non-Mediterranean ports, which represent 12% of current capacity.

Pax-nights (million)

35 30 25 20 15 10

Figure 2: Sector Shares of Mediterranean Cruise Capacity 2012

5 0 2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

12% Non Med

2012

40% West Med

Source: G. P. Wild (International) Limited.

Growth of Cruise Capacity in the Mediterranean 2001-2012

Source:G.P. Wild (International) Limited 2% Black Sea As shown in Figure 1, cruise capacity in the Mediterranean, expressed in passenger-nights (bed-days) has risen three-fold 12% Adriatic since the Millennium. Although 2012 appears to represent a setback, caused partly by reaction to last year’s “Arab Spring” and partly by the fall-out from the Costa Concordia incident, the upward trend is expected to resume. If the historic trends continue to 2020, the market may reach 50 million pax-nights in that year. 34% East Med

Figures for 2011 showed the region’s best year ever, with total capacity running ahead of the trend and total pax-nights (beddays) exceeding 30 million for the fi rst time. In the event, demand for 2011 was moderated by reluctance amongst some Americans to travel to Europe owing to the uncertainty surrounding the region in terms of both economic turmoil in the Eurozone and political upheaval in North Africa and the Middle

2001

2002

2003

2004

2005

2007

2008

2009

2010

2011

% + 2001-11

Valletta

273,521

356,031

389,361

291,225

320,263

408,264

487,817

555,861

441,913

493,748

566,042

+107

Cadiz

72,017

114,664

145,000

164,248

125,877

171,608

190,000

224,905

235,324

334,162

376,000

+422

Gibraltar

118,628

116,918

215,352

162,780

188,810

210,799

275,993

308,989

348,199

305,161

328,636

+177

Ibiza

23,087

36,983

79,983

80,105

118,474

69,786

79,904

79,210

103,485

132,149

129,369

+460

Alicante

34,353

25,909

44,615

48,001

36,253

51,868

72,063

82,487

96,615

75,911

111,711

+225

Cartagena

16,415

15,040

12,423

18,401

29,073

29,337

39,799

35,374

67,931

104,294

90,000

+449

Source: G. P. Wild (International) Limited.

110

port is currently heavily dependent on cruises from UK-based operators and North American operators cruising from UK ports, which together account for 68% of passengers visiting the port this year, whereas these two segments make up only 22% of the total Western Mediterranean and ex-UK market. To some extent this bias is understandable for both geographical and cultural reasons, for, as noted above, Gibraltar is especially well-placed to capture cruises passing in and out of the Mediterranean basin, while its colonial links with the UK give it a particular appeal to UK passengers. Figure 3: Gibraltar Passenger Profi le compared with Western Mediterranean and Northern European-based cruises 2012 UK operators

N American ex-UK

S Europe

N American fly

Other

100 90 80 70 60 50 40 30 20 10 0

Gibraltar

Western Med

non-Med port

Source: G. P. Wild (International) Limited. Source: G.P. Wild( International) Limited

Gibraltar has, however, achieved something of a breakthrough among some of the cruise lines serving Southern Europe, with MSC in particular making a series of nine calls in 2012 with its 33,300-passenger mega-cruise ship, MSC Splendida. As can be seen from Table 2, MSC is now third among the ten leading cruise lines calling at Gibraltar. These ten lines represent around 90% of all potential passenger visits to the port this year.

Table 2: Leading Cruise Lines using Gibraltar 2012 Source: G. P. Wild (International) Limited.

Gibraltar’s passenger throughput has also increased during the last ten years or so, as shown in Table 1, which compares its progress with that of fi ve competitors in the Western Mediterranean and Atlantic Europe. These are all ports that compete mainly for port-of-call (as opposed to turnaround or homeport) business within the Mediterranean or on repositioning and exNorthern port voyages to and from Northern Europe.

2006

As a result of this restrained growth, from a position of second largest port in terms of throughput in 2001, one largely maintained until 2009, Gibraltar now occupies third place among the selected ports. Moreover, this position is expected to continue in 2012 with an estimated 303,842 passengers expected by the port. Currently, nevertheless, the port is well-equipped to receive cruise calls, offering a total quay length of 940 metres which allows up to four medium sized or two large sized vessels to berth alongside simultaneously. The Cruise Terminal was created in 1997, using a renovated warehouse. Although additional berths can be made available elsewhere, if required, it is perceived by the port that expansion is necessary if Gibraltar is to fully capitalize on the market growth. Plans are therefore in hand to extend the Terminal, to expand those facilities already on offer and to create additional amenities for cruise passengers and crew. It is also, however, arguable that Gibraltar needs to extend its appeal beyond the UK source market. As Figure 3 shows, the

Table 1: Gibraltar Throughputs compared with Selected Competitor Ports 2001-11 Port

Evidently Gibraltar’s growth as a cruise port reached something of a plateau in 2009 and its throughputs have fallen away slightly since then at a time when most of its competitors have benefited from the strong recent growth in the market as a whole. Notably, Cadiz, which is a major competitor as a “staging-post” between North and South, has expanded its business at more than double the rate of Gibraltar. Among the lesser ports, Cartagena has also achieved a very high growth rate and also secures a significant amount of its business from ships on repositioning cruises.

Pax-nights (%)

Gibraltar occupies a strategic position at the gateway between the Atlantic Ocean with access to Northern Europe and the Mediterranean Sea, stretching the full length of Southern Europe. As a cruise port, it may be small, compared with the marquee ports of Barcelona, Civitavecchia and Venice, but it punched well above its weight with 2011 throughput of 329,000 - over ten times the territory’s resident population of 29,000.

Cruise Line

Primary Source Market(s)

No of calls

Potential Passenger Throughput *

P&O

81,210

Royal Caribbean

N America (ex-UK port)

49,448

MSC

Italy

40,750

Princess Cruises

N America (ex-UK port)

25,152

Thomson

19,138

Fred Olsen

15,005

Celebrity

N America (ex-UK port)

11,400

Costa

Italy

10,324

Cunard

10,226

Holland America Line

N America

Total

9,683

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272,336

* This measures the total number of passengers visiting the port if 100% of lower berths (normally two per cabin) on each ship are occupied. Source: G. P. Wild (International) Limited.

Apart from MSC and Costa, the leading cruise lines are largely taken from the major operators serving the UK market, P&O, Thomson, Fred Olsen and Cunard, together with North American operators placing ships at UK ports, normally Southampton,

for the summer season namely Royal Caribbean, Princess and Celebrity. Holland America Line calls are derived from a mix of fl y-cruises and voyages out of Rotterdam, partly targeted at the Dutch cruise market.

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Welcoming Tourists and Ships

Some key source markets are, therefore, largely absent from the mix of passengers and these include some of the fastest growing markets in Europe, as shown by Table 3.

A long history operating in Gibraltar’s ports of entry

Table 1: Gibraltar Throughputs compared with Selected Competitor Ports 2001-11 2007

2008

2009

Interview with Mr George Gaggero, Deputy Chairman, MH Bland

Source Market

2006

2010

% Change 2006/11

% of Gibraltar 2012

UK ¹ ²

1,204

1,335

1,477

1,533

1,622

1,700

28.0

+41.2

67.8

Germany

705

763

907

1,027

1,219

1,388

22.9

+96.9

0.8

Italy ³

517

640

682

799

Spain

391

518

497

587

889

923

15.2

+78.5

16.6

645

703

11.6

+79.8

1.9

‘000s Pax

2011 ‘000s Pax

Share (Eur)

France

242

280

310

347

387

441

7.3

+82.2

0.5

Sub-total, Big Five

3,059

3,536

3,873

4,293

4,762

5,155

85.0

+68.5

87.6

Scandinavia

123

173

283

306

5.0

+393.5

0.5

Benelux

110

126

159

2.6

+148.4

n.a.

Austria

104

1.7

+136.4

n.a.

Switzerland

121

2.0

+116.1

n.a.

Other

123

175

211

212

224

3.7

+82.1

0.7

Total

3,409

4,004

4,422

4,944

5,567

6,068

100.00

+78.0

88.8

10,380

10,452

10,290

10,402

10,997

11,520

+11.0

11.2

North America

¹ Includes Republic of Ireland. ² Gibraltar % includes North American ships cruising from UK. ³ Gibraltar % includes all passengers on Italian-based ships. 4 Data published by the Cruise Lines International association

Source: G.P. Wild (International) Limited from ECC and CLIA data.

(CLIA) have been inflated by 2% to take account of non-CLIA lines supplying the North American market.

It will be evident from the table that Gibraltar is heavily dependent for its business on the two slowest growing markets, the UK and North America, which together make up 79% of its business. Their growth figures over the five years of 41% and 11% respectively are in sharp contrast to the 97% growth in Germany, which is frequently tipped to eventually take over from the UK as the leading European source market for cruise passengers. However, with a handful of calls by Peter Deilmann, Hapag Lloyd and Phoenix Reisen, less than one per cent of passenger throughput at Gibraltar can be ascribed to the German market. This is a lower share even than that of the Spanish cruise lines, where there has been perhaps an understandable reluctance to cruise to a territory to which Spain has a claim. In particular, the two largest German operators, Aida Kreuzfahrten and TUI Cruises, are absent from the current call schedule. Aida is a part of the Carnival group, while TUI Cruises is jointly owned by Royal Caribbean and the German-based travel giant, TUI. Other members of these cruise groups are already calling at Gibraltar: • Carnival – P&O, Princess, Costa, Holland America, Seabourn, Iberocruceros; • Royal Caribbean – Royal Caribbean, Azamara, Croisières de France (CDF), Pullmantur; • TUI – Hapag Lloyd, Thomson. We would suggest, therefore, that Germany should be a key target market for Gibraltar as it seeks to extend its capability and, at the same time, broaden its client-base. In addition, some of

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the smaller countries in Europe have also achieved high five-year growth rates, some well over 100%, and should also be borne in mind. One of the smaller markets, Finland, is represented among Gibraltar’s source-markets and indeed, the operator, Kristina Cruises, has used Gibraltar as a turnaround port for embarking and disembarking passengers. Here again is something on which Gibraltar can build, as it seeks a share of the additional passengers expected to cruise the Western Mediterranean in the course of the next decade.

Milestone GRP - How was MH Bland established in Gibraltar and how did your family get involved in the business? Mr George Gaggero - It goes back 200 years, when Marcus Henry Bland, a Liverpool merchant, arrived in Gibraltar just before 1810 and set up a Port Services agency. The business was then passed down to his son and then his grandson. At the time, Emanuel Gaggero was working as a manager of his business. When Bland‘s grandson died, he bought the business off the family and took it over with his brother. I am the fourth generation participating in the business with my brother. Then, the family parted, one part going to the Airline business while my father kept the Ship Agency business in 1986. We have always felt that our roots are in Gibraltar. Geographically and strategically, it is a wonderful place for the Shipping business and it provides fantastic opportunities. In the early days, MH Bland provided Salvage and Ship Repair, then the business evolved. In the last ten years we opened up Port Agencies in Algeciras, Ceuta, Las Palmas, Gran Canaria. We have also diversified the business by offering shore excursions out of Malaga. We felt the need to offer a wide range of services and extend beyond the Port of Gibraltar. So, for example, we will handle 60 cruise liner calls in Malaga and 160 in Gibraltar this year. We are building on the relationships we have with our clients and trying to transfer that standard of service to places where they feel it is lacking. Tangiers is a particular port of interest. The ports of Malaga, Gibraltar and Tangiers could work together as a triangle with regards to cruise liners in the same way that Gibraltar, Algeciras and Ceuta are working together in the Bunkering sector. If one port works better than the others, we are going to benefit from it. So we are trying to make the region as a whole more attractive. Milestone GRP - Has the crisis affected the Shipping business either in terms of volume or in key trends? Mr Gaggero - Gibraltar only needs a small percentage of any market to be able to flourish. With regards to Shipping, the number of ships coming into the Port of Gibraltar has actually increased since companies have been taking advantage of the duty free fuel and the efficient service our Port offers. Despite the global crisis the business has not decreased. This means that MH Bland, and Gibraltar as a whole, are both offering the right services. Milestone GRP - What is the competition like within Gibraltar’s Shipping sector? Mr Gaggero - Some of the biggest agency players in the world are here, such as Inchcape and Wilhelmsen. Then, the-

re are 4 or 5 local companies. Nevertheless, two local companies handle more business than anybody else: MH Bland handling 25% of the ships coming into Gibraltar and Gibunco, accounting for about 20% of the total business. Moreover, MH Bland is not just competing against the other players in Gibraltar, but also against other Ports such as Algeciras, Ceuta, Malta or Rotterdam. Milestone GRP - Although the new government has been very clear on the fact that Gibraltar’s new airport terminal was not an investment they would have made, there is consensus that its utility and economic return must now be maximized by increasing air traffic to Gibraltar. What role will MH Bland play in this development? Mr Gaggero - First of all, in terms of Gibraltar’s Tourism sector, it is not a matter of bringing in more people, it is a matter of improving the product and increasing our capacity. Both these aspects need to be improved and everybody is aware of that. Out of the 3 million genuine tourists coming to Gibraltar every year, only a third go to the Natural Reserve and see the sights. Gibraltar has a fantastic product that needs to be moved into the 21st century. We have wonderful potential in the assets of Saint Michael‘s Caves, the Barbary Apes and the Upper Rock with its fantastic scenery. If we improve the product, it will promote itself. The previous administration did a fantastic job in other fields, but they did not focus on tourism as they should have. It was one strong pillar of the economy they did not give enough attention to, and the potential of the Tourism sector to contribute to the economy is far greater than people appreciate. Milestone GRP - What investments is MH Bland looking to make into the Tourism sector? Mr Gaggero - We are conscious of the limitations of the Upper Rock. At the moment, we are developing plans for a complete rebuild of the cable-car facility, which will offer expanded capacity. At the moment its carriages are capable of carrying 30 people per trip, every 6 minutes, and the new one would carry 80 passengers per trip. We have already talked to the Government and the other stakeholders with the view to enhancing the transport system on the Upper Rock. Although the private sector must drive investment into the Tourism sector, the new Government is in a unique position to assist in that process since its representatives represent the grass roots of Gibraltar‘s community. The Chief Minister in particular, having previously represented the Tax Association as a lawyer, has got an understanding of the mentality, issues, the business community and its requirements. If he can bring the various stakeholders together it will be a massive step forward for Gibraltar’s Tourism product.

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Hotel Arrivals 2000-2010

hotels whilst in other destinations, the leisure market is going in the other direction, as a result we are having to compete with emerging destinations and the global economic climate, which has created an extremely competitive market - to an extent price driven more than destination driven. Milestone GRP - The human resource aspect of your operations is a key priority at the Caleta Hotel. What initiatives are in place to maintain high standards? Mr Ostuni - Human resources are most probably the most important aspect of our business. At the Caleta Hotel we are very fortunate because we have a very low turnover compared to industry average. Out of our total workforce 15% have over 20 years of service, 30% over 10 years of service and 25% over 5 years. The rest are really seasonal positions and fluctuate following business levels. Milestone GRP - In terms of the development of the tourism sector, what project would you like to see completed under the new Government and how will they support your activity?

The Caleta Hotel A Gibraltar Landmark

Interview with Mr Franco Ostuni, General Manager, The Caleta Hotel

The Caleta Hotel is the largest hotel in Gibraltar, and a hub for social and business activity on the Rock. Opened in 1964, it has been refurbished many times since to maintain the hotel’s position at the vanguard of Gibraltar’s hospitality offerings. Major changes it has been through include the addition of a dedicated conference center that hosts many yearly international events such as the Tradewise Gibraltar Chess Festival and the KPMG eGaming Summit. Milestone GRP sat down with the Caleta Hotel’s General Manager, Mr Franco Ostuni, to discuss the current trends affecting Gibraltar’s tourism industry, the benefits and potential of event-led tourism, and his perspective on how Gibraltar should approach the development of its tourism image.

Milestone GRP - Can you please give an historical overview of the Caleta Hotel? Mr Franco Ostuni - The Caleta Hotel was built in the early 1960’s and opened in 1964 by a local businessman who had a vision to build the largest Hotel in Gibraltar on the eastside of the rock next to the fishing village of Catalan Bay, with the aim of attracting holiday makers to the destination. This was an innovative concept considering what Gibraltar was at the time - fundamentally a naval base living directly from the military presence in Gibraltar. During the last 50 years the Hotel has received various transformations, extensions and development of facilities like conference centre, health and beauty club in order to offer the product the market required. The Hotel has achieved prestigious awards; Gibraltar Leading Hotel in 2009/10/11, the Hotel features the only 2 AA Rosette Restaurant in Gibraltar, the award received in 2006 and maintained since.

114

Mr Ostuni - Indeed the new Government came into office with a manifesto strongly supporting tourism in Gibraltar. I believe tourism is not about hotels, restaurants and nightlife, these elements are the commercial response to a demand, it

is really about destination. I am confident the new Govern75,000 60,000 45,000 30,000 15,000 0

2000

2001

Gibraltar statistsics office Hotel Arrivals

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: GSO

ment will look at improving the Gibraltar tourism experience as a whole, as a result of this activity we will directly and indirectly benefit and I am sure new players will come to the market. Milestone GRP - The Government aims to increase the frequency of international events in Gibraltar. The Caleta Hotel hosts the annual Tradewise Gibraltar Chess Festival. What potential do you see in this area? Mr Ostuni - Event lead tourism is very important and I believe the Tradewise Gibraltar Chess Festival is proof of the potential in this niche market. It is the result of considerable work and 10 years of constant effort in positioning the event at international level. It is now recognised as the best

ness, need to respond to clients needs. In the 70’s and 80’s the average shelf life of a hotel ranged between 8-12 years, nowadays, due to technological progress and changes in trends, hotels need refurbishment every 4-6 years on average. This translates to an increase in capital expenditure required and a shortening of repayment periods. Milestone GRP - What is the hotel’s capacity? What are the occupancy rates and the business to leisure traveller’s ratios? Mr Ostuni - The Hotel has 151 bedrooms including suites and self-catering apartments, this makes us the largest hotel in Gibraltar not only in bedroom stock but also for the facilities on offer, Health and Beauty Club, Conference Centre, two restaurants, the largest banqueting facilities in Gibraltar and so on. Our occupancy is generally constant throughout the year and ranges around 60%, our business mix between leisure and corporate market is 50/50.

Milestone GRP - What were the challenges faced over the years during the transformation of the Hotel?

Milestone GRP - How would you qualify the Gibraltar business and tourist visitors in terms of consumer behaviour?

Mr Ostuni - Challenges are part of the hospitality industry and they seem to get tougher over the years due to the rapid evolution of our society. Fashion, customs and trends change so quickly nowadays that hotels, like any other busi-

Mr Ostuni - There are different business segments within both the leisure and business markets. While the business and conference market coming to Gibraltar is becoming more and more sophisticated and using 5 star and 5 star deluxe

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open tournament in the world. This has put Gibraltar on the map and attracted in 2012 some 400 participants from 58 countries around the world. The model of the Chess Festival can be easily duplicated for other events and adjusted to the specific needs. Milestone GRP - Did the idea for this event originate from the Caleta Hotel? Mr Ostuni - It was our Chairman, Mr Brian Callaghan O.B.E., who had the idea to organise an international event of some sort in order to attract visitors to the Hotel and Gibraltar in the winter months. Many activities were considered, chess was chosen because it is an indoor activity and therefore weather conditions are not so important and because the tournament is an 11 round and not a knockout tournament therefore particularly interesting from a hotel point of view, considering all participants will play for the entire duration.

Milestone GRP - The Government and Tourist Board participate in numerous international tourism events, such as the Fitur International Tourism Fair in Spain. What role does the Caleta Hotel play in terms of developing Gibraltarâ&#x20AC;&#x2122;s image internationally, and what initiatives does it take part in? Mr Ostuni - The Caleta Hotel has always supported and participated alongside the Gibraltar Tourist Board in exhibitions, road shows and general activities aimed to promote the destination. In the particular case of Fitur, we do not participate because we do not believe in a potential market from Spain into Gibraltar for resident tourism in the Hotel. Spain has never generated, in spite of Gibraltar Tourist Boardâ&#x20AC;&#x2122;s marketing activities, any meaningful inflow of tourists in Gibraltar hotels. We prefer to invest our limited marketing budget in markets that have responded and enjoyed our product or can potentially do so in the future.

Tourism Hotel Occupancy, 2000-2010

Percentage of Visitors by Length of Stay

Total

Family/Friends

Business

Holiday

Transit

100

70 60

10 0 2000

2001

2002

2003

Gibraltar statistsics office Hotel Occupancy

116

2004

2005

2006

2007

2008

2009

2010

Source: GSO

2-7

8-14

15 Or More

Average

Days in Gibraltar

Percentage of Visitors by Length of Stay

Source: GSO

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Hosting the World of Chess

Chess in Schools With popular passion for the game and a widespread belief that all who play chess at some time in their lives benefi t from it, Chess has also been introduce to Gibraltar’s schoolchildren. Gibraltar today can boast a chess club in almost every school, and a young British champion in Stephen Whatley. Also the fi rst Junior International was held last summer, the second and bigger event will be held in August 2012.

A global tournament with a high – and rising – rank by Ms Alice Mascarenhas, Features Editor, The Gibraltar Chronicle Gibraltar’s Tradewise Chess Festival The world of chess has a unique relationship with Gibraltar. The overwhelming success of its international chess tournament, the Tradewise Chess Festival, which at the start of 2012 celebrated its tenth year, owes much to this special bond. Its tenth edition was oversubscribed. It broke all its previous records with 58 Grand Masters (GM) participating, 11 of which were rated 2700. It also saw the greatest ever gathering of female chess players in a mixed event - never before had so many of the world‘s top women joined leading male players to compete in the same tournament. Tradewise 2012 was to rock the world of chess and make history. Hou Yifan, 17 years of age from China, played the best result by a female player in the history of the game. The world of chess will be talking about her achievements in this tournament for many years to come – she not only beat Judit Polgar, up till now, the best woman in the world, but four top players way above her own rating. The fi nal round was thrilling as everyone waited to see if Nigel Short, who by his own admission plays his best chess on the Rock (believing it is the best open tournament in the world), would make it an awe-inspiring fi nish – as he played against Hou Yifan in the play-off. And he did, victorious after just one hour, and regaining the title he fi rst won in 2003.

The 2012 Winner

In all, the tenth edition attracted 240 players – the list of familiar names impressive, establishing the tournament as the strongest open event in the world. But perhaps the huge success of chess in Gibraltar is best illustrated by a stunning statistic revealed by Chief Minister Fabian Picardo on the fi nal day of the tournament when he announced the tournament website had far outreached its own record, attracting a quarter of a billion hits as the chess internet world was running on overload over those 10 days, since the chess commentary and analysis from the team and Grand Masters are a must for international fans. For two weeks every year, the Rock becomes the focal point of the professional and amateur chess world - a tight ship captained by its founder and organiser Brian Callaghan. It was his brainchild, and it has become a regular fi xture on the global chess calendar. The exclusive atmosphere created by everyone involved has been a crucial part of its success with a private visit a few years back by the legendary Boris Spassky and the world’s number one, Magnus Carlsen. Effective organization, led by Stuart Conquest, and impeccable hosting by the Caleta Hotel management and staff, are key to the event’s success. Also, the fact that amateur players can sit side-by-side with professional Grand Masters has proven a major pull, attracting players from fi ve continents. Equally vital are the sponsors who make the tournament possible. Gibtelecom was the fi rst major player and continues on board, especially on the technical side. The Tradewise Insurance Company is now the lead sponsor and for the tenth edition the prize money increased to an amazing £155,000.

energy and resources, everything is possible. He fi rmly believes the festival offers a blueprint for the future of Gibraltar tourism, led by international events of this nature. It also confi rms the drive that if a specifi c niche is found, it should be targeted with vigour. From day one, Mr Callaghan saw another niche in the market and quickly set out to welcome all women players and Grand Masters to the Rock. A separate prize was the answer and this proved to be a most important part of the tournament and the competition. This is why there were more top female players and indeed World Champions in the tournament with seven of the top ten women in chess playing on the Rock, including Judit Polgar, the only female player to have won a game against a Men‘s World champion. Advances in Live Streaming Over the years, the tournament has been enjoyed by a huge internet audience. It has become the leader in this area of the chess world and has introduced the game to a wider audience. This has been thanks to Gibtelecom’s innovative technology and the unique, built-for-purpose webcasting suite installed at the Caleta Hotel, which has brought thousands of chess enthusiasts from all over the world into the arena.

Nigel Short not only took the fi rst prize in 2012 but also won the special Commonwealth prize in this Diamond Jubilee year. Hou Yifan, who came second in the tournament, also took the Women’s Award, as well as the Junior Award. Vicktor Korchnio won the Senior Award, and Best Game was awarded to Emmanuel Berg. GM Nigel Short from England said in his winner’s speech: “I don’t know what it is about this place. I get such a good feel at this tournament, it is so well organised that it helps me play better. I really could not imagine that I could be up here this evening making this speech. I was ranked 15th and I thought, my goodness we have come a long way in 10 years. I have not played every year as it is my fi fth year. I played in the fi rst year and it was a good little tournament with 60 players, and I was the star, and now I am just one of many superstars. There are many real giants of the game who I am honoured to play against. It is a great event. I am glad to have seen it grow and I really do believe that this is the best open tournament in the world.”

The streaming, explained a Gibtelecom spokesman, has been enhanced from year-to-year and can handle thousands of concurrent connections, whereas when the tournament fi rst started it had a limit of only 10. Today, it boats a billion hits in just 10 days, with visits from as far afi eld as Germany, Russia, Brazil and the USA.

But Mr Short who had felt the might of the young Chinese player in the play-off just a few short hours earlier insisted he was not the story of the event. The story was the result of the young girl from China whom, he said, had put in a remarkable performance and shown what a world class player she is. “Maybe,” he suggested, “what we are seeing here is the start of something new in women’s chess. I have in front of me Judit Polgar who has been forever, basically, the representative of women’s chess – the star above stars. This is nothing against Judit, who I respect greatly, but I am glad she now has some competition. Long live Gibraltar! Long may this event go on! I’ll be back next year.”

“It is diffi cult to believe that from our modest beginnings, Gibraltar now hosts the most prestigious Open Chess Tournament in the World. It is a credit to Gibraltar that the Tradewise Chess Festival is a tournament that participants from all over the World now wish to play”, says Brian Callaghan.

Chief Minister Fabian Picardo, wife Justine and tournament organizer Stuart Conquest

118

A Niche Market For Gibraltar, the tournament’s success has meant that in the slow winter months – for those two weeks a year – hotels are full. Mr Callaghan has made his hobby pay-off, reinforcing the knowledge that event-led tourism has a market, and with the will,

Governor Sir Adrian Johns presents the Commonwealth Trophy to winner Nigel Short, next to him Is Bruno Callaghan

Brian Callaghan and Hou Yifan

For tournament organiser Brian Callaghan, with world press headlines describing this as the best open ever, the event’s success was clear. 2012 had been an historic year coupled with the Government’s assurances of proactive support to chess in Gibraltar. He stated: “What an amazing tournament we have had. It‘s about having fun and playing serious, very serious chess. The chess played in Gibraltar this year has reverberated around the world.”

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Weave south through our bustling Main Street shopping area - I dare you to resist the bargains. Pause for shade in our quaint museum. Stroll between cathedrals, mosques, synagogues almost within touching distance of each other; but you'll feel no religious or cultural disharmony here. Informally salute or photograph the military guard stationed outside our Governor's residence and then pay homage to men who fought and died for our British way of life lying buried in the Trafalgar cemetery. The military are challenged to shoreline-to-summit running races but you're on holiday, so take the cable car 412m to the top. Two mighty continents, Europe and Africa, and three countries, Gibraltar, Spain and Morocco are at your feet. To the ancients, this was the final frontier. Nothing of the world was known beyond. The legendary Pillars of Hercules were created to protect intrepid mariners from cascading into the underworld abyss. Only in 1492 did Columbus venture bravely due west from here. One pillar stands in Gibraltar, but try to spot the other 24k south in Morocco, like the Roman, Greeks, Carthaginians and Phoenicians did from the sea.

Gibraltar’s Tourism Highlights Lots to Discover

Gibraltar occupies a pivotal position on the main route between the hemispheres and the axis linking the old and new worlds East and West. As such, its people have been a gatekeepers and key bearers of the Mediterranean. Phoenicians, Arabs, Egyptians, Greeks, Romans and others had only this

Cable car to the top of the Rock

access point before the Suez Canal opened in 1869. Our flag reflects this dominance. We've become a fortress citadel fought over through the centuries by Arabs, Spanish and British. We've been battered, bruised, bombed, blitzed, beleaguered, infected, invaded and isolated. But we survive. Some

by Ms Karen Lawson, Gibraltar Tourism Enthusiast & Author

Discover Gibraltar, colloquially known as The Rock. The biggest pebble in the world, the best of Britain without the rain, the world's only real theme park: small in size, huge on history. We hate to brag, but when nature, or the gods, created a solid 6.5 km² limestone rock at the epicentre of the world, a quirky, unique holiday destination was created. Think location, climate, sun, sea, sand, history stretching back 100,000 years, culture, myth, legend and wildlife - with dolphins riding your bow wave, eagles soaring above and monkeys hitching lifts

on vehicles. All this in a place so safe that if you stumble someone will catch you before you hit the ground. We have beautifully placed hotels; maybe the Caleta Hotel on our rugged geographically inspiring eastern side would appeal? Wake peacefully like a cat warmed by the sun rising over the Mediterranean and ponder whether it will ever clear the looming rock behind you. Watch as descendants of Genoese migrant fishermen bring their Italian styled village to life from below your balcony. If you're fit, everything is within walking distance but buses and taxis speed your journey. So follow the sun - time to hit the west end as the British would say. Pause in Casemates Square for Spanish café con leche. Spain held this rock for over 250 years, secured within monstrously thick defensive walls. Today this British overseas territory is still dominated by the watchful 14th century Arab castle remembering a period of 750 years when Gibel Tarik was in Arab possession. Fortunately, we've absorbed, and you can enjoy, the best of three rich cultures. People are an eclectic mix, most proudly Gibraltarian, with blended bloodlines from British, Italian, Maltese, Portuguese, Jewish, Indian and Arab forefathers. Some marry Spanish citizens and as neighbours we have a symbiotic relationship. Remember later to sample fi sh and chips, couscous, sardines, tapas, pizzas and other local delicacies, all served in a myriad of eateries by families that have been cooking this food for generations.

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Local fare, in all its international varieties, by the marina

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areas look rough and neglected but what a story every cannon, crumbling gun position, shattered step or wall can share! Meander over the spine of our rock where the only wild monkeys in Europe scamper round. They've survived here since the British brought them from the Barbary Coast 300 years ago. They fooled us into believing they symbolise the sovereignty of the British on the Rock. Winston Churchill insisted they be forever protected, registered and even named during the upheaval of World War II. Stride up to our highest point at the south and almost touch the heavens above and Africa beyond. The monkeys wait while you explore our bottomless abyss, St Michael's Cave, among 173 formations magnificently created over millions of years by water seeping through Jurassic limestone. Phoenicians named the Rock ‘Calpe’ probably derived from a word meaning hollowed out. In World War II the cave was prepared as an emergency hospital and now houses a breathtaking amphitheatre, contrasting with the one built over water within the tranquil Alameda botanical gardens below. Neanderthal and Neolithic men inhabited some caves and their stories are continually being uncovered as we currently seek World Heritage Status. Gibraltar has the highest density of Neanderthal sites worldwide, so you're walking in the footprints of the last Neanderthals facing extinction here 24,000 years ago Gibraltar is a fortress and as such has been besieged fourteen times. The Great Siege of 1779-83 was the longest in Brit-

ish history. A contingent of 5,500 military, surrounded by the empires of France and Spain, stoically resisted overwhelming odds, starvation and disease and what was surely inevitable defeat. Drive desperate men to where they have nothing left to give and nothing left to lose, and outstandingly brave or very foolhardy risks will be taken. The surrounded soldiers realised the only thing in abundance was the Rock itself. Courageously they created tunnels above the enemy, using anything available in siege conditions. Proving the old adage “Solid as the Rock of Gibraltar” right, they audaciously fired cannons impacted inside 400m of rock down upon the enemy; even inventing a downward-facing gun for the purpose. Take a scenic long walk to the famous north face of Gibraltar. All the hard work has been done so wander through our extraordinary 18th century defensive positions and pity the hapless exposed enemy trying to get a foothold on our rock below. Churchill, during World War II, with vision buoyed up by historical awareness, again made Gibraltar an internal fortress. With Eisenhower's aid British and Canadian engineers excavated 50km of tunnels creating one colossal air raid shelter and warehouse. Everything from partially constructed airplanes, offices, operational centres, road transport, ammunition, food, water, equipment, hospitals, hutted accommodation, galleys, rest areas and latrines were housed safe from enemy action. Take a guided tour within these more contemporary tunnels; you may even meet a nonagenarian revisiting his creation.

Our nightlife sizzles with action and romance; the casino, nightclubs, moonlight beach walks, gourmet restaurants…but if you have to leave, look back at Gibraltar. It's not very big is it? But it's famous throughout the entire world. Don't underestimate us like our enemies have to their cost. We may have cannons peeping out behind every plant pot and are riddled with gun positions but you can safely walk through history and receive a quintessential British welcome anywhere in Gibraltar. St Michael’s cave right in the Rock itself

Stroll towards town past the City under Siege exhibition, a

Wildlife from sea level all the way up

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stark reminder of a harsh and cruel world 300 years ago, or visit the Arab castle, dating back to 1333. Then wind through ancient Arab streets into town. Our vibrant marinas beckon. Take a meal at The Landings restaurant in Queensway Quay and let the bay entertain you - maybe tomorrow game fishing, diving or a dolphin trip?

The Caleta Hotel perched between rock and sea

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Mr Montegriffo - We play 2 roles: we act as real estate agents offering the best and most accurate service as we possibly can with the aim of building on our success. Our second role was developed 10 years ago when we went into advising developers who were looking to invest in Gibraltar. Basically, we took the role of an estate agent to another level and got involved in projects from the moment the developers had located a plot. Another key factor that we have been keen to monitor is the structure of sales and type of clients that get involved in projects. In a small place like Gibraltar, the advantage is that we know a lot of our buyers personally and are better able to guide developers toward the type of buyers or market that we aim to target. This generates a great deal of confi dence with our developers and banks that are fi nancing the projects, and I believe that the strategy we chose on targeting the right market and focusing on owner occupiers thereby underpinning the developments, gave way to the success of Kings Wharf and The Anchorage under diffi cult times.

Building on Rock-solid Foundations Agents on the ground, and higher Interview with Mr Louis Montegriffo, Director, BMI Group

Mr Louis C. Montegriffo is co-founder and Director of BMI Group, a leading real estate agency and development consultants based in Gibraltar. Louis has been a key player in the property sector since 1996 and been instrumental in positioning BMI at the forefront of property sales, letting and commercial real estate on the Rock. He has acted for various property groups as development consultant and played an important role in the sale of Gibraltar’s largest commercial complex. His knowledge in property, and that of his teams, is testament to the success of BMI and is underpinned further by close relationships with leading business partners in the fi nance sector.

Milestone GRP - What impact has the global financial crisis had on Gibraltar’s Real Estate sector? Mr Louis Montegriffo - From our perspective, 2008 was a very alarming year in terms of the impact the global downturn might have on us. In the 1980’s and early 1990’s the economic crises really harmed Gibraltar largely because our economy in those days was not as robust and diversifi ed as it is today. Safe to say that most were surprised how well we managed to sail through this crisis. The economy continued to grow, unlike much of the rest of the world with GDP growth of 5% to 8% between 2008 and 2012. Instead though, we have suffered a crisis of confi dence as a result of external factors and internal expectations. We have also had an issue of oversupply of real estate, in terms of new build projects; however it would be fair to say that most actually still made profi ts. Generally I think the market held very well and the prices per square meter have not gone down much. In some areas, prices have actually gone up. The top end of the market, which stands at about £5,500 to £6,000/m², has maintained itself. Milestone GRP - Where does the market stand today? Mr Montegriffo - There is talk about the need for new properties and the Government is looking to further develop the local market, which is considered a good feeder to the property ladder. The last major developments to be completed were Ocean Village and King’s Wharf, which have now been occupied for the last 2 to 3 years. Speculative investments have now been re-sold

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Milestone GRP - What is BMI’s client portfolio and what key projects is the company involved in going forward? Mr Montegriffo - I would say about 60% of our clientele is international and 40% is local and that has been the trend for a while. We are currently working with one company relocating into 700m², which is considered fairly large for Gibraltar. We are also working with a developer who is creating 1,400m² of offi ce accommodation in Gibraltar for an established player. That aspect

of the business is very positive and is driven by new investment in Gibraltar. We are also at the early stages of working on two commercial developments which would amount to a substantial and much needed increase of offi ce accommodation in Gibraltar. In residential sales our average market lies between £250,000 and £600,000 but lately we have been encouraged by larger transactions, including some well above the million Pound mark and we have seen several large sales coming from the local market which also speaks volumes about our own local wealth. We are also delighted to have been instructed in the sale of Gibraltar’s newest and fi nest address; Buena Vista Park Villas is an exclusive low-density development of villas and town houses located in the upper south district of the Rock and perched on a cliff face looking over the Bay and Strait of Gibraltar. We have been hugely encouraged by the fact that out of the 16 £1m plus units, nearly 40% are sold; all to owner occupiers and all purchasers bar one are locally based already. We are also pleased to see high net worth individuals relocate from places such as Switzerland or other competing jurisdictions such as Malta and Monaco for instance. This shows that Gibraltar has done a great job at creating the right sort of environment, which is well regulated and still enjoys great standards of living, both culturally and economically; whilst we are nowhere near Monaco in terms of market and prices, I am confi dent that Gibraltar presents great potential and margins for the future.

or rented and therefore refl ects new business developments and internal growth in the Online Gaming and Finance sectors. As for 2011, we knew it would be a good year but we did not expect it to be as good as it was for BMI. We reached levels of interest nearly as good as 2006 and 2007 and had high volumes of people renting. The last time we saw something similar was around 1998-1999, at the advent of the online gaming boom. At BMI, we have recently dealt with several funds, Insurance and E-money companies. I believe the market is stable and we are cautiously optimistic in Gibraltar. Milestone GRP - What is your outlook for the coming years? Mr Montegriffo - Some experts argue that another recession could be an opportunity for Gibraltar, others will argue that a small economy might be more vulnerable, so far we have proved otherwise. I would like to think Gibraltar is well positioned to attract more business. Gibraltar is small, safe, well-regulated, English is our fi rst language and we apply Common Law, which also presents advantages for fi rms looking to relocate to our shores. Access to the EU market through ‘passporting’ and the uniform tax regime that was implemented last year could lead companies to continue to take steps to relocate to Gibraltar. In short, we have an opportunity to create further business opportunities and have the economic fundamentals to do so. Milestone GRP - What role does BMI play in Gibraltar’s market?

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re-fashion what is already available. This is however also why things are fairly effi cient in Gibraltar because we can draw on the substantial volume of literature and legal tomes and deal with all those with our own challenges. This is something that we have worked with for many years and it has proven very useful. We have managed to re-draft local legislation and, in fact, I spent many years advising the Government on the implementation of European directives with regards to fi nancial services, anti money-laundering, banking, insurance and many other directives. When Gibraltar was striving to implement these directives, my team and I brought tens of European directives up-to-date, together with a consultant who was probably the most senior legal draftsman in the UK Government at the time.

At the Centre of Gibraltar’s Legal Evolution Growing in and beyond Gibraltar

Interview with Mr James Levy QC, Senior Partner, Hassans International Law Firm

James Levy advises large public companies on mergers and acquisitions and property companies on acquisitions throughout Europe. Mr Levy assisted the Government of Gibraltar on its development of the jurisdiction as a fi nance centre. This has included advice on anti-money laundering, banking, insurance, fi nancial services and trust legislation. James pioneered the use of Alternative Dispute Resolution in Gibraltar and is a qualifi ed Mediator. An Honours graduate from Manchester University, Mr Levy attended the Council of Legal Education in London and qualifi ed in 1972, becoming a partner of Hassans soon after in 1974. He was appointed Queen‘s Counsel in October 2002. He is the only lawyer in Gibraltar to have been rated "Star performer" by Chambers & Partners and Legal 500 for four years in a row. In May 2008 he received the highly prestigious "Life Time Achievement Award" from Chambers and Partners. Milestone GRP met Mr Levy to discuss Hassans’ tandem growth with Gibraltar’s economy, the evolution of the jurisdiction’s legal framework, as well as the fi rm’s international operations and its plans to double in size within the next 2 or 3 years.

Milestone GRP - Hassans has a long history in Gibraltar. What are the firm’s roots? Mr James Levy - The fi rm was founded by my uncle, the late Sir Joshua Hassan who is a legend in Gibraltar, as a human being, as a politician, as a lawyer and everything else. He founded the fi rm in 1939. I joined the fi rm in 1972 and at the time, we were in two rooms and a kitchen with Sir Joshua, a part-time secretary and myself. We moved several times, bought neighbouring facilities and today, we have this offi ce, the neighbouring premises and a third premise on Main Street. So now we have reached a certain critical mass; and as a fi rm we have a very large international practice in fi nancial services, mergers and acquisitions, litigation, trust work and much more. Milestone GRP - From a legal perspective, what are the challenges Gibraltar faces? Mr Levy - Gibraltar has evolved from a tax-free jurisdiction to a fi nancial centre, which applies taxes on its individuals and businesses. The challenge is therefore to be recognized as a very good European centre where companies can be based and operate from, where taxation is reasonable and the infrastructure is very good. By infrastructure, I mean much more than the

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physical aspect, which is very good; we also have an abundant pool of quality professionals and apply Common Law, which is very important as illustrated by some of the cases happening in the United Kingdom (UK) at the moment, some of which we are involved in. In fact, some of the matters being dealt with in these cases emanate from Gibraltar. I would say that Gibraltar is probably one of the most effi cient Common Law jurisdictions in Europe because of the good judiciary and court system in place and because we have lawyers who can actually cope with both transactional and litigation work. So the challenge now is for the larger countries and corporations to recognize Gibraltar as a legitimate European centre where people can base their head offi ces, in a similar way they do in Luxemburg, Ireland or Malta, for instance. Milestone GRP - How much has to be re-invented or even created in Gibraltar in terms of legislation, and how is that helping the Rock position itself globally? Mr Levy - A lot has to be re-fashioned in Gibraltar. Indeed, many UK precedents, transactional or litigation documentation and the so-called ‘White Book’ apply in Gibraltar; but it has its own peculiar diffi culties and therefore from there, we have to

These directives now apply in Gibraltar and it is safe for large companies to establish here in the knowledge that we are the same as Ireland, Malta, Cyprus or Luxembourg, for instance. Moreover, we have the proximity to a large hinterland with good facilities in terms of recreation; therefore, Gibraltar is now positioned to take off as an important fi nancial centre in Europe. I have been advocating for reasonable taxation since the mid90’s, for which policy has now been implemented after a number of years. We now have to attract the right sort of companies to Gibraltar apart from the Gaming companies that are doing very well here. As you know, Gibraltar attracts la crème de la crème in the Online Gaming world and we want to remain exclusive in general. Milestone GRP - Could you please provide an example of legislation that has been specifically re-fashioned in the context of foreign investment? Mr Levy - We have very good anti money-laundering legislation which is based on European directives and UK legislation and works well. Moreover, we have excellent banking, insurance and fi nancial services legislation in general. Gibraltar is an important gateway for ‘passporting’ services in the EU; whilst a Gibraltar license is not easy to obtain, it is more user-friendly than in bigger countries and allows companies to passport their services in any European state. For example, we have acted for local banks and other fi nancial services companies that have ‘passported’ their services in to Spain, despite the issues between our two countries, and other EU jurisdictions. Similarly, we have acted for Spanish banks that have ‘passported’ their services here in Gibraltar, as well as other European companies. Gibraltar is not only attractive as a base for fi nancial services providers but also for fi nancial institutions from outside the EU to license here and ‘passport’ into the EU. Milestone GRP - What are some of the key criteria applied for business registration in Gibraltar? Mr Levy - If we are talking about insurance, banking and fi nancial services, the same criteria are applied as anywhere in Europe. The only difference is that here one has good and quick access to the Financial Services Commission and therefore one can get prompt answers to any query. For instance, setting up a hedge fund or a bank is quicker than in other places because Gibraltar is very small; but the value of a Gibraltar license is equivalent to a license in London.

What I think people do not understand yet is Gibraltar’s sophistication, the valuable asset of our location, being next to the hinterland as well as the general level of infrastructure here. The gaming companies have recognized the potential Gibraltar presents as a head offi ce location but the international community has yet to do so. Milestone GRP - As an authority in your sector and on Gibraltar in general, how much of your work at Hassans revolves around reassuring investors? Mr Levy - Not so much to be honest; I think Gibraltar’s stability is quite clear. However, people simply just do not think of us. We need to be publicized more. This is how the Online Gaming trend started; and look at where we are now. I am often in London and people often admit that they did not consider Gibraltar as an investment destination. As a fi rm, we have set up a number of banks here, especially in the 1980’s and the 1990’s, to the point where it almost became fashionable for banks to set up here. Today, things have changed simply because of the way the world functions. We are however seeing a number of funds setting up here; our Funds department only must have 60 to 70 Experienced Investor Funds in its portfolio. But to this date, Gibraltar is still not the fi rst point of call and I think we need to improve our image, especially for funds, fi nancial services and indeed for headquarters.

Milestone GRP - How has Hassans’ work in Gibraltar inﬂuenced the firm’s operations internationally? Mr Levy - We started in Gibraltar of course but today it is our base as we have offi ces in Luxemburg, in Spain and we’re contemplating opening new premises in Cyprus. Whilst it is not incidental that clients come to us here and they often want to be in Gibraltar, our clientele is very international. We do a great deal of work for people outside Gibraltar. For example, we have just completed a Letter of Intent (LOI) for a large American company with a European company in respect of assets in South America, Africa and Asia. This sort of work has very little to do with Gibraltar but rather with the fact that our clients were here and many companies here are very international. Gibraltar has been our foundation and it is our intention that it will remain our base for a long time, even if we expand hugely. For one, my family has been in Gibraltar since the early 18th century so we have over 300 years of history here. Milestone GRP - You have stated your intention to double the firm’s size within the next couple of years. Which direction will this expansion take? Mr Levy - I expect our growth to be organic and I hope it will be matched by the setting up of substantial head offi ces for large companies that will require our services. We employ the services of numerous in-house chartered accountants. I would indeed say that the fi rm will probably double in size in the next 2 to 3 years alongside Gibraltar’s growth and that of our practice. For instance, one of my sons just joined us and another one of my sons will start next year but of course they start as I started, from the bottom, as they need to learn.

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distribute dividends without any withholding tax. From a cash management point of view, it also becomes quite interesting as the profi ts would accrue at a very low level of taxation. Milestone GRP - What challenges do companies face when doing business in Gibraltar?

Upholding International Standards

A well-regulated European jurisdiction for serious investors

Mr Pisharello - I think, in this case, our size works generally in our favour. For instance, it is easier to get to know the organisations and people with which companies need to engage to do business. We do however suffer from a lack of offi ce space, which is a symptom of our own success. For example, the new gaming companies setting up in Gibraltar, which employ about 10% of the working population, have absorbed much of our offi ce space. The new World Trade Centre expected to set up in Gibraltar soon and other developments in the pipe-line should alleviate the situation. Living space has been another problem, but at the same time, the neighbouring Spanish cities have benefi ted from it and provided the needed buffer. Milestone GRP - International firms like Baker Tilly are governed by global principles and adopt local expertise and knowhow. How is this balance best illustrated in Gibraltar?

Interview with Mr Joe Pisharello, Chairman, Baker Tilly Gibraltar

Mr Pisharello qualifi ed as a Chartered Certifi ed Accountant in 1991 and has been working in practice in Gibraltar ever since, acquiring in-depth knowledge and experience of the local commercial and business environment, particularly in the fi eld of fi nancial services where he has specialized in banking and insurance. His team’s expertise in insurance has resulted in Baker Tilly Gibraltar becoming a leading fi rm in the provision of audit and advisory services to the Insurance industry in Gibraltar. He has served as President of the Gibraltar Society of Accountants and is currently a member of its tax faculty. Milestone GRP spoke to him about the challenges and opportunities of doing business in Gibraltar, and his fi rm’s outlook for its future on the Rock.

Milestone GRP - Which do you identify as the key characteristics that most affect the set-up and operation of business in Gibraltar? Mr Joe Pisharello - Gibraltar offers the benefi ts of the British legal and regulatory system combined with the attractiveness of being located in a beautiful location such as the Mediterranean with great weather and great leisure facilities, as well as its proximity to North Africa and to Spain. Being part of the European Union also brings business opportunities to Gibraltar, such as being able to take advantage of the Single European Passport in areas such as banking, insurance and investment services. The passport allows Gibraltar licensed entities to provide services or set up subsidiaries and branches in other EEA member states. There are also attractive tax breaks for High Net Worth individuals and people with specialist skills. In today‘s volatile fi nancial and economic climate, many people are looking for places they can trust, where the regulatory environment is suffi ciently strong and robust but without it being detrimental to doing business. People considering Gibraltar nowadays do so because they want to bring business to a place where they are going to be well regulated; in fact, our client acceptance procedures are such that they would act as a deterrent for people considering Gibraltar for the wrong reasons. This is the kind of message we want to send to the world: Gibraltar is the ideal place if you want to do good quality business in a wellregulated environment. Nevertheless, I think that the institutions

Mr Pisharello - Baker Tilly International is one of the 8 largest accounting networks in the world. Most of the other large accounting networks are also represented in Gibraltar. Baker

Tilly Gibraltar, our predecessor fi rms, can trace its origins to the 1920’s and we are also one of the largest fi rms here. As a member fi rm of the Baker Tilly International network we have to follow quite strict rules; however, as an independently owned fi rm, we enjoy considerable autonomy to be able to take decisions locally and quickly. Our membership also allows us to bring in business, or refer business, from other parts of the world. Crucially, clients may seek international solutions and we can do that because we are represented globally in more than 100 countries. This gives us and our clients tremendous leverage. Milestone GRP - Do you see any opportunities coming from new markets and new investors coming to Gibraltar? Mr Pisharello - Yes. As Gibraltar is increasingly considered by more and more players as a modern, well regulated jurisdiction, it will certainly benefi t from that; we hope there will be a "tipping point" effect if you like. Areas such as funds and insurance are potential growth areas. In funds, for instance, the negative effects from Madoff could make investors turn to well regulated and tax neutral jurisdictions such as ours. With respect to Insurance, many companies have looked at Gibraltar and have come in, considering Gibraltar as an excellent location from which to insure the risks of assets and risks situated in the European Union by, for example, setting up captives here. This has been a traditional growth area. I think that apart from what is happening around the world, the future is still bright for us.

we have in Gibraltar, like the Financial Services Commission, for instance, have taken, wherever possible, a pragmatic approach in the sensible application of EU directives and regulations to avoid regulatory creep. I also believe it was important for Gibraltar to reposition itself from the inevitable negative connotations of being labelled an offshore centre or ‘tax haven’ to that of a reputable onshore international fi nancial centre; and this is exactly how we want to be seen. For example, until recently we were grey listed by organisations like the OECD but, through measures such as agreeing Tax Information Exchange Agreements with a number of countries including the US and UK, we have been removed and are now white listed. We also introduced other signifi cant changes to our legislation to effectively reposition ourselves. We no longer, for instance, discriminate between local and outside investors; all businesses, which accrue and derive income in Gibraltar will be liable to tax in Gibraltar. This represents a big attractiveness in operating in Gibraltar where the tax rate is 10%, probably one of the lowest in the European Union; and that is the headline rate. Depending on how the operations are set up, the actual effective rate could be less than 10 %. For instance, we do not tax passive investment income, dividends or royalties and we do not have capital gains tax or VAT. This proves very attractive for someone who considers investing in Gibraltar. In addition, any distribution of dividend does not carry a withholding tax. So, imagine an outside investor setting up an operation in Gibraltar paying tax at a maximum rate of 10% and then being able to

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Mr Vaughan - Our fi rm provides not only the expected services of accountants, such as audit, accounting and tax, but as a professional services fi rm our range of services is broad and the depth of knowledge and expertise is evidenced by the relatively, for Gibraltar, high staff numbers. This makes us the leading accountancy fi rm in Gibraltar in terms of size with over 110 partners and staff. Our local knowledge and practical experience in the full range of business and legal issues facing inward investors, and those businesses and individuals already established in Gibraltar, allows us to advise across all industries and services sectors. In addition, with our access to the global network of PwC fi rms, and the specialist and expert resources provided by more than 169,000 people in 158 countries, we can advise on practically any area and subject matter that our clients may request from us.

Serving Businesses On and Oﬀ the Rock Local knowledge, international network Interview with Mr Colin Vaughan, Territory Senior Partner, PwC Gibraltar

Colin Vaughan is PwC Gibraltar’s managing and territory senior Partner, and has been with the firm since 1985. Mr Vaughan is the Vice President of the Gibraltar Society of Accountants and has served separate terms as Chairman of the Society’s Audit, Tax and Accounting Faculties. He is currently a board member of the Regulator’s Audit Advisory Panel, the Financial Centre Council and the Investor Compensation Scheme. He is also an alternate board member of the Deposit Guarantee Scheme. He met with Milestone GRP to discuss Gibraltar’s investment potential and opportunities it offers emerging markets.

Milestone GRP - How do you compare Gibraltar as an investment destination to other markets? Mr Colin Vaughan - Gibraltar is a self-governing territory that joined the EU at the same time as the UK. Most of its inhabitants are bilingual in English and Spanish. From an investment destination perspective, our main competitors are other jurisdictions with a British connection, past or present, such as the Channel Islands, the Isle of Man, Cyprus and Malta. Nevertheless, unlike some of these competitors, as Gibraltar is part of the EU, it can take advantage of EU directives and passporting services associated with this – this suits many fi nancial services companies choosing to invest here. And unlike those competitors within the EU, Gibraltar is exempt from applying VAT. Milestone GRP - What are some of the concerns and other factors that investors and businessmen consider when coming to Gibraltar? Mr Vaughan - Without having visited Gibraltar, investors are mostly concerned about the regulatory environment, the ability to operate at a low cost base, and of course, taxation. The truth is that the regulator, the Financial Services Commission, is very effi cient and responsive to investor applications, which impacts positively on investor confi dence immediately. By comparison to other jurisdictions, Gibraltar offers a low operating and living cost base, with a high standard of living. Gibraltar taxes all companies at a headline tax rate of 10%, and

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respect to “category 2” individuals, effectively capping the annual tax liability, Gibraltar is attracting individuals with a higher level of wealth than before, which has led us to start offering Family Offi ce services to those who require such dedicated service. Milestone GRP - According to PwC‘s Global CEO Survey, CEOs see strong opportunities in the BRIC countries. How does that impact your activities here?

Milestone GRP - What do you offer High Net Worth Individuals (HNWI)?

Mr Vaughan - Our leadership in PwC concurs with the survey as does the Government of Gibraltar, which has identifi ed the BRIC countries as providing major potential for inward investment. For some years, Russia has represented growth areas for PwC Gibraltar, and it is likely that this will continue. We have already started to focus on the other BRIC countries and we can expect more activity stemming our way, not only from Brazil, but from the rest of South America in the near future.

Mr Vaughan - PwC offers a personal concierge, or hand-holding, service to high net worth individuals. We have dedicated teams supporting those HNW individuals through the applications required to establish in Gibraltar. The services include liaising, if applicable, with immigration, assisting in the opening of bank accounts and in fi nding suitable properties. Beyond this, we offer private wealth management solutions for those needing it on an annual basis. Due to the special tax rates with

We fully support transparency and disclosure, which is why the Government has signed TIEAs (Tax Information Exchange Agreements) with 20 countries and intends to enter double taxation agreements with other territories as well. We feel it is imperative that Government is lobbied to ensure relevant TIEAs and double taxation agreements are signed with the above countries to allow effi cient business relations with investors from these countries.

the Government has embarked on a policy to reduce personal income tax, which is already relatively low, over the coming years. So as a jurisdiction, Gibraltar is tax competitive. Milestone GRP - Is human resources a major challenge for overseas investors? Mr Vaughan - Gibraltar’s education system mirrors the United Kingdom’s except that there are currently no universities in Gibraltar, although the Government of Gibraltar is exploring the possibility of setting up a university in Gibraltar in the near future. Gibraltarian students continue their further education at universities in the United Kingdom. These studies are fully funded by the Government of Gibraltar, which recognises that investment in education is necessary for the future success of Gibraltar. The number of Gibraltarian students continuing with further education, including subsequent professional qualifi cations, is therefore proportionately high. Accordingly, Gibraltar provides a broad base of highly educated and qualifi ed people. Nevertheless, the continued success of Gibraltar as an investment location has placed demands on human resources, which cannot be met by local supply alone. As a result, a signifi cant proportion of the workforce in Gibraltar is non-Gibraltarian. Milestone GRP - What services does PwC offer investors looking at Gibraltar?

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