Brexit poses challenges but opportunities too for key sectors of the Rock’s economy including financial services and gaming, Albert Isola, the Minister for Commerce, told Parliament during a budget address this week.
Mr Isola said the impact of Brexit on the business community was “difficult to predict of quantify” given that “the moving parts” of the UK’s withdrawal negotiations were still “far from clear” and continued to move “in unpredictable directions”.
But the close partnership between the Gibraltar Government and private sector operators meant that despite that uncertainty, new areas of potential business were being explored and there was room for cautious optimism.
“We have to accept that our new modus operandi will not work for all, and that there will be areas of change,” Mr Isola said.
“We remain today where we were 24 months ago.”
“We will work to deliver the very best results possible in the circumstances, working closely with the private sector in ensuring our product lines across all areas remain relevant and fit for purpose in the new challenges and opportunities that Brexit will deliver and offer.”
In financial services, Brexit “remains an opportunity” for Gibraltar’s insurance sector, whose guaranteed access into the UK market after withdrawal from the EU offers “a unique alternative domicile” for UK-focused insurers, Mr Isola said.
He pointed to two pending applications which were “particularly interesting” because if authorized, they would generate significant capital investment.
“Gibraltar has a number of very large insurance companies, the path to growth has, in most cases, come from organic growth over the last 10 to 15 years,” he said.
“The creation of new, highly capitalised, insurers has been more prevalent in other insurance centres, but would send out a very strong message that institutional investors have confidence in Gibraltar and its post-Brexit status.”
Mr Isola highlighted too the well-documented efforts to establish Gibraltar as a reputable, well-regulated leading hub for businesses using distributed ledger technology.
“We remain committed to protecting the jurisdiction and consumers in tandem, while providing innovative support to this nascent industry,” he said, acknowledging the critical role played not just by officials but by the private sector too in driving this business.
“Our vision remains one of attracting quality operators with who will create long term, sustainable and mutually beneficial relationships.”
The Gibraltar Financial Services Commission is processing around 35 applications for DLT licences, with a similar number pending too.
“If all licensed, this means 35 new businesses in this sector creating economic activity, employment and opportunity, and all created by ourselves as a jurisdiction,” he said.
The Minister for Commerce also acknowledged that the gaming sector, while still the most significant in Europe and perhaps the world, was “sailing into headwinds”.
“These are created not only by the uncertainties of Brexit and challenges around EU market access, but also because of increased industry consolidation; as companies look to scale up, drive efficiencies and deal with increased regulatory costs in new and existing jurisdictions,” he said.
Even so, despite those pressures there remained interest in the Rock as a gaming jurisdiction and the market, if not necessarily the number of companies, continued to grow.
Continued post-Brexit access to the UK market was also important in this sector, much of whose business was UK-facing, he said, adding that the UK did not want to see operators moving from Gibraltar.
“However, we can understand and will support our firms who are contingency planning and prudently assessing the political and business risks created by the nature and timing of Brexit being unresolved,” he said.
“Looking at the issue from a traditional business risk assessment perspective, whilst the probability of a hard or early Brexit and not being able to access EU markets from Gibraltar remains low in our estimation, the impact of such an occurrence would be high.”
“That this situation could arise in the coming months, but is effectively being planned for in 2021, means early decisions have to be made that will change some operations in Gibraltar.”
He said the government was working with operators to construct a regulatory and licensing regime that was right for them, but made clear that Gibraltar would not lower its regulatory standards.
He recognised, however, the need to be “flexible and innovative” and to take “a balanced view” on new business models and technology platforms.
Mr Isola mentioned, for example, proposals to bridge the DLT and cryptocurrency sectors with gaming, which could offer opportunities for selected companies to use the Rock as “an incubator” for new gambling services.
Mr Isola also announced increases to licensing fees and charges paid by the gaming operators, adding that these had been reviewed in close consultation with the industry.
And he added: “Our engagements have given us a strong degree of confidence that whilst operators may need to be flexible about the contingent location of some of their transactional technology, their people, both management and staff, prefer to be anchored in Gibraltar.” “They understand the personal and business benefits of being in this jurisdiction and we are working with them to develop alternate operating arrangements around technology, tailored to different Brexit outcomes and each operator’s unique business model.”