Gibraltar is finding opportunities among the challenges raised by Brexit. Ned Holmes speaks to Nigel Feetham, partner and head of financial services at Hassans International Law Firm, on why the domicile is developing a special captive regime seven years on from the referendum result
Captive insurance has long been synonymous with innovation.
A new Gibraltar-based special legislative regime could help the domicile find opportunity in the midst of one of the toughest challenges it has ever faced — Brexit.
The financial services industry, in which insurance has grown into an important player, is a cornerstone of the economy – accounting for 25 per cent of the jurisdiction’s GDP while related industries, including gaming, makes up another 25 per cent.
Dealing with the many obstacles that arose when Gibraltar exited the EU alongside the UK — most significantly the loss of European market access and EU passporting — was always going to mean that the domicile would need to look at alternative options to grow its financial services sector.
From the very start, Nigel Feetham, partner and head of financial services at Hassans International Law Firm, believed that while it posed significant challenges, Brexit could bring new opportunities to the domicile.
Silver linings
Soon after the Brexit vote in 2016, Feetham wrote a paper on the multitude of challenges that the result would pose for Gibraltar.
He highlighted that the domicile needed to consider what areas offered opportunity for economic growth in the region, as a consequence of EU law no longer being applicable there.
He identified that there was an opportunity for Gibraltar to develop a captive regime for international (non-UK and non-EU facing) business – something that it had not been able to establish while it was still under EU law.
He explains: “I made the observation that Brexit has been, and will continue to be, extremely challenging for Gibraltar, but there is a clear opportunity for us. Gibraltar needs to seize every opportunity that is available to it. A lot of time and effort is going in to ensure we do that.
“If you had a company looking to set up an international captive that was looking at domiciles, Gibraltar would not feature on its shortlist, because the Solvency II requirements made it too onerous to do so – regardless of the fact that that company would not be seeking EU or UK market access.”
Last autumn, a special captive regime received the necessary political backing and the surrounding legislation is being finalised.
“What we are trying to do is to create a specific regime for non-UK and non-EU captives to allow us to compete with the jurisdictions that have done this very successfully, such as Guernsey, Jersey, the Isle of Man and the Cayman Islands,” notes Feetham.
“[This will be] on the basis that Gibraltar has the professional infrastructure to successfully do this business. We are not starting from the ground up. We have a professional infrastructure that has supported insurance companies in Gibraltar for more than 25 years. Therefore, the transition — from putting the legislation in place, to marketing it and successfully bringing it to business — is a very short one.”
Dual regimes
Feetham is keen for Gibraltar to develop a dual regime system in which the international-facing business can be a standalone regime – sitting alongside but completely separate from the jurisdiction’s UK-facing business.
The hope is that these dual regimes will allow Gibraltar to continue operating its UK-facing business, while also making the most of this new opportunity for growth.
The wheels are now in motion to make that a reality, which is something Feetham believes the Gibraltar government deserves a lot of credit for.
“They have seized a clear opportunity in the market,” he adds.
“They’ve had the foresight to give the sector that political commitment to take the initiative forward. Back in 2016, I identified this opportunity and outlined the roadmap. I’m very happy to see there has been an implementation of that roadmap.
“Gibraltar is small, which means the industry, the government and the regulator work very closely together. That is an endorsement of the successful model that Gibraltar has, and I hope that successful model can continue long into the future. It is imperative for Gibraltar’s financial wellbeing that the ecosystem continues.”
Gibraltar’s size also means it’s able to make the most of opportunities while navigating obstacles. This has been particularly useful in developing legislation to react to challenges that have arisen post-Brexit, and it is why there is optimism for the captive legislation to be in place, in principle, by the end of the year.
Importantly, the legislation has not faced any opposition, which Feetham believes is because it does not disrupt any current business and will provide opportunities for the industry, in particular captive managers.
“Captive managers in Gibraltar lost their EU business,” he adds. “In the European captive space, pre-Brexit, they were competing for the same business as Luxembourg and Malta. They don’t have that competition anymore, so captive managers will welcome this new regime because it means they can compete for business that they would not otherwise have been able to.”
Herd instinct
Feetham is quick to emphasise that although captive legislation could move through the UK Parliament in a matter of months, it is vital that a proper strategy for marketing the jurisdiction is in place.
“We need discussions with stakeholders and key players around a strategy,” he says.
“You can have legislation for years, but nothing happens if you don’t have a strong marketing strategy. A lot of work will need to be done around strategy and implementation to make this captive legislation successful.
“I don’t want to be overly optimistic. Gibraltar’s biggest challenge will be competing in an area where other domiciles have been very successful for a very long time. Breaking into that market is not always easy.”
Feetham has literally written the book on jurisdictional competition, three of them in fact. A principle he calls ‘herd instinct’ will be key to demand and development, he claims.
“All it takes is to bring one international player into the jurisdiction. If a known player comes and gives Gibraltar coverage and recognition, it may be successful.”
He expands: “The herd will always follow the first wildebeest that starts running into the open space. I’ve been able to replicate that herd instinct strategy in a number of different business areas, I say: ‘Focus on one player, and the industry will grow by itself’.”
The long game
Feetham’s hope is the work being put into legislation development will be rewarded with a good level of demand. However, there is an understanding that it will take time.
“Obviously, you’d be disappointed if a regime that you’d put so much effort into marketing didn’t gain you at least one established player in the jurisdiction,” admits Feetham.
He adds: “This is a long game and we have to be patient. I’ve been a regulatory lawyer for 31 years. I’ve been doing this for a very long time and I’ve been successful in marketing this jurisdiction – I will put all my efforts and energy into making this a success. I’ve done it before and I’m confident I can do it again.”
An initial special captive regime could pave the way for similar dual regime systems to be set up in different sectors of Gibraltar’s financial services industry.
“We should be able to replicate this beyond captives and into other areas of financial services — as long as it is not related to UK market access,” Feetham affirms. “We can turn this into an area for potential growth in Gibraltar.”
