Gibraltar: "Dark Clouds Have Silver Linings" - Gibraltar In A Post Brexit World

Last Updated: 31 May 2017
Article by Marcus Killick OBE

Sometimes statements of the obvious are necessary. Gibraltar did not want Brexit. To be exact, 96% of those who voted in Gibraltar in the referendum, voted to remain part of the EU. This is therefore obvious. The last few weeks have seen an escalating in the posturing over Gibraltar and its place post Brexit. These have ranged from the measured to the bizarre, passing briefly by the somewhat offensive "Up Yours Senors!" (one can always trust The Sun to bring its erudite commentary to any argument).

For those who have missed this, let me encapsulate.

  • Gibraltar is British and has been for over 300 years
  • Spain wants Gibraltar back (it used to be theirs before they ceded it to the UK in perpetuity.)
  • The UK will not give up sovereignty over Gibraltar without the consent of the Gibraltarian people
  • The Gibraltarian people will never give their consent.

Everyone got that? This is also therefore obvious. Sovereignty is not a Brexit issue. It is misdirection.

What is not misdirection is the risk posed by a loss of access to the EU Single Market. This, "Hard Brexit" is a distinct possibility for Gibraltar, even if , unlikely as it seems, the UK negotiates one for itself. The decision by the EU to give Spain an effective veto over EU trade deals with Gibraltar post Brexit has created such a threat. Yet this does not have the impact we once believed it would. As we have found in our analysis since the vote, less of our business comes from the EU than we had thought. Gibraltar had positioned itself for years as the "Gateway to Europe".  In fact we were the "Gateway to the UK". Our fear in June last year, following the result, has therefore proved unnecessary. We are like a person, who having panicked on losing their car keys, has suddenly realised they never actually used the car in the first place. 

We had become this gateway to the UK as a result of a combination of factors. These included a more benign tax regime, more approachable and faster regulators and a stable economic and political environment. Being part of the EU gave us an access to the UK market many of our competitors lacked. As a result we tended to compete more with Malta than Jersey. 

It is therefore somewhat ironic that our failure in Europe has now become one of our greater strengths. There will be no haemorrhage of business as a result of any loss of EU access  and the UK Government has already made it absolutely clear that our access to the UK markets will continue after Brexit. In securing this commitment at such an early stage, the Government of Gibraltar has delivered a massive silver lining to an otherwise cloudy sky. After 2019, if the UK has not obtained a deal on the Single Market, Gibraltar will not only be a gateway to the UK, it will be a particularly attractive one. 

If a financial services firm wishes to do business in the UK but does not want to be physically present, the only place where such passporting can be done from could be Gibraltar. Of course, many firms with a significant UK market will choose to establish a presence in the UK itself. Others will not. For this latter group Gibraltar is the inevitable alternative. Firms currently passporting from, say Malta, Italy, Cyprus or France, will not be able to continue to do so. 

This uniqueness has been hard won and came at a price. Gibraltar has always been assiduous in implementing EU Directives. This has, on occasion, led to a stricter regulatory regime than exists in financial centres outside the EU. Whilst both Government and the regulator have been supportive of innovation, they have had to do so within the limits of the EU legislative environment. Being denied this flexibility has forced us to focus on speed and quality of service to be attractive. 

The attractions of speed and quality will be undiminished by Brexit, Furthermore, having a regulatory environment, which is a solid EU one, has given us regulatory credibility and the positive reputation that brings. This reputation will not be sacrificed by jettisoning these standards on Brexit, but in maintaining them. Of course, over time they will be adapted where necessary, but the principle of a regulatory environment applying international standards will stay embedded. Indeed to fail to do so will put at risk the UK access that is so vital.

The benefit of continued UK access is not the only tool in Gibraltar's armoury to continue the growth of its finance centre. Other spurs include the success of its recently launched Stock Exchange, the establishment of a local retail bank (therefore immune from strategic relocation decisions) and the introduction of a regulatory environment for pensions so preserving the jurisdiction as a location for QROPS.

Of course, with regard to future access, the devil will be in the detail. It is not clear exactly how this access to the UK will look after Brexit. Hopefully in some areas the access will be increased as existing inconsistencies are ironed out. Redesigning the Gibraltar Order, upon which the current access is based, will be complicated as it currently makes heavy reference to the EEA. Doing so will be a priority for us but it will have to compete with countless other priories the UK is faced with. But the political will to achieve this has been made public and clear.

I have no doubt that, were there to be another referendum, the people of Gibraltar would vote in a similar way to how they did last year. A free flowing border with Spain is essential to us and not a thing we would willingly put at risk, but the fear of last June has gone and the move to a successful post Brexit economic model has begun. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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