gibraltar hfm week special report 2013

FEATURING ADM Investor Services // Attias & Levy // Chesterton // Deloitte // Fiduciary Group // GFIA // Gibraltar Finance Centre // Grant Thornton // Hassans // KPMG // Nexus Fund Administration // PWC // Turicum Private Bank

REGULATIONBecoming a frontrunner for the AIFMD

LOCATIONThe benefits of being an EU jurisdiction

TAXATIONGibraltar’s favourable business environment

GIBRALTAR 2013-2014WEEKHFM

S P E C I A L R E P O R T

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REPORT EDITOR Alexis Burris T: +44 (0) 20 7832 6656 [email protected] REPORT WRITER Karolina Kaminska T: +44 (0) 20 7832 6654 [email protected] HFMWEEK HEAD OF CONTENT Tony Griffi ths T: +44 (0) 20 7832 6622 t.griffi [email protected] HEAD OF PRODUCTION Claudia Honerjager SUB-EDITORS Rachel Kurzfi eld, Eleanor Stanley, Luke Tuchscherer CEO Charlie Kerr GROUP COMMERCIAL MANAGER Lucy Churchill T: +44 (0) 20 7832 6615 [email protected] SENIOR PUBLISHING ACCOUNT MANAGER Tara Nolan +44 (0) 20 7832 6612, [email protected] PUBLISHING ACCOUNT MANAGERS Bryce Robson +44 (0) 20 7832 6616, [email protected], Rebecca Wheeler, +44(0) 20 7832 6613 [email protected] CONTENT SALES Richard Freckleton T: +44 (0) 20 7832 6593 [email protected] CIRCULATION MANAGER Fay Muddle T: +44 (0) 20 7832 6524 [email protected]

HFMWeek is published weekly by Pageant Media Ltd ISSN 1748-5894 Printed by The Manson Group © 2013 all rights reserved. No part of this publication may be reproduced or used without the prior permission from the publisher

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he selection of a fund domicile is an important decision for any fund manager and we have worked hard, and continue to do so, in developing

our framework over the last few years to position ourselves as an alternative European fund domicile, with some success. There is, and has always been clear government support for Gibraltar’s financial services sector.

Gibraltar’s position is quite unique. It represents an EU fund domicile, with a competitive tax system which has been approved by both the European Council of Economic and Finance Ministers of the 27 EU Member States (ECOFIN) and is compliant with the EU Code of Conduct for Business Taxation. For Alternative Investment Fund Managers, Gibraltar offers a realistic entry point to the EU market, and as a fund domicile, an EU alternative that provides the footprint required for distribution without the added complications that exist for non-EU territories. Our EU position in relation to the AIFMD is important as we are not one of the domiciles ‘looking in’ to the EU and attempting to gain access, but rather one of the

EU domiciles that have fully implemented the Directive, and able to offer AIFMD compliant solutions from within. We hope to replicate the success already achieved in other sectors of our financial services community and we will continue to react positively to the regulatory developments that impact managers globally, while continuing to support the local industry.

Over the last 12 months, we have appointed three senior business development executives specialising in funds and asset management, insurance and private clients to work from the Finance Centre Department’s office in Gibraltar. A fourth senior executive has also been appointed and is working from Gibraltar House in London covering all sectors and assisting the industry in promoting our jurisdiction.

Our objective remains to position Gibraltar as an alternative EU domicile for managers and funds, and I have no doubt that the contents of this report will expand and elaborate on the advantages that Gibraltar undoubtedly has to offer.

Hon. Albert Isola MPMinister for Financial Services and Gaming, HM Government of Gibraltar

TG I B R A L T A R 2 0 1 3 - 2 0 1 4

Albert Isola MP was elected to the Gibraltar Parliament on 4 July 2013. He is a barrister by profession and prior to his election a senior partner in a large Gibraltar law firm where he worked extensively in financial services and was heavily involved in promoting this sector internationally.

I N T R O D U C T I O N

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G I B R A L T A R 2 0 1 3 - 2 0 1 4 C O N T E N T S

FINANCIAL SERVICES

SMALL BUT MIGHTYHFMWeek catches up with Philip Canessa of Gibraltar Finance Centre to talk about the jurisdiction’s EU status and favourable legal framework

LEGAL

ENTERPRISING AIFMD/EU SOLUTIONS FOR THE FUNDS INDUSTRYNow that the AIFMD has arrived, Abraham J Levy and Carol Haw of Attias & Levy discuss what Gibraltar has to offer by way of solutions for the funds industry

FINANCIAL SERVICES

CHALLENGES AND OPPORTUNITIESAs the AIFMD finally arrives, Kristian Menez of PwC discusses the difficulties the Directive presents for managers as well as the benefits in becoming a frontrunner for implementation

LEGAL

THE KEY TO UNLOCKING EUROPEJames Lasry, of Hassans International, tells HFMWeek why Gibraltar is one of the few jurisdictions to offer effective fund solutions since the implementation of the AIFMD

REAL ESTATE

GIBRALTAR PROPERTY, TAX AND RELOCATIONMike Nicholls of Chesterton discusses some of the property, tax and relocation issues to consider prior to relocating to Gibraltar

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LEGAL

GIBRALTAR – WELL-REGULATED, COST-EFFECTIVE AND WITHIN THE EUJon Tricker of Deloitte speaks to HFMWeek on what makes the rock a leading fund jurisdiction

FUND ADMINISTRATION

A POWERFUL ALTERNATIVE IN EUROPEMoe Cohen, CEO of Nexus Fund Administration, explains how Gibraltar has become a leading fund domicile and what managers looking to set up there should expect

FINANCIAL SERVICES

BANKING SAFELY IN A POST-CRISIS ERABenjamin Moss, chief risk officer at Turicum Private Bank, discusses systematic risk in banking today

FUND ADMINISTRATION

THE AIFMD IN GIBRALTARAdrian Hogg of Grant Thornton Fund Administration speaks to HFMWeek about the strengths of Gibraltar as a fund domicile and how it can benefit from the implementation of the AIFMD

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G I B R A L T A R 2 0 1 3 - 2 0 1 4

Recent regulations have made the benefi ts of domiciling in an EU jurisdiction clear, but with its small size and numerous regu-latory advantages, Gibraltar has become a jurisdiction of quality over quantity. Philip Canessa of Gibraltar Finance Cen-

tre explains.

HFMWeek (HFM): Th e legal framework in Gibraltar is based on common law. What does this mean for its funds industry and what benefi ts does this off er over other jurisdictions?

Philip Canessa (PC): Gibraltar is the only common law jurisdiction in continental Europe and its courts, statutes and principles of equity are based on English law. Th is makes business transactions for legal professionals much easier as most international fi nancial transactions are based on com-mon law. Gibraltar, however, is a separate and distinct jurisdic-tion to the United Kingdom within the EU. Th e regulatory framework will also be familiar to professionals who are used to dealing with the regulator in the UK.

HFM: In what ways are the tax laws in Gibraltar fundamental to the success of the jurisdic-tion?

PC: Th e tax laws in Gibraltar, though very favourable to funds and professionals, are not fundamental to Gibral-tar’s success as a jurisdiction but form part of the overall package of making Gibraltar att ractive as a jurisdiction for funds and asset management. Of major importance to us in Gibraltar is regulation and reputation. Notwithstanding this, an att ractive tax regime exists for funds as they roll up gross.

In addition, an asset manager in Gibraltar would only be subject to 10% corporation tax. Employees of the asset manager who meet certain criteria can avail themselves of the High Executive Possessing Specialist Skills (HEPSS) status and will only be taxed on the fi rst £120,000 of earned income, which at the current rate of income tax caps their tax at around £30,000. Gibraltar does not tax investment income, there is no capital gains tax, no wealth tax, no inheritance tax and is excluded from the require-ment to levy VAT.

HFM: Th ere are several benefi ts to Gibraltar being an EU jurisdiction, but what benefi ts does it off er com-pared to EU counterparts such as Luxembourg and Ireland?

PC: I think the main benefi t is our size, which brings many advantages. We will look favourably at smaller funds wishing to set up in Gibraltar whereas larger jurisdictions may only want to look at funds with assets in excess of US$500m. Our Experienced Investor Fund (EIF) vehicle with its pre-launch approval regime, where an EIF can be launched in ten working days, makes it the fastest “time to market” fund vehicle in the EU. Our regulator, the Fi-nancial Services Commission, is very accessible and con-ducts a light but robust regulatory regime. Because of its

geographical size, everything in Gibraltar is close by; we have 16 banks, 27 investment fi rms, the “big four” audit and account-ing fi rms, international and UK qualifi ed lawyers, 55 insurance companies and 68 company managers/professional trustees all in 2.5 square miles.

With an average of 300 days of sunshine per year and 60 top class golf courses in the region very near to Gibraltar, the qual-ity of life is very good.

HFM: What changes do you expect to see from Gibral-tar’s fund industry in the next decade?

PC: It is diffi cult to plan for change over the next few years, let alone over the next decade. However, our government has invested in the appointment of four senior executives to develop the funds and asset management sector, the in-surance sector and the private clients sector. Th ree of the senior executives are based in Gibraltar and the fourth is based at Gibraltar House in London. Th ese additional re-sources will enable us to increase our presence at relevant events, seminars and go out and sell our story. By taking this approach we expect to see manageable, steady growth in the funds and asset management sector in Gibraltar with the objective of att racting quality not quantity. We expect to see an increase in the number of funds set up in Gibraltar, taking advantage of our jurisdiction in order to passport services into Europe. We are also confi dent that the eff orts we are making, together with our close ties with Swiss asset managers, will also lead to more asset manag-ers looking to set up in Gibraltar.

THE TAX LAWS IN GIBRALTAR, THOUGH VERY

FAVOURABLE TO FUNDS AND PROFESSIONALS, ARE NOT

FUNDAMENTAL TO GIBRALTAR’S SUCCESS AS A JURISDICTION

”

HFMWEEK CATCHES UP WITH PHILIP CANESSA OF GIBRALTAR FINANCE CENTRE TO TALK ABOUT THE JURISDICTION’S EU STATUS AND FAVOURABLE LEGAL FRAMEWORK

SMALL BUT MIGHTY

Philip Canessa joined Gibraltar Finance in September 2013 as senior Finance Centre executive – funds and asset management, focusing on the development of the funds and asset management sectors. He has more than 30 years’ experience in the financial services sector and was for 11 years managing director of an investment firm managing hedge fund portfolios. He also served as a board director of a number of funds in different jurisdictions.

Building relationships, creating value

www.pwc.gi

Visit us at www.pwc.gi or

10th Floor Tel: +350 200 73520International Commercial Centre Email: [email protected] SquareGibraltar

PwC Gibraltar helps organisations and individuals create the value they’re looking for. We’re a member of the

Please see www.pwc.com/structure for further details.


G I B R A L T A R 2 0 1 3 - 2 0 1 4

As a jurisdiction for hedge funds, Gibraltar has become more att ractive to investors and asset managers due to its EU status, regulatory framework and high standards. In light of the AIFMD, Carol Haw and Abraham Levy of Att ias & Levy speak to

HFMWeek about the benefi ts of Gibraltar.

HFMWeek (HFM): Can you outline recent legislative developments in Gibraltar concerning funds?

Carol Haw (CH): Yes, the EU Alternative Investment Fund Managers Directive (AIFMD) was transposed into Gibraltar law on 11 July 2013 and now forms part of Gi-braltar’s long-established legislative framework covering collective investment schemes. At the forefront of Gibral-tar’s legislation covering alternative investment schemes are the regulations governing the popular Experienced In-vestor Funds (the EIF regime). Th e EIF regulations were amended in 2012 with AIFM in mind and, for the fi rst time, non-Gibraltar fund administrators were permitt ed to be licensed to act as administrators of EIFs. Th is ena-bles funds re-domiciling to Gibraltar to retain the services of their existing administrator. Gibraltar being “AIFMD ready” with the strength of the tried and tested EIF re-gime, combine to set Gibraltar on course for increased funds work.

HFM: Why might funds or managers consider Gibraltar rather than the more traditional funds jurisdictions?

Abraham J Levy (AJL): Th e obvious att raction for the funds industry, but also for other types of fi nancial services business, is that Gibraltar is part of the EU. In the context of the AIFMD, the benefi t of pan-European passporting is a massive att raction for bigger managers. For “boutique” managers looking to set up or re-domicile in an EU home who fall under the AIFMD’s de minimis exceptions for as-sets under management (AuM) (those below the thresh-old of €100m including leverage or €500m close-ended), Gibraltar off ers a good choice for a base. Although the lighter touch AIFMD regulatory regime does not enable de minimis managers to passport throughout the EU as in-scope AIFMD managers will be able to do and, adherence to national private placement regimes must be adhered to,

a manager establishing operations in Gibraltar by apply-ing for authorisation as an investment manager under Mi-FID can keep an eye on the AIFMD developments from its Gibraltar/EU base and use AIFM’s opt-in provisions whenever it feels that the time is right or AuM increase. Gibraltar has an excellent regulatory regime, a sound infra-structure, quality funds professionals and costs are com-petitive. Now that the AIFMD has arrived, choices of spe-cialist funds jurisdictions within the EU are really limited to Luxembourg, Ireland and Malta, so Gibraltar has shot up the list so to speak. Att ias & Levy have seen markedly increased interest in Gibraltar recently.

HFM: Abraham mentioned the quality of Gibraltar’s funds professionals. What more can you tell us about high standards to be found in Gibraltar?

CH: Gibraltar’s transition into the leading EU fi nance centre it is today, evolved over a period of many years. Th e “off shore” or “brass-plate” mind-set has long gone. Gibraltar law is based on English law so, as you would expect, this has always demanded high professional standards. Th e Weavering case, which set out various principles applicable to the standards expected of fund directors, was welcomed here. Th e FSC has always had regard for high standards of corporate governance and in spring of this year, the Gibraltar Funds and Invest-ments Association (GFIA) published its own Corporate Governance Code for Gibraltar Collective Investment Schemes which both the FSC and the Government of Gibraltar endorsed. Now that the AIFMD is here, the crux of what is really required is strong governance over policies, procedures and documentation. In Gibraltar we are well used to thinking from a regulatory perspective, so I believe that we are very well equipped as a jurisdic-tion to assist fund managers in ensuring that they can demonstrate compliance with the AIFMD by draft ing documentation to a high standard and always remem-bering and checking that policies, procedures and docu-mentation are completely in line with the investment ob-jectives so as to continuously complete the circle. Many managers are currently considering a move from lightly regulated jurisdictions into the EU and the guidance of Gibraltar’s funds professionals can be invaluable in as-sisting with adapting to a highly regulated environment

NOW THAT THE AIFMD HAS ARRIVED, ABRAHAM J LEVY AND CAROL HAW OF ATTIAS & LEVY DISCUSS WHAT GIBRALTAR HAS TO OFFER BY WAY OF SOLUTIONS FOR THE FUNDS INDUSTRY

ENTERPRISING AIFMD/EU SOLUTIONS FOR THE FUNDS

INDUSTRY

Abraham J Levy is a founder and the managing partner of law firm Attias & Levy. He has 30 years’ corporate/commercial law experience and spearheaded the creation of the firm’s funds department.

Carol Haw relocated to Gibraltar in 1985 from the UK and has a wealth of experience in specialist commercial fields. Carol is a legal assistant, an active member of the Gibraltar Funds and Investments Association and has successfully built up Attias & Levy’s funds department.


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and adopting a regulatory mind-set. Gibraltar is very small; its funds professionals, mainly through the GFIA platform, liaise with each other frequently and actively promote training, learning and high standards generally. Managers will find that at a moment’s notice, we will arrange face-to-face meetings between service providers to iron out any issues or problems which may arise.

HFM: What are the typical timescales like in Gibraltar for establishing funds and applica-tions for AIFM authorisations?

AJL: The EIF regime retains the “deemed au-thorisation” provisions and in theory therefore EIFs can be the quickest to launch of all fund vehicles. However, it is not always appropriate to rely on the deemed authorisation process but to actually meet with the FSC once the fund’s documentation is drafted and service providers identified to discuss any issues, particularly for more complex funds. In general, the usual time-scale for setting up an EIF is approximately six weeks. For AIFM applications, which includes applications on behalf of self-managed AIFs, the FSC has three months to respond indicat-ing whether or not granted, although that time may be extended for a further three months where the FSC considers it necessary due to any specific circumstances. A non-AIFMD application on behalf of a start-up de minimis investment manager for authorisation under MiFID likewise has the basic three month time-frame. As with all regulatory applications, the better pre-pared the application, including business plans and policy and procedure documentation, the less time it is likely to

take. The FSC has published numerous information pages and application/registration in-formation on its website for the purpose of providing detailed information on the AIFMD and Level 2 and to promote un-derstanding on all the require-ments, big and small, imposed on the investment industry by the AIFMD.

HFM: As a key requirement, the AIFMD introduces ob-ligations on depositories to provide extra oversight to funds and fixes them with li-abilities to investors. So what is the position in Gibraltar in relation to depositories?

CH: In terms of the liability to investors and oversight du-ties under the AIFMD, de-positories may require that an administrator connected to it perform some of the ad-

ministrative functions of the fund permitted under the AIFMD, but it is hoped that a natural comfort level will be found whereby depositories are happy with inde-pendent administrators performing at least some of the

traditional administrative functions they are associated with. The AIFMD does not pre-scribe that only credit institutions can act as Depositaries; investment firms or institutions which would be eligible to be appointed as De-positories under Ucits may also act. In relation to close-ended funds, which have no redemp-tion rights exercisable for five years and do not invest in assets that must be held in custody, AIFM includes a “depository light” mechanism that enables such funds to have as depositories entities which carry out depositary functions as part of their professional or business activities and are subject to mandatory professional reg-istration. Very many existing Gibraltar EIF’s are close-ended and do not invest in assets requiring custodian services, and we therefore expect to see entities such as MiFID firms and others being appointed as depositories.

HFM: What can managers expect from Gi-braltar in the near future?

AJL: I believe that Gibraltar’s fund industry is on the brink of rapid growth and that the dedication of the industry in preparing for the AIFMD will pay dividends. Above all, managers can expect to meet high quality ser-vice providers yet encounter a pleasant, relaxed jurisdic-tion in which to conduct business. Here at Attias & Levy, we are geared up to offer the full remit of legal services the funds industry will expect.

NOW THAT THE AIFMD IS HERE, THE CRUX OF WHAT

IS REALLY REQUIRED IS STRONG GOVERNANCE OVER

POLICIES, PROCEDURES AND DOCUMENTATION. IN GIBRALTAR WE ARE WELL

USED TO THINKING FROM A REGULATORY PERSPECTIVE

”

GIBRALTAR: THE SPECIALIST FINANCIAL JURISDICTION OF CHOICE IN

THE EU

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For more information please contact GFIA Executive Coordinator by e-mail on

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G I B R A L T A R 2 0 1 3 - 2 0 1 4

The moment is fi nally upon us. Most conver-sations I have had with respect to funds over the last few years have been about how the AIFMD was set to revolutionise the mid-tier fund industry in Europe and how this would fi nally create passporting rights for funds reg-

istering under the AIFMD as well as the ability to att ract investors from all over the EU under a unifi ed framework. Now that the AIFMD is here, the conversation has turned to the challenges being faced in understanding and imple-menting the Directive as well as the costs associated with some of the requirements.

However, these challenges also create opportunities. Th ose companies who get to grips with the requirements and fi nd practical solutions, taking cost eff ective prod-ucts and services to market, will be the frontrunners in growing this type of business and will have a huge com-petitive advantage over those seeking to enter the market at a later stage.

Th oughts and eff orts should therefore be directed to ensuring that those charged with product and service de-velopment work in tandem with compliance functions, industry associations and regulators to deliver ready-made solutions and services to investment managers and those looking to invest in Alternative Investment Funds.

Th at is the approach being taken in Gibraltar and I am pleased to see how the relevant industry bodies such as the Gibraltar Funds and Investments Association and Gibral-tar Banking Association have engaged with the Financial Services Commission and their members to set up work-

ing groups to focus on the more diffi cult aspects of the Directive to understand and implement.

Th e areas of the Directive which have been identifi ed as those requiring further analysis include remuneration, delegation and the interaction between the various counterparties involved in providing ser-vices to the AIF. Th ere are still many ques-tions to be answered on how much the AIFM can delegate to other parties and whether those requirements which apply to the AIFM can and must be imposed on the parties to whom activities are del-egated. Th e AIFM must also be able to justify any delegated activities and have suffi cient staff and resources to appropri-ately supervise those delegated functions. Th e Directive is clear in that delegation does not absolve the AIFM of the respon-

sibility and liability to the investors of the AIF and cannot be used to circumvent the requirements of the Directive.

Depositaries also face signifi cant challenges with the AIFMD placing a large burden squarely in their remit with clear liability consequences and ongoing cash fl ow moni-toring and supervisory requirements. Th e decisions the depositaries face in the business environment will be sig-nifi cant with AIFs pressuring to use diff erent brokers and bank accounts, yet with the liability for errors and losses att ributing to the depositary. Th is may result in reduced options for funds but will defi nitely increase the protec-tion available to investors.

I am currently enjoying the challenges of working to-gether with industry bodies on behalf of clients who are looking to submit applications for AIFM authorisation by providing our perspective on how to implement the requirements of the Directive in a way that is conducive to generating business and which presents a balanced approach to compliance. I hope to look back in the near future and see the AIFMD as the start of a brand new suc-cessful chapter in the Gibraltar funds industry.

THOSE COMPANIES WHO GET TO GRIPS WITH THE

REQUIREMENTS AND FIND PRACTICAL SOLUTIONS... WILL HAVE A HUGE COMPETITIVE ADVANTAGE OVER THOSE SEEKING TO ENTER THE

MARKET AT A LATER STAGE

”

AS THE AIFMD FINALLY ARRIVES, KRISTIAN MENEZ OF PWC DISCUSSES THE DIFFICULTIES THE DIRECTIVE PRESENTS FOR MANAGERS AS WELL AS THE BENEFITS IN BECOMING A FRONTRUNNER FOR IMPLEMENTATION

CHALLENGES AND OPPORTUNITIES

Kristian Menez is a director in PwC Gibraltar and has worked in London and Gibraltar. Kristian provides audit and regulatory services to investment managers and funds and prides himself on being a trusted advisor to his clients.

HM Government of GibraltarMinistry of Financial ServicesFinance Centre DepartmentSuite 761, Europort, GibraltarTel: (+350) 200 50011Fax: (+350) 200 [email protected]: @GibEUFinanceLinkedIn: GibraltarEUFinance

International financialcentre within the EU

Direct access toEU single market in

financial services

Regulated to EUand UK standards

Attractive fiscalenvironment

High-qualityinfrastructure

European financial services centreG I B R A LT A R

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G I B R A L T A R 2 0 1 3 - 2 0 1 4

A NEW ERA FOR EUROPEAN FUNDSGibraltar, as an onshore jurisdiction within the EU, has be-come one of only a handful of jurisdictions that can off er eff ective and effi cient fund solutions to both fund manag-ers that want guaranteed access to the EU market (as a full in-scope AIFM) and also to smaller fund managers (who fall within the exemptions under the AIFMD). Gibraltar is a well-regulated, tax effi cient EU jurisdiction, with the ability to utilise the highly successful EIF regime and yet retain the ability to “opt-in” to the AIFMD as and when it best suits their needs.

For many fund managers, Gibraltar could indeed be the key to unlocking Europe’s markets.

THE AIFMDTh e AIFMD is causing sweeping changes throughout Europe’s fund sector to the way fund managers are regu-lated and how they distribute the funds they manage. Th e AIFMD will operate alongside and create a separate European regulatory regime from Ucits IV and MiFID. Eff ectively, all European funds will fall under either the

AIFMD or Ucits IV. All EU member states were supposed to implement the AIFMD into their national laws by 22 July 2013, but in fact only 13 jurisdictions did (including Gibraltar). Existing fund managers which fall within the scope of the AIFMD have until 22 July 2014 to bring their operations in-line with the Directive.

Since 22 July 2013, European AIFMs managing EU AIFs, such as Gibraltar AIFs, have been able to obtain au-thorisation under the AIFMD and therefore benefi t from the EU marketing passport provided for by the AIFMD. Such AIFMs will be able to market to professional inves-tors (as defi ned in MiFID) freely within the EU. Th ere is the possibility that managers from third jurisdictions such as those in the US, the Caribbean and the Channel Islands will be able to obtain authorisation and therefore access to the EU marketing passport under the AIFMD subject to certain conditions but only as from mid-2015 at the earli-est. Th ere is some doubt in the industry which I think is legitimate as to the true willingness of the somewhat po-litically motivated Esma to approve certain non-European jurisdictions, particularly some of those in the Caribbean

JAMES LASRY, OF HASSANS INTERNATIONAL, TELLS HFMWEEK WHY GIBRALTAR IS ONE OF THE FEW JURISDICTIONS TO OFFER EFFECTIVE FUND SOLUTIONS SINCE THE IMPLEMENTATION OF THE AIFMD

THE KEY TO UNLOCKING EUROPE

James G Lasry is a partner and head of the funds team at Hassans International Law Firm in Gibraltar. He deals with funds and financial services law as well as tax. Lasry advised the Government of Gibraltar on its funds legislation and he was involved in the drafting of the Financial Services (Experienced Investor Funds) Regulations 2012. He is chairman of the Gibraltar Funds and Investments.

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G I B R A L T A R 2 0 1 3 - 2 0 1 4

as authorised third jurisdictions under the Directive. At least one politician who was involved in the drafting of the Directive has expressed such doubts.

The Directive has polarised funds and fund manage-ment jurisdictions into the European on the one hand and the non-European on the other. Offshore jurisdictions may feel particularly vulnerable in this process. Whereas they will continue to provide a service to certain catego-ries of investor, the ongoing regulatory changes within the funds industry, combined with continuing economic un-certainty and investor desire for security, will only further the current general drift to more regulated onshore mar-kets, such as those within the European Union.

The issue for offshore jurisdictions is less related to any failings as to their means of undertaking business. There will no doubt remain a place for the better off-shore juris-dictions. The “if it ain’t broke, don’t fix it” adage is simply less relevant in an invest-ment industry that has changed almost be-yond recognition from that which existed just a few years ago.

PERMISSIBLE DISTINCTIONS – GIBRALTAR’S ADVANTAGEIn their implementation of the Directive, member states were free to decide how they exercise the derogations provided for in the AIFMD. They also needed to decide wheth-er they wished to “gold plate” the Directive by adding provisions to their national fund regimes that were not required by the Di-rective. Critical distinctions in implementation may exist in such topics as regulation of the national fund regimes for funds and managers that are below the de minimis thresholds of the Directive (i.e. €100m for open-ended funds and €500m for close-ended funds), including appli-cation of the depositary regime in the Directive to funds that are out of scope of the Directive and applicability of any private placement regimes.

The Gibraltar approach to the above issues, following an in-depth consultation involving a collaboration of gov-ernment, the FSC, and the Gibraltar Funds and Invest-ments Association (GFIA), the representative body of Gi-braltar’s funds and investment industries, retains as much flexibility as possible as is offered by the Directive. Accord-ingly Gibraltar has kept its EIF regime for those funds and managers that are out of scope of the Directive while al-lowing those that wish to, in order to avail themselves of the EU wide marketing passport, to opt-in to the AIFM regime even if they are below the de minimis thresholds. Obviously those that opt-in will have to abide by all the terms of the AIFM regime as if they had been “in scope”.

EIFs will therefore form the basis for the regulatory regime to be used as the “in scope” AIF. As they have to comply with the terms of the Directive they will essen-tially be “Super EIFs”. This is very significant because, as mentioned below, this is likely to dramatically reduce the licensing time of “in scope” AIFs thus retaining Gibraltar’s place as the European jurisdiction with the quickest po-tential for time to market for new funds.

AIFMs wishing to set up Gibraltar funds will be able to do so by establishing “Super EIFs” utilising the pre-author-

isation launch process available to existing EIFs. In other EU jurisdictions, AIFMs wishing to establish in scope AIFs will have to undergo the process of authorising those AIFs (which can take anywhere between a few weeks and several months depend-ing on the fund and the jurisdictions). The Gibraltar process for this however is simply to establish and commence trading the EIF on the basis of the pre-authorisation launch and concurrently with the submission of the EIF documentation to the FSC (either immediately or within ten business days of launch), submit the AIF documentation in-cluding the passporting notices to the FSC.

The FSC will then have up to 20 business days to con-sider the documentation and to process the passporting notices. GFIA and the FSC have discussed a streamlined process for the preparation of passporting documenta-tion. Gibraltar’s solution is a product of co-operation of the industry along with the FSC and government and is illustrative of the positive working relationship that these three elements enjoy.

The FSC is in the process of completing its approach to many of the key issues that are raised by the Directive such as remuneration, delegation and depositaries. Al-though these are yet to be finalised, the approaches seem to be that Gibraltar will follow the UK approach of “mate-riality” in respect of remuneration. Furthermore, delega-tion will be permitted so long as overall supervision and responsibility remains within the jurisdiction. Depositary requirements are probably the hardest of the three issues with many operational questions remaining open among all of the European jurisdictions.

Gibraltar, because of its size and the close working re-lationship of the parties involved, can offer solutions that provide flexibility without compromising the protection of investors.

Gibraltar EIFs are probably the most user-friendly fund vehicles within the European Union. They certainly have the quickest time to market within the EU. The FSC on the other hand has a plethora of powers in order to regu-late such funds and to protect the interests of the inves-tors. This, along with the generally closely-knit investment community in Gibraltar allows for a quick, efficient and safe funds jurisdiction within the EU.

THE DIRECTIVE HAS POLARISED FUNDS AND FUND MANAGEMENT

JURISDICTIONS INTO THE EUROPEAN ON THE ONE HAND AND THE NON-

EUROPEAN ON THE OTHER

”

R E A L E S TAT E


G I B R A L T A R 2 0 1 3 - 2 0 1 4

Gibraltar has not only withstood the eco-nomic plight of the last few years, but has continued its economic growth unabated. Th e low tax base in a well-regulated EU jurisdiction ensures that Gibraltar is an att ractive proposition at any time of an

economic cycle. With corporation tax at 10%, income tax peaking at an eff ective rate of 25%, and no wealth, capital gains or inheritance tax, Gibraltar is appealing to both in-dividuals and companies willing to relocate to save costs.

Chesterton Gibraltar specialises in tax driven relocation services. It works with individuals and companies seeking to establish a Gibraltar footprint and provides a myriad of services within the property and taxation arena.

Perhaps the greatest challenge currently facing new ar-rivals is to source the right property, be it residential or offi ce space. Given the size of Gibraltar, just 2.5 square miles, and the continued demand for property, supply is probably at its lowest level for a number of years.

RESIDENTIAL PROPERTYEarlier this year, Spain introduced stringent disclosure requirements on its tax residents relating to non-Spanish assets, the impact of which has been a migration of cross-border workers returning to or moving into Gibraltar for the fi rst time. As a result, the supply of rental apartments has signifi cantly reduced and any apartment below £2,000 pcm is now in short supply. Th is in turn has led to would-be tenants becoming property buyers, resulting in a signifi -cant tightening of the sales market with property prices in the £200,000-£500,000 price bracket rising. Th is is set to continue up the property value curve.

Th e popular areas for incoming executives are the two marinas, Ocean Village and Queensway Quay, and the residential area around Europort.

Ocean Village consists of some 480 apartments sharing 3,000 square metres of pools and gardens. Th e develop-ment includes restaurants, bars, the only casino in Gibral-tar, a marina, and Chesterton. Th e location of Ocean Vil-lage is one of its main advantages, being walking distance from the border with Spain, the airport and the main shop-ping area. Prices start from £230,000 for a 50 square metre one-bedroom apartment, increasing to £1.8m for a four-bedroom penthouse with a private swimming pool.

Queensway Quay is a more residential and less com-mercial marina than Ocean Village. It is deeper into Gi-braltar while still being walking distance to Europort and the shopping centre. Prices are in line with Ocean Village.

In response to the increase in the number of high-net-worth individuals seeking to relocate to Gibraltar, two property developments aimed at the higher end buyer are currently under construction.

Phase one of Buena Vista Mews is a collection of six vil-las and nine townhouses in the south district. Nearly sold out, the next phase is due to launch in January 2014.

Th e true measure of Gibraltar’s increasing att raction to the higher net worth client is the recent launch of the Sanctuary: fi ve huge and exquisitely designed exclusive villas adjacent to Gibraltar’s Nature Reserve aff ording panoramic views across the Strait of Gibraltar to Africa. Chesterton is sole agent.

COMMERCIAL PROPERTYOffi ce space is in short supply in Gibraltar. Expect to pay £300-£380 per square metre per annum rent in the more modern offi ce developments. Lease terms vary, but expect a minimum three-year, a probable fi ve-year and a desired ten-year term from the landlord. Th e relevant covenant strength of the tenant probably determines who holds the ace in the negotiations.

Cheaper offi ces are available around the town centre in refurbished buildings, although fl oorplates tend to be smaller than the more modern stock.

Chesterton is working with two developers currently, both of whom have consent to build purpose built and high end offi ce blocks to satisfy the current demand levels. Contact us for further details for pre-let and pre-purchase opportunities.

TAXTo benefi t from the att ractive tax rates, the company or individual must be a Gibraltar resident, which at the mini-mum entails buying or renting a property. We work with a team of local and UK tax specialists who can advise on the relocation tax issues and opportunities to properly and legitimately reduce one’s tax exposure.

LIFESTYLEGibraltar is a small and friendly place. Lifestyle pursuits include sailing and golf in nearby Spain where there are many excellent golf courses within easy reach of the bor-der. Schools are good, crime is low and the entrepreneurial opportunities are limitless. Th ree hundred days a year of sunshine is an enticement in itself.

And all of this within a two and a half hour fl ight from London.

MIKE NICHOLLS OF CHESTERTON DISCUSSES SOME OF THE PROPERTY, TAX AND RELOCATION ISSUES TO CONSIDER PRIOR TO RELOCATING TO GIBRALTAR

GIBRALTAR PROPERTY, TAX AND RELOCATION

Mike Nicholls, managing director, is a fellow of the Institute of Chartered Accountants, a member of the Gibraltar Society of Accountants, a regulated funds director and a member of GFIA. Mike operates the Chesterton estate agency in Gibraltar and has his own real estate investment solutions consultancy.

YOU DON’T HAVE TOLOOK TOO FARTO FIND THEPERFECT TEAM . . .

Gibraltar is a perfect EU jurisdiction for the full spectrum of financial services business, with a flourishing funds industry and meeting the highest regulatory standards.

attias & levyBarristers & Solicitors, Notary Publichas an experienced team to advise and assist on all legal matters including:

Funds, Corporate & Commercial, Financial Services, Private Client, Wealth Management, Taxation, Telecommunications and E-Commerce, Property, Shipping & Admiralty, Litigation and Personal Injury

Our corporate arm is A & L Corporate Services LimitedRegistered in Gibraltar Incorporation no. 103779 and Licensed by the Gibraltar Financial Services Commission

A & L Corporate Services Limited — Company Managers — Licence No FSC 1159B

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. . . www.attiaslevy.gi

First Floor Suites

39 Irish Town

PO Box 466

Gibraltar

Phone: (350) 200 72150 Fax: (350) 200 74986

Email: [email protected]

Funds Department email: [email protected]

www.attiaslevy.gi


G I B R A L T A R 2 0 1 3 - 2 0 1 4

Professional, timely and low-cost with an ex-ceptional regulatory environment and un-beatable lifestyle benefi ts, it is no small won-der that Gibraltar continues to solidify itself as a top jurisdiction. Jon Tricker of Deloitt e explains the benefi ts and opportunities the

EU jurisdiction off ers.

HFMWeek (HFM): Why should fund managers choose Gibraltar? What benefi ts does it off er over oth-er jurisdictions?

Jon Tricker (JT): Gibraltar is a fantastic base for invest-ment managers, who come for several reasons, most no-tably Gibraltar’s status within the EU and the passporting advantages this brings, low costs, a familiar legal envi-ronment based on UK common law, a sensible and ap-proachable regulator, exceptional client service from well-qualifi ed and experienced local staff and, for those looking to relocate, a huge improvement in lifestyle.

As a responsible EU jurisdiction, all EU directives are implemented in Gibraltar on a timely basis. Until recently investment managers would establish themselves using the MiFID licensing regime and, in addition, we are aware of several applications for AIFMD licences already in the pipeline. Without doubt, the biggest pull for investment managers to Gibraltar is the EU dimension that both re-gimes bring.

Regulation is an important factor in choosing any ju-risdiction and any regulator is faced with a diffi cult bal-ancing act of enabling the business community to fl our-ish while enforcing regulations strictly and sensibly. We believe the Gibraltar regulator, the Financial Services Commission, achieves this well. Th e regulator is fre-quently subjected to outside review, and these reviews consistently praise the high standards of regulation. In that context, the Commission is available and willing to meet potential licensees before applications are made – and applicants are thus able to get a clear view of where they stand before embarking on the licensing process. In addition, once licensed, the regulator is sensible and approachable, and has self-set service standards which it is very proud to maintain. In the case of Gibraltar, the regulator is without doubt a positive factor.

Cost is one of the other main reasons for sett ing up a licensed investment manager in Gibraltar. Th e costs to

become licensed are reasonable, and the ongoing run-ning costs very competitive. One of the big cost advan-tages for Gibraltar is in taxation – there is a fl at 10% rate of corporation tax, no VAT, no withholding taxes and no capital gains tax as well as low personal rates of tax that ensure that no employee will pay in excess of 25% tax on their remuneration. In addition, investment manag-ers who choose to relocate, as well as other executives possessing skills of particular interest to the jurisdiction, can apply to the Finance Centre in Gibraltar to obtain a taxation status which caps the tax on their employment income to around £30,000, which can be used to reduce substantially the net tax payable in percentage terms on management profi ts.

Th e lifestyle Gibraltar off ers is unique among the EU jurisdictions. Gibraltar is very safe and family friendly, with excellent schools. While Gibraltar professionals work very hard, the pace of life on the streets can be slower than elsewhere in Europe and that fact, coupled with the good weather (more than 300 days of sunshine per year), make for generally happier people. In addition, prett y much all leisure pursuits are well catered for, ei-ther in Gibraltar or over the border in Spain, which of-fers not only excellent restaurants and tapas bars but also numerous high quality golf courses, skiing facilities and beaches, all within a short drive. Transport links are also very good – there are several daily direct fl ights from Gi-braltar’s airport to the London hubs and other UK des-tinations, and Malaga, Seville and Jerez airports are also within a relatively short drive.

Gibraltar’s foundations in the investment management industry are already strong and its att ractions very real. Th ere can be no question that these foundations put Gi-braltar in a strong position to att ract new compliant busi-nesses to the jurisdiction.

HFM: What are some of the main opportunities for in-vestment managers in Gibraltar?

JT: Th ose wishing to relocate will fi nd Gibraltar an ex-tremely att ractive proposition, as already mentioned.

Th e main opportunity exploited by investment managers is the EU passport aff orded by both the MiFID and AIFMD regimes. Th e AIFMD regime is new and the Directive has already been fully transposed into Gibraltar law, and those elements of the Directive that are subject to the judgement

JON TRICKER OF DELOITTE SPEAKS TO HFMWEEK ON WHAT MAKES THE ROCK A LEADING FUND JURISDICTION

GIBRALTAR – WELL-REGULATED, COST-EFFECTIVE AND WITHIN

THE EU

Jon Tricker, a Cambridge graduate, qualified as a chartered accountant with Deloitte UK. He joined Deloitte in Gibraltar in 2005 and has overseen the growth of the practice’s services to hedge funds and investment managers, supporting the industry through various roles, including as a member of the executive of GFIA.


L E G A L

of the local regulator (for example in terms of regulation and delegation) are to be implement-ed in a sensible, business friendly way.

In order to obtain a licence, either MiFID or AIFMD investment managers need to demon-strate that there is substance to their operations in Gibraltar, in particular in the form of appro-priate qualified individuals running and over-seeing operations. That said, it is still possible to obtain a licence in Gibraltar and for portfo-lio management, for example, to be delegated elsewhere. In addition to the natural links to the UK, there are strong links in Gibraltar to the Swiss investment management community, and there are local service providers able to support such managers to set up a licensed business in Gibraltar and “hit the ground running” – allow-ing certain business aspects to be delegated to another territory while ensuring all licensing requirements are met.

The reality is though that the managers who do relocate soon settle in to the excellent lifestyle in Gibraltar and there is no simpler way to take full advantage of Gibraltar’s ben-efits than to move operations in their entirety to Gibraltar.

HFM: Market participants have suggested the AIFMD will drive more funds onshore. Do you think Gibraltar will see that move-ment and why?

JT: Without doubt, until 2015 at the least, the AIFMD puts EU AIFMD compliant funds at an advantage over non-EU funds, and Gibraltar as an EU jurisdiction is well placed to see further growth in its funds industry, which is already well established.

One of Gibraltar’s unique advantages, par-ticularly in terms of the hedge funds industry, in which Gibraltar’s key competitors (Dublin, Malta and Luxembourg) are all in the Euro-zone, is the fact that Gibraltar’s home currency is the British Pound (and not the Euro) – espe-cially given the many bailouts in the Eurozone and the risk of contagion. This, coupled with the fact that Gibraltar’s legal system is based on UK common law, with UK case law being equally applicable in Gibral-tar (in uncertain times a familiar legal system can only be attractive to investors in hedge funds) makes Gibraltar a unique proposition within the EU.

The service levels of Gibraltar professionals and firms are also very high so there are many reasons to believe Gi-braltar will benefit from this change.

HFM: How does Gibraltar feel it has adapted to the global transparency push?

JT: The reality is that there has been no need to adapt significantly. Gibraltar is a small jurisdiction which as a finance centre has always taken its reputation extremely seriously.

By way of example, Gibraltar has signed a significant number of tax information exchange agreements, far more than is required by the OECD to ensure a white listing, and those agree-ments have been with significant jurisdictions including the US, the UK and the other large EU financial centres. The government of Gibral-tar has stated its commitment to exchange of information and transparency in tax matters and will be taking part as one of the initial jurisdic-tions in many international initiatives. Gibraltar as a jurisdiction is only interested in open and transparent business.

HFM: Finally, what are the main issues cur-rently facing Gibraltar fund managers and what solutions does Deloitte offer its clients?

JT: We are the appointed auditor on a signifi-cant percentage of the jurisdiction’s investment funds and fund management companies. The importance of the audit of any investment com-pany goes beyond the statutory annual audit

requirement – all counterparties depend on a proactive, consistent and timely approach, and we work very hard to deliver on and exceed those expectations.

In addition, in terms of investment managers, we regu-larly assist our clients in meeting the requirements of the Gibraltar regulator, offering expert guidance in navigat-ing the application process – developing business plans, assessing business predictions in the context of regula-tory returns and preparing ICAAPs. We can also provide support in the production of management accounts, as well as ensuring all ongoing regulatory filing require-ments are fulfilled.

We are always delighted to meet new business partners and would be very happy to give further insight into the jurisdiction either at our offices in Gibraltar or elsewhere.

MANAGERS WHO DO RELOCATE SOON SETTLE IN TO THE EXCELLENT LIFESTYLE IN GIBRALTAR AND THERE IS NO SIMPLER WAY TO TAKE FULL ADVANTAGE OF GIBRALTAR’S BENEFITS THAN TO MOVE

OPERATIONS IN THEIR ENTIRETY TO GIBRALTAR

”

F U N D A D M I N I S T R AT I O N


G I B R A L T A R 2 0 1 3 - 2 0 1 4

Moe Cohen has been part of the Gibral-tar fund industry since its inception in 2004/05 and has witnessed the im-mense growth of the jurisdiction dur-ing this time to become a leading alter-native fund domicile. With the growth

here set to continue and a number of regulations shaping the industry, Cohen takes a moment to speak with HFM-Week on the benefi ts of domiciling on the Rock and how and why managers set up funds there.

HFMWeek (HFM): What factors have led to Gibral-tar becoming a leading fund domicile? Moe Cohen (MC): Gibraltar is a professional jurisdic-tion which has been developing a signifi cant amount of business in the fi nancial services world. Th is began in banking, many years ago. As the industry continued to grow, it expanded into insurance where Gibraltar has developed a strong sector in both general insurance and captive companies.

When we established the fund industry in 2004/2005, we cherry-picked from other jurisdic-tions what we felt was going to be the best product for Gibraltar. Th ere has been an excellent growth patt ern in the last few years and we now have just close to 100 Gibraltar funds. Within those funds, Gibraltar also has more than 200 or 250 cells or sub funds and approxi-mately £3.5bn AUM.

Th e fi scal environment in Gi-braltar is also att ractive for the fund managers themselves, as there is only a 10% corporation tax. Funds themselves are tax neutral. In addition, the regula-tory environment in Gibraltar is extremely robust and the regula-tor is very accessible. International authorities like the IMF and the FSA have audited the jurisdictions and the results have been very positive calling Gibraltar “a model jurisdiction”.

Gibraltar can and does off er a number of types of funds from Ex-perienced Investors Funds (EIF), private funds to Ucits. Th e private funds are particularly important for smaller projects and can actu-ally help a fund manager get a track record to be able to then convert it

into a regulated EIF fund later on. Gibraltar, therefore off ers seed-level funds such as the private funds in order to be able to gather momentum and to scale up into an EIF or another fund accordingly.

HFM: What should managers be considering in terms of redomiciliation to Gibraltar?MC: Managers looking to redomicile their business or their funds should fi rst look closely at their fi scal consid-erations and the regulations in Gibraltar. As mentioned, the att ractive tax environment coupled with the fl exibil-ity and accessibility of the regulator make it quite easy to move to Gibraltar. More importantly, as Gibraltar is located in the EU, it can passport services into the EU and benefi t from all its regulatory advantages. Also, it is in a central location which is an important aspect in terms of timelines for international investors.

HFM: Have recent regulations such as the AIFMD af-fected managers’ decisions to domicile in Gibraltar?MC: Gibraltar is relatively quite advanced with the rules and regulations of the AIFMD. As an EU jurisdiction, the industry has been accelerating over time in order to ensure that by the time the AIFMD becomes complete-ly operational and applicable we will have the service providers fully equipped with all the requirements of AIFMs. Gibraltar enjoys EU status and has already enact-

ed the AIFMD (and all other EU directives) which is an important consideration.

As a result, Gibraltar and its regulator are assisting its service providers to be able to att ract the funds and fund managers who need to satisfy AIFMD require-ments.

HFM: What time-frame can a manager expect when launch-ing a fund in Gibraltar in terms of licensing and legal processes involved?MC: Th e time-frame depends on two aspects. If the fund is being redomiciled, then the time frame depends on where the fund exists at the moment and the complexi-ties or otherwise of that jurisdic-tion to redomicile to Gibraltar. A fund from BVI or Cayman,

WHEN WE ESTABLISHED THE FUND INDUSTRY, WE

CHERRY-PICKED FROM OTHER JURISDICTIONS

WHAT WE FELT WAS GOING TO BE THE BEST FOR

GIBRALTAR. WE NOW HAVE JUST CLOSE TO 100 FUNDS.

”

MOE COHEN, CEO OF NEXUS FUND ADMINISTRATION, EXPLAINS HOW GIBRALTAR HAS BECOME A LEADING FUND DOMICILE AND WHAT MANAGERS LOOKING TO SET UP THERE SHOULD EXPECT

A POWERFUL ALTERNATIVE IN EUROPE

Moe Cohen FCA is a founder partner of Benady Cohen & Co, Chartered Accountants, as well as the CEO for Nexus Fund Administration. He is also a member of the executive board of GFIA and Finance Centre Council. Moe advised the Government on the initial establishment of regulated funds in Gibraltar in 2004/2005.



G I B R A L T A R 2 0 1 3 - 2 0 1 4

for example, has been seen to have a time frame of ap-proximately two to six months. In terms of the Gibraltar licence, the licence will allow the fund to launch imme-diately subject to a 14 day notice period. From the fund side, this will depend on how long it takes to set up the prospectus. In cases of redomiciliation, it may simply need to be edited in terms of jurisdictional differences which can take up to a month for more complex funds or funds without a prospectus in place.

Therefore, Gibraltar is extremely streamlined and ef-ficient in terms of these processes. For a manager looking to obtain a licence, the time frame will obviously depend on the type of licence, whether it is an AIFM licence or another type, and can take up to six months depending on how much the manager has prepared in terms of the application form and business plan.

HFM: In what ways does your firm assist managers with fund set-up? MC: We are part of Nexia International, an international network of independent accounting and consulting firms, and represented in over 100 countries; therefore we can advise the client on either side for redomiciliations as necessary in terms of fiscal and professional advice. If the client is a new start up, we can also help them with the set-up of their prospectus with technical assistance from the law firms with whom we work very closely with.

Once the fund is set up we act fund administrators and provide a full set of fund administration services which include transfer agency services and where appropriate, directorships. As chartered accountants, we can also au-dit the funds which we do not administer.

HFM: What types of fund structures have proved to be the most popular in Gibraltar?

MC: There is a large variety of funds in Gibraltar. The main types of funds here are EIFs followed by private funds. The EIFs are regulated and can have more than 50 investors.

There are a large number of securities and derivative based funds. A good proportion of the fund market is made up of private equity which presents a considerable amount of opportunity. It is quite a niche market where, because institutional finances are so difficult, we are see-ing a number of private equity groups using Gibraltar funds as a means of alternative finance.

HFM: What do you expect in terms of growth over the next 12 months?MC: Over the next year the jurisdiction will continue to adjust to the AIFMD requirements to make sure we are fully prepared for the influx of larger funds. We expect to see redomiciliations and the set-up of new structures as a result. In my opinion, the full introduction of the AIFMD will represent stage two of Gibraltar’s fund in-dustry growth. Growth in private equity and securities EIF and private funds represented stage one, which will continue to grow in parallel. While I don’t see a huge growth in Ucits in the next year, I believe that once a few Ucits funds are established, it will present new oppor-tunities and I think this will be stage three of our fund industry’s growth.

I would also note there is a project for a Gibraltar stock exchange in the pipeline which will enhance and encour-age Gibraltar’s fund industry as funds will be able to be listed locally. This additional facility will play an impor-tant role in further catapulting Gibraltar into a new stage of its growth.

In a nutshell, Gibraltar, as a fund jurisdiction, is a growing and powerful alternative in Europe.

Investment Fund ServicesOne step ahead.

Gibraltars’ Funds Industry The investment fund industry today faces unprecedented challenges and opportunities. Yet every fund, regardless of its size or where it is in its life cycle, has different needs and different challenges.

We offer extensive local experience coupled with global reach and bring a wide range of combined capabilities to bear on every engagement.

As an appointed advisor on a significant proportion of funds domiciled in Gibraltar, Deloitte Gibraltar is the professional services firm of choice for investment funds in the jurisdiction.

For more information please contact Jon Tricker, Partneron: Tel: +350 200 41200, Fax: +350 200 41201, [email protected]

www.deloitte.gi

Merchant House, 22/24 John Mackintosh Square, P.O. Box 758, Gibraltar

© 2013 Deloitte Limited. A member of Deloitte Touche Tohmatsu Limited



G I B R A L T A R 2 0 1 3 - 2 0 1 4

Since the fi nancial crisis of 2008, banking has received a considerable amount of negative att ention. Moving forward, the importance of assessing risk in investment banking re-mains clear. Benjamin Moss of Turicum Pri-vate Bank explains how the crisis has altered

perceptions of the banking industry.

HFMWeek (HFM): What does banking safety mean today?

Benjamin Moss (BM): Well, as always, it means diff er-ent things for diff erent people, who have diff erent needs and diff erent risk appetites. Th is is the most common argument in favour of segregating banking activities, by safeguarding retail clients against risky banking dealings. Th e common denominator, however, remains that any account holder does not want to experience a bank fail-ure, but even more importantly they do not want to lose their assets.

Having said this, even if assets are safe despite a bank’s health, by being segregated or guaranteed by a scheme, it remains that it will take time to recover the assets if the depository fails. Although progress has been made in this respect, we are still talking in years for recovery. For exam-ple, if we compare the amount of time it took to recover assets when Lehman Brothers (2008) failed against MF Global (2011), the former remains an ongoing process

whereas the latt er has ‘already’ returned a large amount of client monies. With the introduction of improved pro-cesses to deal with failed or failing institutions, and the de-velopment of living wills for large fi nancial institutions, we can foresee that recovery times will improve.

HFM: What did the fi nancial crisis change in the way banks are perceived?

BM: It is no secret that banks and bankers received a considerable amount of bad press during the crisis, and in many circumstances rightfully so. Th is had the eff ect of sett ing the regulatory pendulum in full swing towards the implementation of a more strenuous regulatory regime for fi nancial institutions. Although we have to commend the eff orts of key legislators and regulatory authorities in their hard work to provide a safer framework in which to provide fi nancial services, we need to be cautious of regu-lations set up in haste. Prior to the crisis we bemoaned the time it took to fully implement legislation, but this had the advantage of covering all the bases and enabled full consultation with industry. In my opinion, the principles of the AIFMD are valid, for example, in particular in re-lation to systemic risk and for larger funds. However, the repercussions for the smaller players in the industry could potentially be very expensive and the wider consequences remain uncertain, for example in terms of consumer pro-tection schemes or professional insurance premiums.

BENJAMIN MOSS, CHIEF RISK OFFICER AT TURICUM PRIVATE BANK, DISCUSSES SYSTEMATIC RISK IN BANKING TODAY

BANKING SAFELY IN A POST-CRISIS ERA

Benjamin Moss heads the legal, compliance and risk management department at Turicum Private Bank in his role as chief risk officer. He has a strong legal background with dual law degrees from the UK and France and a master’s degree in International Commercial Law. He is currently undertaking a fully sponsored research project on the regulation of systemic risk .



G I B R A L T A R 2 0 1 3 - 2 0 1 4

HFM: You mention system-ic risk and the larger funds, so size still matters today?

BM: It does matter, but not in the same way it used to and we now have confirmation that it is not restricted to banks. Prior to the failing of Lehman Broth-ers, ‘too big to fail’ rang true as the fear of unquantifiable con-sequences was overwhelming for governments. Allowing Lehman to fail brought home the idea that no matter the po-tential implications, financial institutions could fail. Moreo-ver, with regulatory efforts to avoid systemic fall outs, and the introduction of living wills for financial institutions of a consequent size, government intervention is less likely in the future.

HFM: What does this mean for consum-ers in practice?

BM: It means that anyone wanting to open an account who has safety in mind needs to rethink what safe banking actually means; even more so if size is no longer a gauge of safety. Consumers need to start looking at banks’ and financial institutions’ balance sheets a bit more carefully in order to fully understand the liabilities a particular in-stitution is exposed to. Understanding the nature and the risk appetite of a financial institution is crucial, retail clients need to rely on the regulators, but professional clients and coun-terparties who have the tools available need to be able to justify their choice of custodian or depository to their respective clients.

HFM: How can a consumer, whether retail or profes-sional, such as a fund, assess the safety of a bank?

BM: Capital adequacy is probably a good starting point. I think it is also perfectly acceptable now to ask your banker to explain the bank’s balance sheet and highlight which are the biggest risks it is exposed to. Analyse your custodian as if it was a long-term investment and make sure the bank’s risk appetite is congruent with your objectives – the due diligence process needs to be a two way exercise. We train our front line staff to have a good understanding of our financials and risk map so that we can ensure the clients understand our limited risk appetite in terms of balance sheet exposure, which ultimately translates into institu-tional safety.

Also, it is important to note that assets that are depos-ited with a bank are not necessarily at risk if the bank is in difficulty. In a well diversified portfolio, the cash element

will be at risk due to fraction-al reserves, but stocks, bonds or fund shares, for example, will be held separately from the bank’s assets. So another good question to ask is where and how are my assets held.

HFM: Would you say that regulatory efforts have been sufficient to legiti-mately restore confidence in banks?

BM: The myriad of financial reform efforts have chiefly targeted moral hazard and systemic risk in order to pro-tect jurisdictional stability via the avoidance of failing banks, but is this sufficient? At a jurisdictional level it is certainly a leap forward as,

prior to the crisis, discussions regarding the regulation of systemic risk were main-ly academic. However, the fact that a fail-ing institution will not affect the rest of the economy does not really help the affected account holder.

I also think individuals now working in the finance industry understand much bet-ter what their responsibilities are, and are much more aware of the repercussions their acts can have. Prior to the crisis, banks were entrusted with the role of gatekeepers of money flows and financial transactions. Maybe this was too much to ask from pri-vate institutions as they ended up acting as Trojan horses instead. By diminishing the

scope for systemic risk to occur will certainly lessen to a certain extent the importance of banks in the economy; however, consumers need to start feeling that banks are in the business of keeping their assets safe rather than seen as gamblers. This change will take some time, but with re-quirements of improved education for bankers, improved corporate governance measures and pay packages which have a long-term interest, confidence in banks is already making a U-turn.

HFM: What is your outlook on the finance industry in terms of safety and stability?

BM: I think the next five to ten years will be decisive in determining the role banks play in economies at a ju-risdictional level. Let’s not forget that banks carry out a semi-public role, where their presence is necessary for an economy to function, but they need to be able to position themselves competently at several levels and return to be-coming anchors rather than risks. It is clear that those in-stitutions that fail to adapt to the new regulatory environ-ment by realigning their business models will have great operational difficulties in the future.

ANYONE WANTING TO OPEN AN ACCOUNT WHO HAS SAFETY IN MIND NEEDS TO RETHINK WHAT

SAFE BANKING ACTUALLY MEANS; EVEN MORE SO IF SIZE IS NO LONGER A GAUGE OF SAFETY

”

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• Marketing stipulations for selling funds,

including information on private placement,

licensing regimes and reverse solicitation.

• Information on key regulators and reporting

methods.

• Contact details for key local legal experts and

counsel.

• Fund and manager domiciliation information.

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About HFMComplianceHFMCompliance is a new online data resource

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The service, which is due to launch at the

end of 2013, will provide COOs, legal and

compliance professionals at hedge funds with

a comprehensive breakdown of key rules and

regulatory considerations on a jurisdictional

basis.

This free to access service – exclusively for

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THE NEW HEDGE FUND REGULATORY AND COMPLIANCE ONLINE RESOURCE



G I B R A L T A R 2 0 1 3 - 2 0 1 4

In the run up to the implementation of the AIFMD, Gibraltar was confi dent and fully pre-pared for the new regulations. Since the Directive has come into eff ect, the British Overseas Terri-tory has embraced the changes that the AIFMD has brought and has positioned itself as an alterna-

tive jurisdiction for hedge funds wanting to redomicile. HFMWeek speaks to Adrian Hogg of Grant Th ornton Fund Administration to fi nd out more.

HFMWeek (HFM): Gibraltar has positioned itself as an alternative jurisdiction for funds looking to re-domicile in light of the AIFMD. What advantages does Gibraltar off er over other off shore domiciles? Adrian Hogg (AH): Gibraltar is not an offshore ju-risdiction but enjoys a special status within the Euro-pean Union (EU). In 1973, when the UK joined the then European Economic Community, Gibraltar was included as a dependent territory in Europe, under Article 277(4) of the Treaty of Rome. It was however excluded from the common market provisions, the common agricultural policy and the harmonisation of turnover taxes (in particular VAT). Gibraltar is a member of the EU and therefore an EU fi-nance centre. Gibraltar is fully compliant in respect of EU in-vestment business and fund legislation and the AIFMD was transposed into Gibraltar law on 22 July 2013.

The fact that Gibraltar is part of the EU as well as fully AIFMD-compliant is a major benefit for those seeking to re-domicile who, by using a Gi-braltar structure, would benefit from passporting throughout the EU. This avoids the need to rely upon national private place-ment regimes in order to market their products.

HFM:What steps should man-agers be taking if they are con-sidering re-domiciliation to Gibraltar?AH: Gibraltar has regulations specifi c to re-domicilia-tion which permit re-domiciliation from all of the major non-EU fund centres including the Cayman Islands, the British Virgin Islands and the Channel Islands. Manag-ers should consider the fi nancial services environment in

which the re-domiciled structure will be located, the tax-ation issues relating to the fund and the rule of law of the jurisdiction. Managers also need to consider from a prac-tical point of view the ease of visiting the location from which the fund will undertake its activities for meetings with the regulator and service providers.

Gibraltar has a developed professional services infra-structure (of banks, audit fi rms, law fi rms and adminis-trators). Investment income of funds is exempt from tax and Gibraltar has its own legal system based on English law. From a practical standpoint it’s an easy and pleasant place to visit.

HFM: Th e Experienced Investor Fund (EIF) is the predominant fund structure in Gibraltar. What are the benefi ts of this structure and is it likely to re-main popular following the implementation of the AIFMD?AH: Th ere are several benefi ts to the EIF structure. Th e rules in respect of the asset classes, investment objec-tives, strategies and the principal of risk-spreading and restrictions (including leverage restrictions) are self-

determined by an EIF as set out in its off er document. Th is makes the EIF an extremely fl exible regime that should cater to all types of funds, which is a key consideration when re-domiciling. Advantages of re-domiciliation can be lost some-what if the re-domiciliation of the fund is to the detriment of a fund’s asset classes, investment objective, strategy and/or restrictions.

In addition, the EIF regime per-mits funds to be established via a process of regulatory notifi cation which means that the EIF is the quickest EU fund product to mar-ket. EIF regulations also permit the use of an external administra-tor which can ease the process of re-domiciliation.

Finally under the EIF regime, funds can meet AIFMD require-ments in-scope or out-of-scope which allows managers to run

their entire portfolio from one location. Th is can be a huge benefi t for managers.

HFM: Do you think the Directive will give investors the protection and confi dence needed to increase in-fl ows to the hedge fund space? How well placed are

FUNDS CAN MEET AIFMD REQUIREMENTS IN-SCOPE OR OUT-OF-SCOPE WHICH

ALLOWS MANAGERS TO RUN THEIR ENTIRE PORTFOLIO FROM ONE LOCATION. THIS CAN BE A HUGE BENEFIT FOR

MANAGERS

”

ADRIAN HOGG OF GRANT THORNTON FUND ADMINISTRATION SPEAKS TO HFMWEEK ABOUT THE STRENGTHS OF GIBRALTAR AS A FUND DOMICILE AND HOW IT CAN BENEFIT FROM THE

IMPLEMENTATION OF THE AIFMD

THE AIFMD IN GIBRALTAR

Adrian Hogg is a founder and director of Grant Thornton Fund Administration. He is a specialist in investment business with over a decade’s experience involving various investment structures in Gibraltar and the Caribbean. Hogg is an FCA, an FSC-licensed person, former chairman of GFIA and sits on the FSC’s Funds Panel.



G I B R A L T A R 2 0 1 3 - 2 0 1 4

Gibraltar’s service providers to cope with any growth in assets?AH: The heightened transparency provisions of the AIFMD along with the enhanced role of the depositary should provide investors with confidence and protection. As previously discussed the EIF regime permits external administrators. There is no requirement for the manager to be based locally and the Gibraltar regulator is due to permit external depositaries within the AIFMD transi-tional provisions. The Gibraltar fund product can make use of applicable service providers throughout the EU.

HFM: As hedge fund managers look to appoint a depositary, how can potential custodians stand out? What should managers look for in a depositary?AH: In my opinion a depositary needs to be flexible. They should permit funds to place their assets with exter-nal brokers (subject of course to depositary control) so that managers can undertake their activities to the best of their ability using multiple brokers if their strategy so dictates. Managers also need to consider what limitations

are imposed by a depositary and ask if they permit the use of external brokers, what systems they are using and what their costs are?

HFM: What are the biggest challenges facing Gi-braltar’s hedge fund industry? How can these be overcome?AH: The introduction of the AIFMD, along with Gi-braltar being an EU finance centre, means that Gibraltar has gone from being one of many possible funds juris-dictions to being one of four (alongside Luxembourg, Ireland and Malta). Larger funds are likely to domicile in larger jurisdictions, such as Luxembourg and Ireland.

There will, however, be a significant number of funds seeking an EU base and Gibraltar’s funds industry will grow as a result. The Gibraltar government, the regulator and the funds sector have the minds and infrastructure to deal with such growth which will certainly be Gibraltar’s biggest challenge. It is a challenge that the local industry is happy to take on. Gibraltar is AIFMD-compliant, com-petent and ready for the challenge.

Authorised and regulated by the Financial Conduct Authority.

Member of the London Stock Exchange.

gibraltar hfm week special report 2013

Documents

eu fund domicile

eu alternative

eu position

eu domiciles

eu market

eu code of conduct

noneu territories

eu member states ecofin