I am Albert Isola. I am charged with responsibility for financial services in Her Majesty’s Government of Gibraltar. I have with me the chief executive of Gibraltar Finance, who has driven much of the work on the matters under discussion today, and Mr Julian Sacarello, who is the head of policy at the Gibraltar Services Commission. You cannot see them, but they are in the room with me.
Q Minister, thank you very much for taking the time to join us as we start our scrutiny. It would be helpful for the Committee if you could set out the nature of the relationship between the UK and Gibraltar on financial services, whether you welcome the measures in this Bill, and what you see as the most significant elements of the legislation.
I thank you and your team in the Treasury, as well as the regulators at the PRA and the FCA, who have engaged with us over a three-year process of looking at all the areas of market access, all the challenges and opportunities, and how, post Brexit, we can best replicate what we had under the European Union, as that ends and we begin something new. It has been an interesting and almost enjoyable journey. It has been extremely hard work, but the professionalism of your team has been exemplary, and I am extremely grateful to all of them for the conversations that we have had. Sometimes they were difficult, but they were always positive and proactive in looking for solutions, for which I am extremely grateful.
On the relationship between Gibraltar and the United Kingdom on financial services, it is important to remember that when the United Kingdom joined the European Union in 1973, because the United Kingdom was responsible for Gibraltar’s external relations, we joined with you. As a consequence of that, for many years, up until 2001, we were striving to enjoy the benefits of that membership. With that came the responsibilities of adhering to the many directives and complying with regulations that were passed from Brussels.
We talk about 28 or 27 member states, but there was another competent authority, the Gibraltar Financial Services Commission, in financial services; it was able to issue a banking licence, an insurance licence or any other financial services licence in exactly the same way as all the other competent authorities within the remainder of the European Union. I ask the Committee to think through the fact that Gibraltar has complied with all European Union directives and legislation in all areas, including financial services. That includes all the anti-money laundering perspectives, which you may wish to discuss later.
For all intents and purposes, Gibraltar and the UK, from a financial services perspective, are aligned. We have the same rules. As we discussed with your teams over the past few years, this is about outcomes—where we get to, and how we get there. We have been through a very long assessment with an independent contractor that was jointly engaged by Her Majesty’s Government and the Government of Gibraltar to deep-dive into insurance, which is the largest area of interest between the United Kingdom and Gibraltar, to analyse in enormous detail, and to conduct a sort of gap analysis of whether we were getting to the same outcomes. Where we felt that we were not, we have dealt with that.
Parallel to that process, we also had what you call the legislative reform programme, which was a three-year piece of work, which started before Brexit, to completely redo our financial services legislation. Before, we had 87 pieces of legislation; we now have one Financial Services Bill, which encompasses everything, and is far more aligned to the Financial Services and Markets Act 2000 than we were previously.
This legislation came into play in January this year. Section 20(2) refers to the Gibraltar regulatory regime aligning its standards and supervisory practices with that of the United Kingdom. We had that before, and we again have it in 2020. We are drawing closer together under the new regime that we are discussing; that relationship should continue and prosper, so that consumers in the United Kingdom can have more choice and competition. At the same time, we can know that our aligned standards of law and practice match those of the United Kingdom. I apologise if I have gone on a bit long, but I thought it was important to put today’s discussions in context.
Thank you very much. It was extremely helpful of you to set the context for the Committee. I have no further questions. I will invite my colleagues to probe a bit further into what you have experienced in the past few years, and how you see the future.
Q Minister, thank you for giving us your time this afternoon. There is a long-standing and warm relationship between the UK and Gibraltar that informs the measures in the Bill. The Government are trying to create a sort of mini-single market in financial services between the UK and Gibraltar to ensure your continued market access to the UK in future. I am sorry we cannot do much about your market access to the other 27 states to which you currently have market access, but sadly that is beyond the powers of the Committee. Can I ask you, in simple terms, are you happy with the Gibraltar provisions in the Bill as they stand?
The fundamental question for us is, do we continue to have market access? The answer to that, of course, as you know, is yes. As you have rightly pointed out, we lose single market access to the remainder of the European Union with the United Kingdom on
Q We have heard quite a lot of references today to the proportion of motor insurance policies in the UK that are sourced out of Gibraltar. I think it is roughly 20%. Looking at the market access regime established by the Bill, is it Gibraltar’s ambition to grow the proportion of UK-purchased financial products from Gibraltar—for example, in other areas of insurance, other savings products, or other parts of financial services? Is it a platform on which you want to grow?
As the Minister with responsibility for financial services, I would love to see our businesses grow —of course I would—but responsibly and in a manner that matches the standards that we have with the United Kingdom in terms of the regulatory approach. The reason that we have been successful in motor insurance is because we have developed expertise and specialisations in the firms that have come here. It is not that we switched on one morning and had 20% of the United Kingdom motor market; that has grown over a 15-year period. As they have grown, so have we, in terms of the business we do with the UK. There are a number of other businesses that have tried in other areas of insurance, and they do well, but with nothing like the success that the motor insurers have enjoyed in working with the UK.
Q My final question is one that I touched on with the Association of British Insurers in its evidence earlier this afternoon. Given the platform that is being created by the Bill, do you see any potential for attracting businesses currently in the UK to relocate to Gibraltar? Would there be any corporation tax advantage for them in doing so, for example?
My experience, put quite simply, is that of all the firms that have come and set up here in the last seven years while I have been in this job, not one of them has ever said they are coming for tax purposes. There is a tax differential—I think the rate of the UK’s corporate tax, or profit tax, is 19%; in Gibraltar, it is 10%—but that has never been cited as one of the reasons for setting up in Gibraltar.
It is far more about our agility as a jurisdiction and the accessibility of the regulator. I can arrange to meet every single insurance company in Gibraltar in two weeks if there is something that I would like them to do or be more conscious of. That is just not possible in the United Kingdom. The accessibility of our regulator for all our insurance firms is the No. 1 point that they measure as to why Gibraltar has been so good to them. They have that access and they have that contact. Then you have the expertise we have developed: the lawyers, the accountants, the insurance managers, who are able to provide the services that they need. These are far more important to the firms than the corporate tax. I have to say, if I may—allow me this plug—the quality of life is obviously important too. The sun shines here for a little longer than it does in the City of London, and I think that is important too.
Q I just have a couple of questions. You mentioned that insurance is the largest area; are there any other aspects of financial services that require any further legislative action, or are you content with the way in which the legislation is set out?
Apologies; you are quite far away, I suppose. You mentioned that insurance is the largest area in which you have dealings. Are there any other aspects of financial services that are not covered in this Bill that require any further legislative action, or does the Bill cover everything that you require it to?
This legislation is like the enabling legislation, if I can call it that. If I can just say what it does for us, this requires alignment of normal practice, and it also requires, as a secondary condition—if I can call it that—co-operation between regulators and between Governments. In terms of the aspect that you are referring to, what will actually happen post
Q Thank you. Presuming that all these standards are met at the current time, do you have any worries about meeting those standards or any implications that not meeting those standards would have?
No, not at all, but again, simply because today we can passport our services under the European Union or Gibraltar order, mirroring the European Union provisions. We both have the same rules today: that is obviously true in insurance, in banking, and in the funds sector. We all have the same rules and regulations today, so I have every confidence that we will meet the standards that the Treasury will ask us to meet in the next 12 months in each of those different areas, because we are at one already today.
I am sure that Duncan would be overjoyed to be associated with me.Q
Thank you, Minister Isola, for presenting yourself before us today and for the information that you have provided. I would like to follow on from the shadow Minister’s questions about the competitive advantage that Gibraltar may or may not have. As I see it, the Bill seeks to create a level playing field, but it could be inferred that Gibraltar has a competitive advantage over our constituent parts of the United Kingdom—indeed, the home nations—given that it has abilities in relation to corporation tax and other forms of taxation that the home nations do not. How would you assess that? I appreciate that you sought to answer Mr McFadden in that regard, but do you feel that we could see a situation in which businesses will seek to take advantage of what is clearly a level playing field with a competitive advantage for yourselves?
The simple answer is no, and I will tell you why. If you think about it, we have been setting our own tax rates for the past 20 years, during which we have had access to the United Kingdom market through the European Union single passporting system. I do not think that I have ever heard any discussion in the financial services environment about different tax rates in different member states of the European Union, let alone Gibraltar, having an impact. It is not as if an advantage were being created by the Bill that would endure to
I do not think that you will find a company that—with the level of investment that it requires in terms of capitalisation, particularly with respect to insurance—will make a judgment call on a difference of 9% in corporate tax, assuming that it can make a profit. As I said to the shadow Minister, the information that I have from the firms that have come here is that that is very low on their list of priorities, if it is there at all. I do not see it having the impact that you suggest; if there were such an impact, it would already have happened a long time ago. As I mentioned, the firms that are in Gibraltar today have been here for a very long time, and as they have grown, so have we. Our market share has been 20% for the past year or two; it was a lot less before those businesses grew and became more successful.
As there are no further questions, I thank you, Minister, for joining us remotely from Gibraltar as our final witness of the day. This is the end of our fourth and last evidence session.
The Committee will meet again, not here but in Committee Room 14, on Tuesday at 9.25 am—bright-eyed and bushy-tailed for our first sitting of line-by-line scrutiny.