Fears of an exodus of assets and wealthy individuals from Gibraltar when the British overseas territory exits the EU along with the rest of the UK in 2019 have proved unfounded, as a massive uptick in the Rock’s blockchain business has continued to attract newcomers.
Gibraltar voted overwhelmingly in favour of remaining in the EU in the 2016 referendum, not wanting to give up its easy access to the European mainland via a land border that also sees thousands of Spanish workers come in every day. But the uncertainty that has loomed ever since has not slowed the number of the world’s wealthy still looking to call Gibraltar home. Rather, the government’s decision to introduce the world’s first comprehensive regulatory regime for distributed ledger technology (DLT), which includes blockchain and cryptocurrencies, has put the Rock firmly on the map. The rules came into effect at the start of 2018.
Emma Lejeune, a private client partner at the law firm Isolas, says: “We have seen an increase in individuals wishing to relocate to Gibraltar, which is perhaps surprising given Brexit. But ultra high net worth individuals are coming here because of DLT – both start-ups and entrepreneurs with diversified businesses who are now building out that technology.”
She adds, “Private clients are suddenly becoming interested in investing in businesses that are active in blockchain and crypto in Gibraltar, and that makes Gibraltar very visible. The charities and philanthropic sector is also looking at blockchain, and that means getting to know Gibraltar.”
The Gibraltar Financial Services Commission created the first bespoke licensing regime for fintech firms using blockchain, formally recognising the use of blockchain records as an accepted mechanism for transmitting payments and stealing a march on many global cities trying to attract the business. The move emulates the Gambling Regulator’s efforts to lead the way on e-gaming by regulating the industry early, and the Rock continues to be one of the world’s top e-gaming hubs.
The next step will see the government regulate initial coin offerings (ICOs), with most tokens not currently considered securities under either EU or Gibraltar law. In a white paper in 2018 the Gibraltar regulator proposed an authorised sponsors regime that would require every ICO issuer selling or distributing tokens in Gibraltar to appoint an individual to supervise the sale and ensure it complies with regulations. A Bill to take forward the proposals is expected imminently.
Ian Felice is a partner with the law firm Hassans. He says: “We have seen some migration back into Gibraltar from Spain, driven by Brexit. That is one effect, and that has impacted the price of property. Rental stock continues to be very difficult to find; we are constructing like crazy, but we can’t build quick enough to meet the demand.”
The Spanish tax authorities have also been working hard in recent years to identity HNWIs claiming residency in Gibraltar but actually living in Spain, reportedly netting more than €20 million in unpaid taxes from about 160 individuals as a result. At the same time, those that do opt for Gibraltar residency are taking more steps to prove they genuinely live there.
Lejeune says: “We are seeing quite a lot of movement on the family office side. We see UHNWIs now putting more substance here due to changes in the tax climate that require their centre of main interest to be in their jurisdiction of residence. Some of those have gone as far as to get licensed in order to provide services to other families, developing single family offices into multi-family offices. We are also seeing family offices relocating to be based in Gibraltar or establishing branches in Gibraltar.”
While the private client portfolio of Gibraltar’s lawyers used to be focused on the UK and mainland Europe, the arrival of DLT businesses has changed the proposition completely, to now include clients and families from Asia, Latin America and the US.
Felice says: “We are certainly still seeing interest from the Far East, from China and from Morocco. But it is no secret that part of our attraction has been our status as an EU territory, and that is currently compromised. People are waiting to see what is going to happen in the next few months.”
The government of Gibraltar is praised for representing the interests of the Rock robustly throughout the Brexit negotiations, and also for its business-centric approach to flexible, innovative regulation. For now, the blockchain experiment is reaping rewards.