fivehundred magazine > Research roundup > Gibraltar’s lawyers: Between the rock and a hard Brexit?

Gibraltar’s lawyers: Between the rock and a hard Brexit?

With the start of the EMEA research, James Field looks at the British overseas territory, its legal market, and the possible impact of the UK’s exit from the EU

While 2019 saw America’s most beloved Rock named Hollywood’s highest earner, the territory known for housing Europe’s most famous rock continues its equally successful run of financial good fortune.

Gibraltar, still primarily regarded for its shipping trade, offshore banking, and position as an international conference centre, has profited from an innovative approach to emerging markets that has seen the British Overseas Territory neatly swerve the recession vortex that claimed so many other European economies, connect with key trends, and weather Brexit uncertainty better than most of the UK.

To add a bit of context, the historically high British military presence in Gibraltar was drastically reduced in the last couple of decades and now contributes to only about 7% of the local economy. This has naturally focused attention on other areas of the economy, and a defining feature has been the favourable – and by favourable, read low – tax rates, which have also contributed to attracting new foreign investment.

Investment has principally come in the form of the financial, tourism, and the shipping sectors, which according to various sources contributed to 30%, 30%, and 25%, respectively, of GDP in 2018. The remaining 15% was accounted for by e-commerce, telecoms (due to significant investment in infrastructure), and e-gaming (thanks to the tax advantages of the territory and its support of the gaming industry).

The jurisdiction set out to build on this remote gaming environment by making itself a hospitable ground for other innovative industries, notably fintech and cryptocurrency start-ups. In 2016, the Gibraltar Stock Exchange launched a Bitcoin exchange traded instrument and in October 2017 the territory became one of the first jurisdictions to enact specific Distributed Ledger Technology (DLT) regulations.

‘It was a big boost to the economy’ states Vikram Nagrani, partner and co-head of the fintech team at Hassans, ‘since 2015 the economy has grown year on year, the regulation put Gibraltar ahead of the game in terms of DLT, creating a functioning well thought-out framework.’

The benefits of gaming and fintech regulation is noted by Albert Isola, barrister and Gibraltar’s minister of financial services and gaming, who highlighted in his June 2019 budget speech how ‘DLT framework has continued to grab much attention all over the world,’ with the territory now boasting ‘eight firms fully licensed, with a further eight firms licensed in principle and soon to be completed.’

This follows the precedent set by the success of remote gaming regulation, a sector which ‘continues to make a very significant contribution to the economy in terms of corporation tax, PAYE and gambling charges and fees, providing…significant value for money with modest operating costs,’ said Isola, who went on to suggest ‘there is undoubtedly more to come… we will continue to Innovate and lead in this sector.’

The success of the financial and e-commerce sectors in Gibraltar is largely down to several key factors, namely: a legal system based on English law; recognised status within the EU, allowing companies to benefit from cross-border authorisation and passporting rights; and a tax system with no capital gains tax or VAT.

The gaming and fintech industries have also mitigated some of the concern around the dreaded B-word.

‘Gibraltar faces the same Brexit worries and uncertainty in relation to food and medicine, as well as waste disposal,’ says Nagrani, a point highlighted in the newly released no-deal Yellowhammer document, which references disruption to goods, medicines, and ‘trans-frontier shipments of waste’ – Spain current flushes the latter problem for the territory. However, the damning appraisal has been contradicted by the Government of Gibraltar, which stated that the report was ‘out of date and wrong’ and relates to matters the government has ‘already dealt with’; As Hassans’ Nagrani notes, ‘the government has reacted well and prepared well.’

Nagrani also suggests that it is the booming fintech industry that might be responsible for allaying many fears as, ‘it’s a Brexit-proof industry…a global product’, and he cites the legal changes in China as another reason for the popularity of a well-regulated fintech space.

Cryptocurrency exchanges or trading platforms were effectively banned in China in September 2017, with 173 platforms closed down within a year. In this environment, a favourable jurisdiction with a ready-made and functioning framework becomes an attractive proposition for traders and companies dealing in the DLT market.

As is often the case, the local economic market is reflected in its legal market. The success and prominence of Gibraltar’s law firms over the last five years is consistent with the degree of expertise in some of these key emerging areas, as well as the traditional bread and butter work of the territory.

Standing out from the crowd is Hassans, which dwarfs most of its peers in terms of headcount and market share, with Isolas the next largest. Over the past five years the two feature 49 times each across The Legal 500’s various practice areas, however, Hassans continues to distinguish itself as the firm with most top-tier rankings since 2015.

Isolas and Triay & Triay are consistent mainstays in the rankings, but also notable are TSN Barristers & Solicitors, a go-to firm for construction, and Ramparts, which has notable experience in the gaming sector.

Hassans maintains its leading market position thanks to the range and depth of expertise it provides, as well as strong connection with the Gibraltan government. This can be seen in the firm’s individual rankings, where it leads the way again with 20 practitioners ranked since 2015, while Triay & Triay come in second with 11.

So far, the relative comfort with which Gibraltar’s economy, and by extention its law firms, has weathered the storm of Brexit uncertainty so far augurs well for the territory. However, Gibraltar will lose its EU status if and when Brexit happens. Thus, as in the UK, the nemesis of business – uncertainty – still casts its shadow across the peninsula even more so than its steadfast landmark.