2 GEOGRAPHY Strategic location in the road between Italy and Spain CharacteristicsMonaco LocationStrategic location in the road between Italy and SpainCity state2nd smallest country in the world: 2 km2Thin band of land on the sea shoreEnclave in FranceSurrounded by mountains: Mont Agel and Tête-de-ChienHigh density populationinhabitants (2008)But only 6089 Monegasque citizens (2008)Rich population: GNP is 222 022 USD/inhab. (2008)
3 HISTORY MONACO Very ancient settlements: prehistoric, Phocean, Roman 1191Monaco becomes GenoanFrançois Grimaldi takes over Monaco1297A strategic position lead to difficult timesIndependance recognized by FranceSpanish protectorateFrench protectorateFrench occupationSarde protectorate148915421641Revolution in 1848: Menton and Roquebrune separate themselves because taxes are too high179318151848Rebirth after bankruptcy and near extinction1861French protectorate – Menton and Roquebrune sold1869Income tax abolished142 years ago!Rainier III: the builder of today‘s Monaco
4 ECONOMY GDP Growth GDP by Sector Source: Département des Finances et del’Économie de Monaco
5 Additional Information ECONOMYAdditional InformationSource: Département des Finances et de l’Économie de Monaco
6 HISTORY OF THE FINANCIAL CLUSTER CHARLES IIISold Menton and Roquebrune to FranceCancelled income taxCreated the Casino and legalized gamblingCreated Monte CarloRAINIER IIIStrong entrepreneur spiritBuild Monaco as a luxury brand (Grace Kelly, F1 Grand Prix, etc…)PRIVATE BANKING SECTORUntil 2000, based on large deposits evading taxes mainly for British and Italians citizensLarge deposits of French citizens until 1963From 2000, based on added value services2009: Monaco is removed from OECD grey list
7 PROFILE OF MONACO‘S FINANCIAL CLUSTER Characteristicsfinancial center with specialization on private banking2009 – €2bn turnover, 15.6% of total economy# of Employees – 2771 KThe number of players in the financial cluster was unaffected by the financial crisis.Small cluster: about 80 B € in deposit and under managementDual regulation from France and MonacoBanque de France - banking commission and supervisorCommission de Contrôle des Activités Financières – Regulatory body for fund management
8 TODAY‘S LEGAL FRAMEWORK MONACO’S VIRTUAL TRIANGLEPRIVATE BANKINGALIGNMENT OF MONACO ON EUROPEDIVERSIFICATION OFPLAYERS/INSTITUTIONSThe legal framework aims at build a virtuous triangle to develop the financial cluster.
9 CLUSTER MAP PRIVATE BANKING GOVERNMENT SICCFIN AMAF CCAF MAJOR FINANCIAL SECTORSPRIVATE BANKINGFAMILY OFFICESINTERNATIONAL UNIVERSITY of MONACOFUND MANAGEMENTINSURANCEDIVERSIFICATION OFPLAYERS/INSTITUITIONRELATED CLUSTERSLUXURY TOURISMSHIPPING
10 PRIVATE BANKING Characteristics Bank sector in Monaco has focused actively on private banking and wealth management.Monaco has 40 Private Banking Institutions.The real boom in the banking industry came in the year 1987 when the French banking authorities loosened the regulations which hinder the free flow of capital.Private Banking is still seen as not providing sophisticated services – Investor based here don’t want to just deposit their money and Monaco cannot offer the same services as Geneva or London.Private Banking in Monaco switched from a deposit/tax evasion model to an added value service model.
11 FAMILY OFFICES Characteristics Private company that manages investments for a single wealthy family.Large portion of the financial cluster of Monaco though difficult to quantify.No license requirement.A more aggressive and well-capitalized office may be engaged in:private equity placement,venture capital opportunities,real estate development.Strong development potential.Offers comprehensive financial oversight of all liquid financial assets.Offers daily management of all illiquid assets, such as real estate.Can administer and manage the entire estate with little to no supervision.Charges a flat monthly fee for all family office services.Offers advice free from conflicts of interest and will not sell products
12 FUND MANAGEMENT Characteristics Management limited to Monaco or off-shore funds.Limited growth potential because Monaco based funds can not be sold in the EU.Only 6 billion € under management in Monaco fundsHedge funds are limited by the lack of supporting industriesFund administrators are really lackingIT servicesTelecom servicesUnder control of the Principality’s Department of Finance and Economy
13 FUND MANAGEMENT Venture capital funds face hurdles: Characteristics Limitation of the legal framework,Limited number of local start-ups,They have to invest mostly abroad,Source of fund limited to local residents or private banking customers.
14 MISSING ELEMENT: INSURANCE CharacteristicsTypically an important part of a financial cluster.Large source of institutional investment.Missing in the cluster.No insurance can be based in Monaco.French-Monegasque agreement in 1963 for insurance code was never implemented.No law exists on how to license an insurance in Monaco.Insurances need to have a French insurance license.EU based insurances can’t operate in Monaco without a French license.Changing the law presents challengesRisk management rules would be difficult to write due to the size of Monaco.Allowing EU based insurances requires EU membership.
15 SUPPORTING INSTITUTIONS CCAF: Commission de Contrôle des Activités FinancièresAuthorization & compliance with law and regulationsControls & order administrative sanctionsSupervises Fund management activitiesAMAF – Association Monégasque des Activités FinancièresSelf regulatory associationBy law, all licensed financial institutions must be a memberSICCFIN - anti money-laundering authorityIUMUndergraduate and graduate financial educationResearch center in financeExecutive MBA
16 SUPPORTING INDUSTRIES SOME INDUSTRIES ARE LACKINGEXISTINGIT servicesTelecom servicesAuditorsTax advisorsNON – EXISTINGFund administratorsPrime Brokers
17 ASSESSMENT OF REGIONAL COMPETITIVENESS FISCAL SYSTEMPHYSICAL SECURITYNo tax on personal incomeHighest density of policemen for inhabitant in the world1 policeman for 60 inhabitantsIMAGE OF MONACOCLIMATELiving in Monaco is a status symbolWorld class events attracting the jet societyMild wintersWarm summer without excess heat+300 sunny days per year
18 COMPETING CLUSTERSLondon GFCI 1The Financial Services Authority (FSA) is the regulator of the financial services industry in the UK10% of UK GDP 20091.01 million employees (1st half 2010)Geneva GFCI 9Leader in asset managementThe Geneva Financial Center is the trade association130 banks3,000 billion CHF under managementMalta GFCI 55Emerging financial service centerSmallest country in EU (413K inhabitants)12 % of GPD and growingRegulatory body: Malta Financial Service Authority (MFSA)Promotion done by Finance Malta
19 CLUSTER DIAMOND GOVERNMENT FIRM STRATEGY & RIVALRY DEMAND CONDITIONS + Improved regulation against money laundering and tax evasion+ Oversight from the French central bank- Bureaucracy- The size of the country creates conflict of interests in the administration- No support for higher educationFIRM STRATEGY & RIVALRY+ Homogeneous cluster + Intensive competition between players - No local cooperationDEMAND CONDITIONS+ local wealthy population+ Legal financial services- No local sophisticated financial services- No UCITS 3 recognition in EUFACTORS CONDITION+ Attractive tax regime for individuals+ Physical infrastructure+ Consistent with other economic sectors+ Very diverse population+ Political stability- Limited social life- Small size of the country- Some supporting industries are missingRELATED AND SUPPORTING INDUSTRIES- Dependence on non local suppliers- Small number of research centers- Lack of university cooperation
20 INSTITUTIONS FOR COLLABORATION AMAFAssociation Monégasque des Activités FinancièresActs as the professional body for authorized institutions conducting banking or financial activities in the PrincipalityAMAF represents 87 companies in the financial sector.37 are banks, the majority of which are branches of the world’s large banksJeune Chambre Economique de MonacoSupports young entrepreneurs
21 INSTITUTIONS FOR COLLABORATION CDE - Chambre de Développement Économique de MonacoPromotes Monegasque companies in the principality and to the international worldMVCA – Monaco Venture Capital Association“Monaco Think-Tank”Quarterly informal forums of financial playersInitiated by Lee RobinsonOn invitation only
22 TRENDS IN THE FINANCIAL INDUSTRY Fight against money laundering and tax evasionNew international regulation and cooperationRadical change of the private banking industryBank and traders taxationExodus from LondonIslamic financeMuslim world economies are developing fastNot just petrodollarsNon Muslim also appreciate this approach to financePart of a more global trend to ethical investing
23 TRENDS IN THE FINANCIAL INDUSTRY Asian financial centersEmergence of Singapore and HK as private banking world class centersIPOs of western companies (Prada for instance)Home of today’s largest capitalizations
24 RECOMMENDATIONS Increase the local added value in private banking Certification for private bankersExternal recognitionPushes up local know-howState support for university research centers in private bankingDiversify to emerging niche with strong growth potentialIdentify niches such as:Ethical and green investmentIslamic financeElectronic micropaymentsIdentify start-ups abroad and attract them to MonacoOptimize the legal framework if needed
25 RECOMMENDATIONS Educate high potential talent from abroad Organize contest for middle school student in foreign countriesThe best students get a full scholarship to study in Monaco from high school to Master DegreeCreates a pool of locally trained talent if they decide to stayCreates a network of high potential individuals abroad if they liveAttract fund administrators to support the hedge fund industryEngage with CITCO’s management and have them opening an agency in MonacoAssess the shortcoming of Monaco to Dublin and attract fund administrators based in IrelandAdministrative bottlenecksReduce the time needed to establish an investment fund in Monaco