1. MONACO FINANCIAL CLUSTER
Microeconomics of Competitiveness
Group 5: Lionel Gresse, Karen Muller, Jitka Šlechtová
MBA 2011

2. GEOGRAPHY Strategic location in the road between Italy and Spain
Characteristics
Monaco Location
Strategic location in the road between Italy and Spain
City state
2nd smallest country in the world: 2 km2
Thin band of land on the sea shore
Enclave in France
Surrounded by mountains: Mont Agel and Tête-de-Chien
High density population
inhabitants (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
1191
Monaco becomes Genoan
François Grimaldi takes over Monaco
1297
A strategic position lead to difficult times
Independance recognized by France
Spanish protectorate
French protectorate
French occupation
Sarde protectorate
1489
1542
1641
Revolution in 1848: Menton and Roquebrune separate themselves because taxes are too high
1793
1815
1848
Rebirth after bankruptcy and near extinction
1861
French protectorate – Menton and Roquebrune sold
1869
Income tax abolished
142 years ago!
Rainier III: the builder of today‘s Monaco

4. ECONOMY GDP Growth GDP by Sector
Source: Département des Finances et de
l’Économie de Monaco

5. Additional Information
ECONOMY
Additional Information
Source: Département des Finances et de l’Économie de Monaco

6. HISTORY OF THE FINANCIAL CLUSTER
CHARLES III
Sold Menton and Roquebrune to France
Cancelled income tax
Created the Casino and legalized gambling
Created Monte Carlo
RAINIER III
Strong entrepreneur spirit
Build Monaco as a luxury brand (Grace Kelly, F1 Grand Prix, etc…)
PRIVATE BANKING SECTOR
Until 2000, based on large deposits evading taxes mainly for British and Italians citizens
Large deposits of French citizens until 1963
From 2000, based on added value services
2009: Monaco is removed from OECD grey list

7. PROFILE OF MONACO‘S FINANCIAL CLUSTER
Characteristics
financial center with specialization on private banking
2009 – €2bn turnover, 15.6% of total economy
# of Employees – 2771 K
The number of players in the financial cluster was unaffected by the financial crisis.
Small cluster: about 80 B € in deposit and under management
Dual regulation from France and Monaco
Banque de France - banking commission and supervisor
Commission de Contrôle des Activités Financières – Regulatory body for fund management

8. TODAY‘S LEGAL FRAMEWORK
MONACO’S VIRTUAL TRIANGLE
PRIVATE BANKING
ALIGNMENT OF MONACO ON EUROPE
DIVERSIFICATION OF
PLAYERS/INSTITUTIONS
The legal framework aims at build a virtuous triangle to develop the financial cluster.

9. CLUSTER MAP PRIVATE BANKING GOVERNMENT SICCFIN AMAF CCAF
MAJOR FINANCIAL SECTORS
PRIVATE BANKING
FAMILY OFFICES
INTERNATIONAL UNIVERSITY of MONACO
FUND MANAGEMENT
INSURANCE
DIVERSIFICATION OF
PLAYERS/INSTITUITION
RELATED CLUSTERS
LUXURY TOURISM
SHIPPING

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 funds
Hedge funds are limited by the lack of supporting industries
Fund administrators are really lacking
IT services
Telecom services
Under 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
Characteristics
Typically 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 challenges
Risk 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 Financières
Authorization & compliance with law and regulations
Controls & order administrative sanctions
Supervises Fund management activities
AMAF – Association Monégasque des Activités Financières
Self regulatory association
By law, all licensed financial institutions must be a member
SICCFIN - anti money-laundering authority
IUM
Undergraduate and graduate financial education
Research center in finance
Executive MBA

16. SUPPORTING INDUSTRIES
SOME INDUSTRIES ARE LACKING
EXISTING
IT services
Telecom services
Auditors
Tax advisors
NON – EXISTING
Fund administrators
Prime Brokers

17. ASSESSMENT OF REGIONAL COMPETITIVENESS
FISCAL SYSTEM
PHYSICAL SECURITY
No tax on personal income
Highest density of policemen for inhabitant in the world
1 policeman for 60 inhabitants
IMAGE OF MONACO
CLIMATE
Living in Monaco is a status symbol
World class events attracting the jet society
Mild winters
Warm summer without excess heat
+300 sunny days per year

18. COMPETING CLUSTERS
London GFCI 1
The Financial Services Authority (FSA) is the regulator of the financial services industry in the UK
10% of UK GDP 2009
1.01 million employees (1st half 2010)
Geneva GFCI 9
Leader in asset management
The Geneva Financial Center is the trade association
130 banks
3,000 billion CHF under management
Malta GFCI 55
Emerging financial service center
Smallest country in EU (413K inhabitants)
12 % of GPD and growing
Regulatory 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 education
FIRM STRATEGY & RIVALRY
+ Homogeneous cluster + Intensive competition between players - No local cooperation
DEMAND CONDITIONS
+ local wealthy population
+ Legal financial services
- No local sophisticated financial services
- No UCITS 3 recognition in EU
FACTORS 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 missing
RELATED AND SUPPORTING INDUSTRIES
- Dependence on non local suppliers
- Small number of research centers
- Lack of university cooperation

20. INSTITUTIONS FOR COLLABORATION
AMAF
Association Monégasque des Activités Financières
Acts as the professional body for authorized institutions conducting banking or financial activities in the Principality
AMAF represents 87 companies in the financial sector.
37 are banks, the majority of which are branches of the world’s large banks
Jeune Chambre Economique de Monaco
Supports young entrepreneurs

21. INSTITUTIONS FOR COLLABORATION
CDE - Chambre de Développement Économique de Monaco
Promotes Monegasque companies in the principality and to the international world
MVCA – Monaco Venture Capital Association
“Monaco Think-Tank”
Quarterly informal forums of financial players
Initiated by Lee Robinson
On invitation only

22. TRENDS IN THE FINANCIAL INDUSTRY
Fight against money laundering and tax evasion
New international regulation and cooperation
Radical change of the private banking industry
Bank and traders taxation
Exodus from London
Islamic finance
Muslim world economies are developing fast
Not just petrodollars
Non Muslim also appreciate this approach to finance
Part of a more global trend to ethical investing

23. TRENDS IN THE FINANCIAL INDUSTRY
Asian financial centers
Emergence of Singapore and HK as private banking world class centers
IPOs 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 bankers
External recognition
Pushes up local know-how
State support for university research centers in private banking
Diversify to emerging niche with strong growth potential
Identify niches such as:
Ethical and green investment
Islamic finance
Electronic micropayments
Identify start-ups abroad and attract them to Monaco
Optimize the legal framework if needed

25. RECOMMENDATIONS Educate high potential talent from abroad
Organize contest for middle school student in foreign countries
The best students get a full scholarship to study in Monaco from high school to Master Degree
Creates a pool of locally trained talent if they decide to stay
Creates a network of high potential individuals abroad if they live
Attract fund administrators to support the hedge fund industry
Engage with CITCO’s management and have them opening an agency in Monaco
Assess the shortcoming of Monaco to Dublin and attract fund administrators based in Ireland
Administrative bottlenecks
Reduce the time needed to establish an investment fund in Monaco