MONACO FINANCIAL CLUSTER
Microeconomics of Competitiveness
Group 5: Lionel Gresse, Karen Muller, Jitka Šlechtová
MBA 2011
GEOGRAPHY
Characteristics
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
• 32 796 inhabitants (2008)
• But only 6089 Monegasque
citizens (2008)
• Rich population: GNP is 222 022
USD/inhab. (2008)
Monaco Location
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
Revolution in 1848: Menton and
Roquebrune separate themselves
because taxes are too high 1848
1489
1542
1641
1793
1815
Independance recognized by France
Spanish protectorate
French protectorate
French occupation
Sarde protectorate
Rebirth after bankruptcy and near extinction
Rainier III: the builder of today‘s Monaco
1861 French protectorate – Menton and
Roquebrune sold
1869 Income tax abolished
142 years ago!
ECONOMY
GDP Growth
GDP by Sector
Monaco GDP growth
% of GDP by sector 2008
15%
18
11.60%
10%
5%
16 15.8
14
12
3.28%
0%
-5%
16
2006
2007
-2.10%
2008
2009
10.5
10
7.4
8
8.6
6
-10%
-10.57%
7.3
6.6
5.6
4.4
3.9
4
2.7
4.8
4
2.5
2
-15%
46724
45653
46000
42000
2006
2007
2008
2009
Source: Département des Finances et de
l’Économie de Monaco
Administration
Public works
Transport
Intermediaries
Industry
Real Estate
44000
Entertainment and broadcasting
48000
Post office - telecommunication
50000
Hotel business
51049
Misellaneous
52145
52000
Wholesale
54000
Retail trade
GDP capita €
Bank and Finance sector
Business
0
ECONOMY
Additional Information
16
20000
10000
5000
5875
3411
2006
2007
2008
2009
% of Monaco Exports 2009
0.95
5.18
8.6
0.66
Europe (ex EU)
Africa
America
15.32
Asie
61
Hotels
5110
2881
% of Monaco Imports 2009
EU
8.95
Public works
& real…
0
3181
Transport
10
15314
11654
Retail
10
15000
Bank and
financial…
13
Industry
18
16
14
12
10
8
6
4
2
0
Employment by sector
2009
Other
activities
Patents
5.59
EU
14.97
Africa
5.89
America
6.89
Oceanie
Source: Département des Finances et de l’Économie de Monaco
Europe (ex EU)
Asie
Oceanie
66
HISTORY OF THE FINANCIAL CLUSTER
CHARLES III
•
•
•
RAINIER III
•
•
•
Sold Menton and Roquebrune to France
Cancelled income tax
Created the Casino and legalized
gambling
Created Monte Carlo
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
PROFILE OF MONACO‘S FINANCIAL CLUSTER
Characteristics
•
•
•
•
•
•
•
•
1979 - 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
Number of financial
institutions
70
60
50
40
30
20
10
0
2005
Banks
2006
2007
Mutual Funds
2008
Portfolio mgmt
2009
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.
CLUSTER MAP
PRIVATE
GOVERNMENT
BANKING
SICCFIN
AMAF
CCAF
MAJOR FINANCIAL SECTORS
INTERNATIONAL
UNIVERSITY of
MONACO
PRIVATE
BANKING
FAMILY
OFFICES
FUND
MANAGEMENT
INSURANCE
DIVERSIFICATION OF
PLAYERS/INSTITUITION
RELATED CLUSTERS
LUXURY TOURISM
SHIPPING
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.
Number of Banks
45
40
40
41
2006
2007
39
39
2008
2009
35
30
30
25
20
15
10
5
0
2005
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.
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
FUND MANAGEMENT
Characteristics
• Venture capital funds face hurdles:
•
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.
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.
SUPPORTING INSTITUTIONS
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
SUPPORTING INDUSTRIES
SOME INDUSTRIES ARE LACKING
EXISTING
•
IT services
•
Telecom services
•
Auditors
•
Tax advisors
NON – EXISTING
•
Fund administrators
•
Prime Brokers
ASSESSMENT OF REGIONAL COMPETITIVENESS
FISCAL SYSTEM
• No tax on personal income
PHYSICAL SECURITY
• 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
• Mild winters
• World class events attracting the
jet society
• Warm summer without excess heat
• +300 sunny days per year
• 10% of UK GDP
2009
• 1.01 million
employees (1st
half 2010)
• Leader in asset
management
• The Geneva
Financial Center
is the trade
association
• 130 banks
• 3,000 billion CHF
under
management
Malta GFCI 55
• The Financial
Services Authority
(FSA) is the
regulator of the
financial services
industry in the UK
Geneva GFCI 9
London GFCI 1
COMPETING CLUSTERS
• 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
CLUSTER DIAMOND
GOVERNMENT
+ 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
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
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
RELATED AND SUPPORTING INDUSTRIES
- Dependence on non local suppliers
- Small number of research centers
- Lack of university cooperation
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
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
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
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
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
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