By Jon Boone
Gibraltar gave the English language the phrase "as safe as the Rock", such was the impregnability of the fortress base for the Royal Navy. But the same cannot be said about Rock Financial Services, an execution-only brokerage company based in Gibraltar that collapsed last year losing £12m and leaving hundreds of small investors out of pocket.
The downfall of Rock risks seriously tarnishing the reputation of the territory, which has been seen as one of the better places for investors to manage their money offshore.
Leonard Berney, a British financial adviser based in Spain who has many clients who lost money in the demise of Rock, described the collapse as scandalous and said it could badly damage the territory. "The figure lost is a lot of money in anyone's language," he says. "It is a catastrophe for little Gibraltar and could scupper the territory as a financial centre."
The collapse of the company hit about 400 investors, many of them expatriates living in southern Spain who are attracted to Gibraltar by its geographic convenience, English-speaking advisers and regulatory requirements that broadly match UK standards.
One of them, a former civil servant who retired to Spain with his wife, lost almost £20,000 and says he now has no money left for investments.
The man, who did not want to be named, said: "The company simply never bought the stocks I had instructed them to buy. I never found out until I tried to move some money out of their client account. They were really evasive at first until they eventually admitted that they had gone into liquidation."
It is unlikely that this customer will see any of the money again since Gibraltar's investors' compensation scheme was only set up after the collapse of the company, which, according to an investigation by PwC, did not have adequate capital and had failed to properly safeguard customer assets.
In June last year the Royal Gibraltar Police raided the company's office and the company was wound up soon afterwards. The investigation into the £12m shortfall is continuing.
Whatever the outcome, everyone connected with the Gibraltar financial services industry, which controls about £1bn worth of assets and is the third-largest part of the territory's economy, was shocked by Rock's collapse.
The debacle is also embarrassing for the territory, which operates in a highly competitive market dominated by offshore financial centres such as the Isle of Man and the Channel Islands.
The various centres compete for business on the quality of service offered, the speed with which they respond to clients, and their regulatory reputation.
Gibraltar's Financial Services Commission guards its reputation zealously, even to the extent of taking action against companies that falsely claim to be based in the territory.
Marcus Killick, chairman of the Gibraltar's Financial Services Commission, says the collapse of Rock was an extremely unusual event and should not be seen as symptomatic.
"Gibraltar has been independently verified as having sound regulatory structures but . . . we can't prevent crime from happening. We acted the moment we heard about the issue and the matter is now being dealt with by the police," he says.
Investors in Rock, however, are far from satisfied that enough was done to prevent the company from collapsing. Andrew Linn, a Briton who retired to Spain, says the problems should have been picked up far sooner by the FSC.
"It is clear that there was something going on in the period of the previous audit before the company was closed down. They should have seen that it was trading illegally and done something about it," he says. Bill Blevins, managing director of Blevins Franks, a company specialising in expatriate fund planning, says he received emails from investors worried about the company 18 months before the FSC acted.
However, he said the regulator had been working hard to sharpen up its performance. "I can guarantee that there will someone down in Gibraltar saying: 'Why the hell did we not do this more quickly? We were beginning to straighten up and this bloody thing happens'."
Either way, it seems, restoring the territory's reputation for rock-like security will take some time. As Blevins put it: "Gibraltar needs this like a hole in the head."
Source: Financial Times
