MONACO FINANCIAL CLUSTER
Group 5: Lionel Gresse, Karen Muller, Jitka ŠlechtováMBA 2011
Microeconomics of Competitiveness
GEOGRAPHY
Strategic location in the road between Italy and SpainCity state• 2nd smallest country in the
world: 2 km2Thin band of land on the sea shore• Enclave in France• Surrounded by mountains: Mont
Agel and Tête-de-ChienHigh density population• 32 796 inhabitants (2008)• But only 6089 Monegasque
citizens (2008)• Rich population: GNP is 222 022
USD/inhab. (2008)
Monaco LocationCharacteristics
HISTORYMONACO
Monaco becomes Genoan• 1191 1297 François Grimaldi takes over
Monaco A strategic position lead to difficult
times
Income tax abolished 142 years ago!
1489
Rainier III: the builder of today‘s Monaco 1869
Independance recognized by FranceSpanish protectorateFrench protectorateFrench occupationSarde protectorate
1861
1815179316411542
Revolution in 1848: Menton and Roquebrune separate themselves
because taxes are too high 1848
Rebirth after bankruptcy and near extinction
French protectorate – Menton and Roquebrune sold
Very ancient settlements: prehistoric, Phocean, Roman
ECONOMY GDP by SectorGDP Growth
2006 2007 2008 2009
-15%
-10%
-5%
0%
5%
10%
15%
3.28%
11.60%
-2.10%
-10.57%
Monaco GDP growth
2006 2007 2008 200942000440004600048000500005200054000
46724
5214551049
45653
GDP capita € Busin
ess
Bank
and
Fina
nce
sect
orRe
tail
trade
Who
lesa
leMi
sella
neou
sHo
tel b
usin
ess
Real
Est
ate
Indu
stry
Inte
rmed
iarie
sPo
st o
ffice
- te
leco
mm
unica
tion
Ente
rtain
men
t and
bro
adca
stin
gTr
ansp
ort
Publ
ic wo
rks
Adm
inist
ratio
n
02468
1012141618 16 15.8
7.48.6
4.4
7.3
10.5
5.63.9
2.74
2.54.8
6.6
GDP by sector 2008
Source: Département des Finances et de l’Économie de Monaco
ECONOMY Additional Information
Indu
stry
Publ
ic wo
rks &
re
al e
stat
e
Hote
ls
Bank
and
fina
ncia
l ac
tiviti
es Reta
il
Tran
spor
t
Othe
r act
iviti
es
0
10000
20000
341111654
5875 3181 5110 2881
15314
Employment by sector 2009
2006 2007 2008 200902468
1012141618
1316
10 10
Patents
5.18
61
15.32
8.95
8.6
0.95
Monaco Exports 2009Europe (ex EU)EUAfricaAmericaAsieOceanie
5.59
66
6.89
5.89
14.97
0.66
Monaco Imports 2009Europe (ex EU)EUAfricaAmericaAsieOceanie
Source: Département des Finances et de l’Économie de Monaco
HISTORY OF THE FINANCIAL CLUSTER
• Sold Menton and Roquebrune to France
• Cancelled income tax• Created the Casino and legalized
gambling• Created Monte Carlo
CHARLES III
•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
PRIVATE BANKING SECTOR
• Strong entrepreneur spirit• Build Monaco as a luxury
brand (Grace Kelly, F1 Grand Prix, etc…)
RAINIER III
PROFILE OF MONACO‘S FINANCIAL CLUSTER
• 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
Characteristics
2005 2006 2007 2008 20090
10
20
30
40
50
60
70
Number of financial in-stitutions
Banks Mutual Funds Portfolio mgmt
TODAY‘S LEGAL FRAMEWORK MONACO’S VIRTUAL TRIANGLE
PRIVATE BANKING
DIVERSIFICATION OF PLAYERS/
INSTITUTIONS ALIGNMENT OF
MONACO ON EUROPE
The legal framework aims at build a virtuous triangle to develop the financial cluster.
CLUSTER MAP
PRIVATE BANKING
DIVERSIFICATION OF PLAYERS/
INSTITUITION
PRIVATE BANKING
FAMILY OFFICES
FUND MANAGEMENT
MAJOR FINANCIAL SECTORS
RELATED CLUSTERS
GOVERNMENT
AMAF
INTERNATIONAL UNIVERSITY of MONACO
LUXURY TOURISM SHIPPING
CCAFSICCFIN
INSURANCE
PRIVATE BANKING
• 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.
Characteristics
2005 2006 2007 2008 20090
5
10
15
20
25
30
35
40
45
30
40 4139 39
Number of Banks
FAMILY OFFICES
• 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.
Characteristics
FUND MANAGEMENT
• 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
Characteristics
FUND MANAGEMENT
• 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.
Characteristics
MISSING ELEMENT: INSURANCE
• 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.
Characteristics
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 INSTITUTIONS
SUPPORTING INDUSTRIESSOME INDUSTRIES ARE LACKING
EXISTING
• IT services• Telecom services• Auditors• Tax advisors
NON – EXISTING
• Fund administrators• Prime Brokers
ASSESSMENT OF REGIONAL COMPETITIVENESS
• No tax on personal income
FISCAL SYSTEM PHYSICAL SECURITY
• Highest density of policemen for inhabitant in the world
• 1 policeman for 60 inhabitants
• Living in Monaco is a status symbol
• World class events attracting the jet society
IMAGE OF MONACO CLIMATE
• Mild winters• Warm summer without excess heat• +300 sunny days per year
COMPETING CLUSTERS
CLUSTER DIAMOND
+ Homogeneous cluster+ Intensive competition between players- No local cooperation
FIRM STRATEGY & RIVALRY
DEMAND CONDITIONS+ local wealthy population+ Legal financial services- No local sophisticated financial services- No UCITS 3 recognition in EU
- Dependence on non local suppliers - Small number of research centers- Lack of university cooperation
RELATED AND SUPPORTING INDUSTRIES
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
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
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