Gibraltar is preparing for a post-Brexit setup in which its firms will have no longer access to the European Union market but will maintain a preferential relationship with Britain, a top Gibraltar financial official said on Tuesday.
The tiny British enclave on Spain's southern tip, with a population of 30,000, is home to around 15,000 companies and is a major provider of insurance and gambling services.
"We are currently planning for a hard Brexit," James Tipping, director at Gibraltar's government body for financial promotion, told EU lawmakers in a hearing in Brussels.
He said Gibraltar did not expect to obtain a "special status" and was resigned to lose its access to the EU market after Britain leaves the EU at the end of a process triggered in March by British Prime Minister Theresa May.
This would mark a shift in Gibraltar's stated policy of seeking extraordinary arrangements with the EU after Brexit.
Many companies have so far been attracted to Gibraltar by the prospect of being able to operate in all 28 EU countries from a territory with low tax rates and business-friendly regulations.
The loss of the access to the EU market, granted to EU member states by so-called passporting rules, may reduce firms' appetite to establish their headquarters in the British enclave.
But this may not discourage Gibraltar-based firms that operate in the United Kingdom.
"Our financial model will not have to change," Tipping told lawmakers, noting Britain has committed to guarantee full access to its market for Gibraltar companies.
He said about 20 percent of motor vehicles in Britain are underwritten by Gibraltar-based insurance companies, making insurers the largest financial sector in Gibraltar, which is also home to more than a dozen banks, several investment funds and top online gambling firms.
Gibraltar, often dubbed "the Rock" because of its famous cliff-faced mountain, voted overwhelmingly to remain in the EU at last year's Brexit referendum.
It remains, however, committed to remain part of Britain after Brexit. The enclave rejected the idea of Britain sharing sovereignty with Spain by 99 percent to 1 percent in a 2002 referendum.
The future of Gibraltar is one of the many thorny issues that will have to be sorted in the two-year divorce talks between Britain and the EU which will end in March 2019.
The EU offered Spain a veto right over the future relationship between Gibraltar and the EU after Britain leaves the bloc.