By Lisa Jucca
SAN MARINO, June 15 (Reuters) - Microstate San Marino is reinventing itself as modern financial centre, its central bank head said, trying to overcome a dubious reputation earned through its once opaque banking system.
The country of 30,000 people wants to regain ground against stronger rivals such as Luxembourg, Ireland, Switzerland or Liechtenstein, now that proximity and a monetary union with Italy are no longer enough to attract investors.
“Our aim is to expand outside our borders, otherwise we will remain constrained,” Antonio Valentini, chairman of San Marino’s central bank told Reuters in an interview, adding he hoped to see mutual funds launched as one measure.
“There are lots of variables at stake but we hope (to introduce the funds) in the short to medium term, that is in a couple of years.”
The Most Serene Republic of San Marino, which claims to be the world’s oldest, is a landlocked state inside Italy, whose pledge to secrecy and lenient taxation have acted as a magnet for funds from nearby regions since the 1970s.
In 2005, it introduced a central bank to oversee its financial sector, and last year approved rules to pave the way for the introduction of hedge and mutual funds that could compete with similar funds in Ireland and Luxembourg.
Mutual funds firms would be taxed 12 percent, in line with Luxembourg and Ireland, while individuals would have zero taxation on their gains, tax experts said. SILENT REVOLUTION
The changes are part of an ambitious five-pronged action plan launched six years ago with the aim of extracting more value from the financial sector, which already accounts for nearly 20 percent of the country’s economy. “(San Marino) did not have at the time a strong financial institution in compliance with the world’s best practice that could govern the system with credibility and authority,” Valentini said in an interview.
San Marino adopted the euro at the same time as Italy and total assets at its 12 banks amount to about 12 billion euros
($15.98 billion), according from data from a report from consultant The European House-Ambrosetti.
While this is about 10 times the republic’s Gross Domestic Product, it is well below the 78 billion euros stashed away in Liechtenstein, which has a population comparable to San Marino’s and borders Switzerland and Austria.
“San Marino has not yet acquired the reputation of a modern financial centre. Historically, it has always been very cautious when communicating externally,” said Valentini.
“There is much more transparency than in the past. To attract investors we must be clear about things.”
Setting up a central bank which publishes statistics had already increased the reputation of San Marino’s financial industry, but to sell its mutual funds abroad the country must comply fully with international standards.
San Marino has made efforts to move towards international financial cooperation and is off the OECD’s black-list of non co-operative financial centres.
But it has not yet fully met anti-money laundering standards set out under the Financial Action Task Force (FATF) and current bilateral talks with Italy are also crucial to the future of its fledgling mutual fund industry.
“San Marino must certainly be in line with certain standards and regulations. We believe we have mostly done it. We are very close to being completely FATF-equivalent,” said Valentini.
However, the country intended to hang on to its principle of banking secrecy, just like Switzerland, the world’s largest centre for cross-border capital.
“Bank secrecy is a leverage that we intend to keep,” Valentini said.
((Reporting by Lisa Jucca, Milan newsroom +39 02 66129 695, firstname.lastname@example.org; Editing by Gerrard Raven))
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