The Impact of Brexit on Financial Services in Malta
Britain and the European Union may be in for a messy divorce. Britain’s exit, or ‘Brexit’, from one of the world’s most powerful trading blocks will happen if the Brits vote to leave on the national referendum taking place on June 23rd, 2016. Polls currently indicate that the Brexit vote could go either way.
What is certain is that the UK is experiencing doubts on its ongoing relationship with the EU and this general feeling also permeates into the financial sector possibly creating one of the greatest challenges to finacial markets in recent history. There will certainly not be any drastic and immediate changes should the Brexit vote prevail and there has been mention of a transitional period of approximately two years for legislation for the so called ‘next steps’ to be drafted, however, there have not been any indications as to what these ‘next steps’ might be.
What is certain is that any future collaboration between the EU and the UK would mean that the UK would, not only have to adjust its current regulations, but would also need to negotiate new trading relationships with the EU. This means that the UK would not only be conceding its access to the trading block, but it would also be surrendering the benefit of trade agreements which cover 53 markets. There have been many comments that a Brexit would create years of uncertainty for financial markets, investments and of course, the wider economy. The debate has been whiplashing markets and has sent the pound tumbling. How would potential investors feel about this?
There has been a lot of speculation regarding the implications of a Brexit, with particular emphasis on the impact on the financial services sector and the studies that have been carried out so far do not make for a particularly pleasant read. The level of doubt surrounding the direction of the country could very well threaten the overall competitiveness of the entire UK market as a place to do business. The main fear with UK opting to leave the EU is that it might lead to a decline in foreign direct investment. There’s also concern that companies will lose access to European markets, which might result in a number of businesses to set up shop in a reliable jurisdiction which still forms part of the EU. Could this be viewed as an opportunity for Malta?
There are a lot of factors which indicate that a number of British might choose Malta as their jurisdiction of choice to relocate and forge new working relationships. There are long historical ties between the two countries which have formed relationships that other countries can only yearn for. Could Malta become a ‘home away from home’ for potential investors? Could Malta act as UK’s gateway to the European Market for the establishment of corporate structures as well as any EU residency requirements? A Brexit vote would essentially allow the UK to take back control of their borders, however, Brexit could also result in an outflow of British citizens looking for an EU solution.
Although a Brexit vote could result in a surge of business for Malta, let us not forget that we will be losing an important ally on many fronts. In the past, UK and Malta have joined forces to fight off a number of issues which would have affected our financial sector, such as the taxation on financial transactions (FTT). Malta will soon realise that it will be much harder to resist pressure put forward by the bigger EU member states such as Germany and France.
When looking at the bigger picture, it might be foolish to simply look at Brexit as an opportunity for increased business without taking into consideration the major impact it may have on a number of political and tax related issues, which might prove to be more damaging to our financial services industry.
Although no one knows exactly what will happen if Britain opts to stay or leave the EU, the only thing we can reiterate is that all EU member states will be shrouded in a cloud of uncertainty for the forseeable future.