UK’s woes, Malta’s delight: Brexit brings a mixed bag

The UK’s exit from the European Union could prove to be extremely beneficial for Malta, while Brexit risks costing the City of London billions of pounds, thousands of workers and its spot as the world’s top financial centre.

This possible lost status hinges on one simple process that Malta could take over from the UK: passporting.

Passporting allows British-based financial institutions such as banks, fund managers and insurers to seamlessly sell their services across the 28 EU nations without having to get regulator approval or set up subsidiaries in each member state. 

And in the immediate wake of the “leave” vote, the governor of France’s Central Bank fuelled the fears for London’s lost financial hub status.

François Villeroy de Galhau said that keeping the so-called “passport” would not be possible if the UK left the single market of trade in goods and services.

Passporting has proven extremely popular in the UK, where banks use it to expand their customer base in the union, while EU firms use it to tap into the international financial markets via London, as a global financial hub.

Non-UK and non-EU banks use passporting as a financial springboard to do business with the entire EU, with the benefit of only having to set up a base in one place. 

Swiss and US banks, for example, use London for easy access to the European single market. 

And given passporting is of vital importance, then it will mean a shake-up for the sector, and one would expect non-UK firms currently based there to relocate some or all of their operations to within the single market.

Enter Malta.

Following the Brexit vote, many – including prime minister Joseph Muscat – have indicated that Malta could serve as the UK’s gateway into the EU once the country left the union.

Joe Zammit Tabona, former Maltese high commissioner to the UK, told MaltaToday that Malta should set itself up as a base where UK companies would have a foothold into the EU, providing passporting services for those companies currently headquartered in the UK and offering services in other EU countries.

“Malta should seize the opportunities that the UK’s exit from the EU could create, especially within the financial services sector, but also in other sectors like manufacturing,” he said.

Zammit Tabona said it would be best for everyone involved if the UK’s exit strategy was made clear as soon as possible, to limit speculation and let companies plan future strategy.

The top 14 global investment banks operating in the UK at the moment employ between them alone more than 60,000 people.

Attracting those companies to Malta would fall under the remit of Malta Enterprise and FinanceMalta, a non-profit public-private initiative set up to promote Malta’s international business and financial centre within and outside Malta.

A spokesperson for Malta Enterprise told MaltaToday that it was guided by the government on its position on Brexit and its possible effects on those economic activities for which Malta Enterprise is responsible.

As to whether any additional incentives could be introduced to attract those companies, banks and firms that could be considering leaving the UK following the Brexit vote, Malta Enterprise said it continuously monitored what other countries were offering in terms of incentives to attract Foreign Direct Investment. 

“Of course, when we devise such incentives, we comply strictly with EU State Aid regulations,” the spokesperson said.

John Huber of advisory firm John Huber & Associates, and a member on the board of governors of FinanceMalta, said that potential opportunities for Malta could develop once the UK negotiating position became clear, but insisted it was way too early for tangible forecasts.

He acknowledged that Malta could be a very attractive option for companies which would potentially choose to leave the UK once the country officially left the EU.

“Our language and legislation could prove very attractive for such companies seeking to relocate outside the UK,” he said. “And having our tax system mostly based on the UK’s is an added bonus.”

Huber also expressed concern at one possible major negative effect Brexit could have on Malta.

“Once the UK leaves the EU, Malta will have lost its strongest ally within the bloc,” he said. “I wonder how that will affect Malta?”

“My hope is that Malta realises itself as an attractive stepping stone for passporting services for UK-based companies who will need access to the EU, as we currently serve for Middle East and African companies,” he said.

Huber has served as an adviser to the Maltese government and as a technical reference point in the drafting of the Malta Retirement Programme, the Global Residence Programme and The Residence Programme.

He is also a member on the board of governors at FinanceMalta. But any decision – in the City of London and in Malta – will have to wait until the UK exit strategy becomes apparent in its negotiation with the EU.

And meanwhile, some argue that the Brexit fears are overblown. 

“Leave” campaigners say that quitting the union would free London from the EU’s regulatory restraints and allow the financial services industry to become more competitive. 

By leaving the union, the UK could, for example, revert the cap on banking bonuses that was introduced after the financial crisis against Britain’s will.

Removing that cap and letting bonuses run high again could provide a lift to financial activity in London, offsetting some of the negative impacts.