Finance hubs lust for Brexit’s spoils of war but Malta plays a cautious game

Malta should be promoting itself as a possible alternative base for the numerous international investment banks, online gaming houses and insurance providers currently headquartered in the UK, the Institute of Directors president in Malta, James Satariano, has told MaltaToday.

The island’s apparent lackadaisical reaction to the Brexit result could see it lose out to a number of European capitals that have taken a clear and conscious decision to poach financial institutions away from London.

A number of European financial services capitals, including Luxembourg, Paris and Frankfurt, have been actively ‘propositioning’ UK-financial services institutions in a bid to lure them away from London amid the sector uncertainty that is predominant since the UK voted to leave the EU on 23 June.

EasyJet has opened talks with EU member states’ aviation regulators about relocating its headquarters from the UK. CEO Carolyn McCall  signalled in private meetings this week that moving its legal HQ from the UK was almost inevitable.

Last week, EasyJet signed a five-year servicing contract with SR Technics in Malta and announced it will be signing a similar contract with the Malta-based Lufthansa Technik, meaning most of the maintenance on its 253 aircraft will be carried out in Malta.

Malta, on the other hand, seems to have opted for the wait-and-see approach and seems willing to wait for the UK to make its position clear during negotiations with the EU before promoting itself as a possible alternative base.

“Malta should follow the example of Luxembourg and Paris, both of whom were aggressively targeting London-based financial services immediately after the UK referendum result was announced,” James Satariano said.

“They were quick off the mark. We are more respectful, but the bottom line is that Malta should be moving on this opportunity to capitalise on the situation.”

Satariano even insisted it was a national duty to advocate measures where Malta can attract jobs, promote growth and achieve a more competitive positioning.

He said now was the time to try and capitalise on Malta’s positioning, on the country’s strong economy and the favourable tax legislation.

“Our economy is strong,” he said. “We were the only economy, along with Germany, that weathered the recession with growth while all the southern European economies faltered. And Malta marches on, with the lowest unemployment figures in Europe and a 6.3% GDP growth last year.”

Satariano noted that with Moody’s forecasting a 5.9% GDP this year, this should give Malta added value when trying to lure financial services away from the UK. “We have a solid financial services jurisdiction and a respected regulator,” he said. “I am sure that the markets are aware of Malta’s status as an OECD White List jurisdiction and they will no doubt have it on their horizon.”

Satariano said the IoD believed Malta has every opportunity to position itself as the jurisdiction of choice for all banks, lending house and investment firms.

But the opportunity for Malta and other European capitals following the UK’s decision to leave the EU hinges on one simple process that Malta could easily 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.

In the UK, 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. It is a financial springboard for the top 14 global firms in London which at the moment employ between them more than 60,000 people: big names like JPMorgan Chase, Goldman Sachs, Bank of America Merrill Lynch and Credit Suisse all do business with the entire EU, with the benefit of only having to set up a base in one place. 

In an internal memo to its staff, and seen by MaltaToday, JPMorgan Chase chairman Jamie Dimon told his employees: “In the months ahead, we may need to make changes to our European legal entity structure and the location of some roles.

“We recognise the potential for market volatility over the next few weeks and we are ready to help our clients work through it. As of today, there are no changes to the structure of our clients’ relationships with JPMorgan Chase or their ability to work with our firm, but again this may change in the coming months or years.”

Amy Rajendran, head of financial communications at Credit Suisse, told MaltaToday: “There will likely be a two-year period before the UK exits the EU; over this time period, there are likely to be extensive negotiations with EU member states and domestic UK legislative reviews.”

UBS, the lending bank and investment firm, was more succinct in its comment to MaltaToday: “As a Swiss organisation, we’re used to preparing our business for change in line with the democratic will of the public.  We are now at the start of a multi-year process and we will approach this in the same way we would in our home market. At this point there is nothing to add to this.”

But banks are not the only London-based companies currently considering setting up offices in other EU countries. The gambling industry in the UK could also take a large hit and could also be a very attractive target for Malta.

“Right now, very few people are concerned about the impact of the Brexit vote on the gambling industry,” Satariano said. “Online casinos, poker rooms and bookmakers in the UK have good reasons to be worried.”

The UK, Gibraltar and the Isle of Man host some of the biggest gambling operators, who rely on passporting to be able to offer remote gaming across the EU.

“They cannot afford to lose access to the EU markets and it is very likely that these UK-based gaming companies operating in EU markets might choose to relocate to Malta where they can enjoy the best of both worlds,” Satariano said.