Cyprus – A Possible New Home for the UK Financial Services Industry
Despite the fact that the United Kingdom has its own regulatory authorities such as the Financial Conduct Authority (FCA), the core regulation of the financial industry in the UK is conducted in the EU such as the European Securities and Markets Authority (ESMA).
The EU’s Markets in Financial Instruments Directive (MiFID II) offers increased protection for investors and banking systems.
The UK is currently a leader in financial services both in the EU and in the world in general. However, as a consequence of Brexit, it is not entirely clear how the Financial Services industry will function in the UK.
The EU has so far offered the UK financial services industry many advantages including passporting / accessing EU markets. In a recent online conference organised by the Cyprus Investment Promotion Agency (Invest Cyprus) titled “Cyprus’s Proposition for the UK’s Financial Services Industry”, the option of Cyprus was examined.
The conference was attended by the Central Bank of Cyprus, Electronic Money and Payment Institutions, Fund Managers and Administrators, Investment Banks, Wealth Management Companies, etc.
A survey conducted among the participants revealed that 76.9% of participants claiming the future of the UK financial services sector depended on the outcome of the Brexit negotiations and hard Brexit is a significant concern, 40% said EU passporting rights were the most important factor for them to consider relocating their business, followed by ease of doing business and the taxation environment both at 20%.
When it comes to financial market access, the EU has already stated that it will only offer selective access for the City of London’s range of financial services under its “equivalence” system, under which access is provided only if the UK’s finance regulations are equivalent to the EU’s. On the other hand the UK has suggested that it wants to diverge from EU rules, making equivalence even more difficult.
So far it looks like no significant progress has been made in negotiations between the EU and the UK.
The clock is ticking and indeed Cyprus is a very good alternative for UK companies to relocate. The process of getting licenses in Cyprus is quicker and more cost effective than other jurisdictions.
In the conference the Governor of the Central Bank of Cyprus, Constantinos Herodotou noted that:
“In recent years we have clearly noticed an increase in number of institutions licenced by us and we view this interest in obtaining licences from the Central Bank of Cyprus positively while at the same time maintaining high supervisory standards”
Moreover, Cyprus is part of the EU, all laws and regulations are harmonized with EU laws and regulations and it uses the UK based Common Law system. Cost of doing business is much lower than other aspiring jurisdictions. Many tax benefits to consider include no capital gains tax from the sale of securities as well as an effective IP tax rate of 2.5% and a flat corporate tax rate of 12.5%.
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