The prospect of the UK crashing out of the European Union without a free trade deal has seen an increase in financial services companies looking to Cyprus as a ‘low cost’ European base, a UK conference was told.
A survey conducted among 150 electronic money and payment institutions, funds managers, and law and accounting firms at the conference underlined industry concerns over Brexit, with 76.9% of participants claiming the future of the UK financial services sector depended on the outcome of the Brexit negotiations. Just 2.6% said Brexit would have no impact.
Speakers at the conference, Cyprus’s Proposition for the UK’s Financial Services Industry, hosted by Invest Cyprus, the national investment promotion agency, included the Governor of the Central Bank of Cyprus, Constantinos Herodotou, and senior representatives of EY Law, Deloitte, PwC and KPMG Cyprus.
A no-deal Brexit will hit payment and e-money institutions particularly hard. Without EU passporting rights, businesses will lose access to EU customers through the central payment system infrastructure that rest of Europe will be using, said Christia Evagorou, senior manager of Funds Services at PwC Cyprus.
Explaining why companies are relocating to Cyprus, Evagorou added, “the main driver is the speed of getting over the line in Cyprus, compared to other jurisdictions. It tends to be quicker to obtain authorisation here and the process tends to be less expensive. The Central Bank does not impose a fee on applications, which others do. We’re also seeing interest from other e-money and payment institutions within EU area and outside which shows Cyprus is being used as anchor for jurisdictions to reach the Middle East and Asia.”
Speakers also pointed to other advantages including Cyprus’s flexible legal framework based on English common law, highly educated workforce and low business costs compared to Malta, Netherlands, Ireland and Luxembourg. Companies operating on the island include the UK marine insurer Steamship Mutual, and international tech companies Wargaming and AmDocs, which has around 1,000 software programmers living and working in Cyprus.
Herodotou said, “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.” Setting out Cyprus’s robust regulatory framework, he added, “anti-money laundering compliance constitutes a permanent challenge for all members of the eurozone and the euro system. For the Central Bank of Cyprus, it is of utmost importance that all supervised institutions exhibit the necessary compliance culture. The MONEYVAL Committee of the Council Europe has recognised the great steps by the Central Bank of Cyprus to enhance AML/CFT supervisory practices. In this manner, we add value to the institutions licenced by us which, in turn, can take pride in working in a reputable, cooperative regulated environment.”
In a survey of conference participants, 40% said EU passporting rights were the most important factor for them to consider moving their business, followed by ease of doing business (20%) and the taxation environment (20%). Around 5,476 firms based in the UK currently benefit from passporting, while 8,000 companies in the European Economic Area use the mechanism to offer services in Britain.
George Theocharides, Vice-Chair of the Cyprus Securities and Exchange Commission (CySEC), said CySEC had established an innovation hub to foster the dialogue with the industry and provide informal feedback into how the regulation applies to new financial technology.
Highlighting the incentives for available to UK funds and funds managers in Cyprus, he added, “first, as a full EU member state, regulated fund activities and joint access to European Economic Area market and associated passporting regime. Also, the fund regulatory framework is set up in such a way that ensures full alignment between possible investor type and corresponding risk appetite. I should also mention the funds eco system in Cyprus is well developed with a strong network of ancillary professional services and lastly, on a practical point, licencing supervisory processes for the CySEC licenced fund managers and investment funds, including legal, regulatory, and commercial documentation takes place entirely in English.”
George Campanellas, Chief Executive of Invest Cyprus, the national investment promotion agency, said the island’s handling of the pandemic and its pre-Covid economic growth meant it was recovering quicker than other economies. “All the ingredients that have made Cyprus a top destination for shipping management exist also for hosting tech companies coming to the island,” he said.
UK Prime Minister Boris Johnson has set a self-imposed October 15 deadline for finalising the Brexit deal. If a deal can’t be agreed with the EU, then the UK will default to WTO terms from January 1, 2021.
Other speakers at the conference included senior representatives from the Cyprus Investment Funds Association, Kinanis LLC, Chrysostomides, and Platis.