The financial services industry has been one of the main driving forces behind Malta’s economic success over the past 15 years and it is without a doubt that Malta’s European Union membership has been a major role player within this success story. Malta’s full EU membership ensures that the island is adequately equipped to provide a one-stop-shop service to any reputable entity and/or person who wishes to establish presence in Malta and/or passport in/out of the island (as the case may be).
Malta now houses numerous businesses ranging from hedge funds to insurance distributors, fund managers, credit institutions, forex operators and investment services providers, amongst others. The island’s status as a Member State instils a sense of security and ensures that the jurisdiction maintains high regulatory standards, which in turn result in added value to Malta’s reputation as a European financial services hub. Furthermore, Malta boasts low set-up and operational costs, all the while still maintaining high EU compliance standards.
The UK’s decision to part ways from its membership with the EU is one of the most momentous and unexpected political events in the history of the EU and has affected many UK licensed entities who rely on the freedom to passport their products and services in and out of other EU jurisdictions. A freedom that, pending Brexit negotiations, can no longer be availed of. This is bound to be a big blow to licensed UK entities which rely on their income and trade coming to and from other EU Member States.
The freedom to passport products and services are not the only two freedoms which will be affected by Brexit. The freedom of movement of persons and capital will also heavily impact UK licensed entities insofar as they will no longer be able to setup up branches of their activity in other EU jurisdictions and easily second employees to work in said jurisdictions and easily travel between one branch office and another. It is envisaged that UK residents will no longer be Visa-free travellers within Europe. They will potentially also require a work permit should they wish to take up employment in any other EU jurisdiction.
The UK’s Transition
Regardless of whether a deal is struck with the EU or not, the UK is due to leave the EU on the 29th of March 2019. This is the law. Any attempt at halting Brexit would necessitate a modification in the law in the UK. In December of 2018, the European Court of Justice ruled that the UK could cancel the Article 50 Brexit process without the permission of the other 27 EU members and remain a member of the EU on its existing terms, provided that the decision followed a democratic process.
The period of transition, which the UK has conveniently termed the implementation period, begins on the 29th of March 2019 and lasts until the 31st of December 2020. During this period, the UK must abide by all EU rules, but will lose membership of its institutions. The draft withdrawal agreement states that the transition period can willingly be extended, but only for a period of one or two years. Therefore, a potential extension may be applicable and would be till the end of 2022, at most. With this aside, both the UK and EU must agree to any extension and the decision must be taken before the 1st July of 2020.
Malta-Brexit Solutions for Financial Services
Notwithstanding the outcome of the Brexit negotiations, our on-the-ground Financial Services Team at CSB are highly qualified and willing to assist and guide clients to ensure they are equipped to handle the eventual exit from the EU with respect to pre and post-licensing matters with the Malta Financial Services Authority, as well as maintaining ongoing compliance in adherence with local law, rules and regulations.