Issue link: https://maltatoday.uberflip.com/i/698019
3 maltatoday, WEDNESDAY, 29 JUNE 2016 News UK's woes, Malta's delight? PAUL COCKS THE UK's exit from the European Union could prove to be extreme- ly beneficial for Malta, while Brexit risks costing the City of London billions of pounds, thou- sands of workers and its spot as the world's top financial centre. This possible lost status hinges on one simple process that Mal- ta 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 ex- tremely popular in the UK, where banks use it to expand their cus- tomer base in the union, while EU firms use it to tap into the international fi- nancial markets via London, as a global f i n a n c i a l hub. Non-U K and non- EU banks use pass- porting as a financial s p r i n g b o a r d 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 exam- ple, use London for easy access to the European single market. And given passporting is of vi- tal 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 Jo- seph 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, pro- viding passporting services for those companies currently head- quartered in the UK and offering services in other EU countries. "Malta should seize the oppor- tunities that the UK's exit from the EU could create, especially within the financial services sec- tor, 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 pos- sible, to limit speculation and let companies plan future strat- egy. The top 14 global investment banks op- erating 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 Finance- Malta, a non-profit public-pri- vate initiative set up to promote Malta's international business and financial centre within and outside Malta. A spokesperson for Malta En- terprise told MaltaToday that it was guided by the government on its position on Brexit and its pos- sible effects on those economic activities for which Malta Enter- prise is responsible. As to whether any additional incentives could be intro- duced to attract those companies, banks and firms that could be con- sidering leav- ing the UK following the Brexit vote, Malta Enter- prise said it c ont i nuou s l y 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 regula- tions," the spokesperson said. John Huber of advisory firm John Huber & Associates, and a member on the board of gover- nors of FinanceMalta, said that potential opportunities for Malta could develop once the UK nego- tiating 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 po- tentially 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 re- locate 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 ef- fect 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 af- fect Malta?" "My hope is that Malta realises itself as an at- tractive step- ping stone for passport- ing services for UK-based c o m p a n i e s who will need access to the EU, as we cur- rently serve for Mid- dle East and African companies," he said. Huber has served as an adviser to the Maltese gov- ernment and as a technical refer- ence 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 Finance- Malta. 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 over- blown. "Leave" campaigners say that quitting the union would free London from the EU's regulatory restraints and allow the finan- cial services industry to become more competitive. By leaving the union, the UK could, for example, revert the cap on banking bonuses that was in- troduced 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. Prime Minister Joseph Muscat has stated Malta could become the UK's gateway to Europe and vice versa, and seize the bountiful opportunities that a Brexit could create for Malta Joe Zammit Tabona John Huber PM: 'Time for the EU to do some soul-searching' CONTINUED FROM PAGE 1 "Despite the technical aspects, I think there are other major issues. This is a Europe which the peo- ple are feeling increasingly es- tranged from and it is our duty to take action. Maybe the first ever decision to leave the Union can be blamed on others… if there is a second country, we will have only ourselves to blame." Once Article 50 is invoked, it is understood that the European Commission will be leading the negotiations with a mandate from the Council. Countries like Germany, France and Italy are more im- patient and want an immediate start to the exit process. "I agree with David Cameron's position and it is the new prime minister who should decide what relationship the UK wants with the EU. There are certain countries showing impatience because of their own national political realities and the mes- sage they're trying to send back home." It was also time for the EU to do some soul-searching, Muscat added, warning against adopting "a condescending tone" against those who favoured the Leave vote. "We need to understand their motivation … leaving was wrong but motivations are quite under- standable." The argument made by those favouring a quick Brexit is one of prevailing uncertainty – an argument being rejected by Muscat. "I don't think there is grow- ing uncertainty… people know exactly what's coming next in terms of the political and techni- cal aspects. I am more interested in the solutions to make Europe work in a better manner." The UK has lost its top AAA credit rating from ratings agen- cy S&P, which argues that the result could lead to "a deteriora- tion of the UK's economic per- formance, including its large financial services sector". Fitch lowered its rating from AA+ to AA, forecasting an "abrupt slow- down" in growth in the short- term. The Prime Minister however argued that uncertainty would prevail if "something worse were to happen". "Markets are assuming Brexit has happened and that markets won't have access to the Single Market," he said, warning that there would be a big price to pay if the new British leaders wanted to access the single market. The single market comes with four freedoms, including the freedom of movement. "It means that the main motivation for the Leave vote – which was migration control and taking back control on borders – falls through; it would have meant that all this was done to have an inferior level of relationship with Europe with absolutely no control." Levity before the serious business: Xavier Bettel, Luxembourg Prime Minister (left), shares a joke with PM Joseph Muscat, and David Cameron (right), with Angela Merkel in the background