Introduction

The most pressing Brexit concern for UK-based credit and financial institutions is the terms on which they will continue to have access to the EU single market and related passporting rights if and when the United Kingdom leaves the European Union. Cyprus can offer a solution to international firms and institutions seeking certainty over EU single market access.

Post-Brexit, unless passporting rights are maintained through specific UK-EU trade agreements or the United Kingdom retains membership of the European Economic Area (EEA), it will be considered a 'third country' from a financial services regulatory perspective, meaning that financial institutions based there will be unable to operate throughout the EEA as seamlessly as they do at present.

Until then, and unless third-country equivalence is agreed as part of the United Kingdom's exit arrangements, its financial services industry could be set for a considerable period of uncertainty.

Solution for UK-based financial institutions

Cyprus is one of a small number of Anglo-centric jurisdictions in the European Union that offers the right mix of business-friendly factors to UK-based financial institutions looking for a new home or alternative EU-based trading hub post-Brexit.

Further, Cyprus is an important EU-hub for foreign exchange broker dealers and other EU Markets in Financial Instruments Directive (2004/39/EC) business. It is also fast becoming a go-to jurisdiction for professional alternative investment and private equity funds and management business covered by the EU Alternative Investment Fund Managers Directive (2011/61/EC).

Cyprus is also widely regarded as the back office par excellence by the world's largest financial centres because of its:

  • reliable common law heritage;
  • English-speaking workforce;
  • skilled services industry;
  • attractive headline corporate tax rate; and
  • lower overhead costs than those associated with most European centres.

Recent pro-business changes to domestic tax legislation and the regulatory framework illustrate the government's commitment to aligning Cyprus with what professionals in the private sector have sought for years (ie, placing Cyprus on the world map of financial services and fund-friendly jurisdictions).

With Brexit in mind, this will undoubtedly prove invaluable for firms which are already established in the United Kingdom and that may be unwilling or unable to uproot their local workforce post-Brexit. Cyprus can offer such firms the flexibility to maintain existing operations through carefully crafted outsourcing arrangements.

Historical relationship with United Kingdom

Cyprus is possibly the most pro-UK jurisdiction within the European Union. It is the only other EU member state that adopts English common law as the binding or persuasive principle in cases not governed by local legislation. This means that Cyprus will, in general terms, always look to the judicial precedent and opinion of the English and Welsh courts over other jurisdictions in matters of contract, negligence (civil wrongs) and commerce more generally.

Cyprus was a UK Crown Dependency until its independence in 1960 and the historical and continuous association with the United Kingdom means that it will be one of the most active voices in the European Union for UK interests, especially those that are of direct relevance to Cyprus and the financial services sector.

For further information on this topic please contact Pavlos Aristodemou or Aki Corsoni-Husain at Harneys Aristodemou Loizides Yiolitis LLC by telephone (+357 2582 0020) or email (pavlos.aristodemou@harneys.com or aki.corsoni-husain@harneys.com). Alternatively contact Sean Scott or Fiona Chandler at Harney Westwood & Riegels' London office by telephone (+44 207 842 6085) or email (sean.scott@harneys.com or fiona.chandler@harneys.com). The Harney Westwood & Riegels website can be accessed at www.harneys.com.

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