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Articles

Legal analysis by Harneys lawyers

Brexit: Passporting through Cyprus

Authors:
Publication Date:
21 October 2016

Cyprus can offer a solution to international firms and institutions seeking certainty over access to the EU Single Market. 


The most pressing Brexit concern for UK-based credit and financial institutions relates to the terms on which they will continue to have access to the EU Single Market and related passporting rights if and when the UK leaves the European Union. 

Post Brexit, unless passporting rights are maintained through specific UK-EU trade agreements or the UK retains membership of the EEA, the UK 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 today. 

Until then and unless third-country equivalence is agreed as part of the UK’s exit arrangements, the financial services industry in the UK could be set for a considerable period of uncertainty before an outcome materialises. 

Cyprus as a solution for UK-based financial institutions

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

Cyprus is already a pre-eminent Euro-hub for foreign exchange (FX) broker-dealers and other MiFID business and is gathering pace as a go-to jurisdiction for professional alternative investment and private equity funds and management business covered by AIFMD. 

Cyprus is also the back office par excellence to the world’s large financial centres: a position earned due to its reliable common law heritage, English-educated workforce, skilled services industry, an attractive headline corporate tax rate and lower overhead costs than those associated with most European centres.

Recent pro-business changes in domestic tax legislation and the regulatory framework bear testimony to the Cypriot government’s commitment to aligning Cyprus with what professionals in the private sector have sought for years: placing Cyprus on the world map of financial services and fund-friendly jurisdictions. 

With Brexit in mind, this will no doubt prove invaluable for firms which are already established in the UK and who may be unwilling or unable to uproot their local workforce post-Brexit. Cyprus can offer such firms the flexibility to maintain current operations through carefully crafted outsourcing arrangements.

Cyprus’ historical relationship with the UK

Cyprus is possibly the most pro-UK jurisdiction within the EU. Outside of the British Isles, Cyprus is the only member state of the EU that adopts English common law as 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 courts of England and Wales over other jurisdictions in matters of contract, negligence (civil wrongs), and commerce more generally. 

The reason for such closeness with the UK is, of course, historical: Cyprus was itself a UK Crown Dependency until independence in 1960. Cyprus’ close historical and continuous association with the UK means that it will be one of the most active voices in the EU for UK interests, especially those that are of direct relevance to it and those involving financial services.

Read more about Harneys in Cyprus

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