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Offshore Financial Centers impacted by Brexit

Wednesday, 02 November 2016
Offshore Financial Centers impacted by Brexit

We have talked about the impact of Brexit on offshore banking in the UK. It’s been several months after the referendum was held, and the impact has been felt by businesses and individuals. 

British expats are feeling it overseas, while EU expats are also feeling the same way, too: The laws and regulations are now against them, and they need to respond to the changes. 

The same thing is also experienced by businesses. UK-based companies employing EU workers are facing dilemmas. Many of them decided to move the company out of the UK. Some who decided to work things out for their EU staff will need to jump over the laws and regulations hurdles. 

Brexit-impacted Offshore Centers – for better or worse

Some of the impacted jurisdictions – mainly those that are related to the UK’s governmental policies – are as follow: 

1. Crown Dependencies

The Crown Dependencies consist of Isle of Man, Jersey, and Guernsey. 

The Isle of Man went into offensive mode, actively seeking ways to protect its market position, using its relationships with other jurisdictions to maintain free trade and keep its status as one of the well-sought-after offshore jurisdiction.

Jersey and Guernsey, with their agreements with the UK and EU, are in a unique position that allows them to ‘intermediate’ the access between UK and EU – the move that could potentially push the jurisdictions’ financial industry up. 

2. British Overseas Territories

The British Overseas Territories consist of Cayman Islands, BVI, Bermuda, Falkland Islands and Gibraltar. 

Perhaps the most impacted jurisdiction in this category is Gibraltar. The Brexit poses as a existential threat to Gibraltar, damaging its interests, causing Spain – which historically linked with Gibraltar – to capture what’s left post-Brexit, including asserting control over the jurisdiction. The jurisdiction is actively seeking EU deal to preserve access to the market, and maintain the freedom of thousands of workers to move from and to Spain. 

BVI, quite similar to Gibraltar, is in limbo, fearing that Brexit will put its financial industry into demise. The real impact is yet to be publicly announced, but a recent release in September 2016 revealed that the  lose of UK’s influence in EU regulations and legislation development directly affects the financial industry. Fortunately, the strong ties to the US, Asia, Africa and South America ‘absorb’ the decline in the UK and EU. 

Bermuda, also facing uncertainties, has seen tourism in decline. An economic forecaster even voiced that Bermuda – and offshore jurisdictions in general - should have their own currency, reducing the dependencies to any ‘larger’ jurisdictions. 

About the Falkland Islands, similar to Gibraltar, there is a conflict of interests, which lead to risking sovereignty to the islands. Argentina, which always has strong interest over the islands, might make a move. 

3. Cyprus

Cyprus is in a unique situation because its position in the EU makes it an ideal jurisdiction for businesses that want to access the EU market but want the perks an offshore jurisdiction can offer, such as lower taxes (Cyprus is known as one of the lowest tax regimes in Europe.) 

The Brexit is seen as a blessing in disguise for Cyprus – with companies plan to relocate from the UK could use Cyprus as their new headquarters. Unfortunately, the upside is most likely not to be the case for UK expats and retirees, who represent 10 percent of Cyprus’ population. If they were forced to leave due to Brexit, the consequences would be devastating, especially to Cyprus’ businesses, finances, real estate and tourism. 

4. Luxembourg

Perhaps one of the offshore jurisdictions which greatly benefit from Brexit, Luxembourg is the number one destination for banks post-Brexit. Not only banks, other financial institutions like asset management firms are also looking forward to focusing on Luxembourg for serving their EU clients. 

One example would be M&G – the asset management subsidiary of UK-based insurance firm Prudential. The firm plans to build a dedicated investment division in Luxembourg to keep their mainland European investors.

Not all is good for Luxembourg, however. Just like any other jurisdictions involved with UK and EU, the Brexit could break one of Luxembourg’s key success factors: the multi-cultural work environment. With foreign workers account for 72 percent of the jurisdiction’s total workforce, diversity is an asset for Luxembourg. Brexit will change this significantly, which is hoped not to negatively impact the positive economic outlook. 

Conclusion

Of course, there are of course other offshore jurisdictions that are greatly impacted by Brexit. The jurisdictions mentioned above are what we think as some of the most impacted ones. However, the real impact of Brexit is still yet to be felt – at least before it’s finalized in two years’ time. But one thing for sure, ripples are already felt by businesses and individuals engaging in internationalization

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