Despite the unprecedented decisions taken by the Eurogroup in March 2013, foreign investment firms continue to show interest in providing investment services through Cyprus. Indicative of this is the fact that according to official sources there are currently 20 new applications for obtaining the CIF status, pending before CySEC. These firms are said to be of Russian, Ukrainian and Israeli interests.
To date there are 152 Cypriot Investment Firms, although the number should be taken with a pinch of salt, as the number fluctuates regularly, with new firms being licensed and some of the existing ones having their licenses revoked, suspended or voluntarily withdrawn. Most of these firms are of foreign interests, they mainly operate in foreign stock exchanges and perform their transactions primarily through foreign banks. Foreign in this context obviously meaning non-Cypriot. The vast majority of CIFs specialize in forex and binary investment products.
Many analysts and critics wonder why Cyprus still poses as an attractive destination, especially since they believe that the mess with its banking sector is also a sign of poor regulation and structural, systemic malignancies. However, what some tend to forget is that since 1970 Cyprus provided a friendly environment for businesses, managing to attract significant foreign investment, while the country’s accession to the EU in 2004, means that firms from third countries could and still can obtain a “passport” for their EU operations through Cyprus.
Indeed Cyprus poses a series of significant comparative advantages, most of which were not affected by the bail-in drama of last year. The first is its strategic location which makes it a bridge for business activities connecting Europe with the Middle East, Africa and Asia. It also has an extensive network of double taxation avoidance agreements and a workforce of high calibre and expertise. Its two main advantages however, which make it particularly attractive to investment firms, are first the relatively low cost of setting up and operating a firm in Cyprus, as the associated fees and even the infrastructure costs are lower than in most competitive countries, and second the tax regime in Cyprus, where despite the hike from 10% to 12,5% in the uniform corporate tax, it still remains one of the lowest in the European Union.
Having explained why existing firms choose to stay and why new ones might opt to head to Cyprus, let us now focus on some valid criticisms. It is a fact that concerned voices are heard both from outside as well as within the country itself. Most concerns concentrate on the regulatory framework in place and the ability as well as the willingness of the Cypriot regulatory authorities to fulfill their role satisfactorily. Many critics from outside, whose motives however should come to question if their criticisms will be taken into account seriously, raise questions whether CySEC should continue to be allowed to license CIFs to operate within all the EU jurisdiction, accusing it of being too “broker-friendly”, especially in how it regulates the forex and binary options trading establishments under its authority, cutting them a lot of slack and imposing very low fines on them.
Even some prominent figures in the Cypriot services industry, including senior lawyers and accountants point out that it is of paramount importance that authorities crack down on unregulated firms, which operate in and from Cyprus and offer investment services without possessing the necessary qualifications, expertise and licenses required both by Cyprus and by their countries of origin. They point out that the operation of such firms severely damages the image of Cyprus as a reliable and credible financial services centre and highlight that all investment services firms should be regulated and supervised strictly in order to ensure that they function within a fully legal and professional framework.
Rising to the challenge will not be an easy task for all stakeholders in the Cypriot forex and binary options scene. Indeed, certain convoluted stories such as the iOption saga, as well as recent news that EasyForex has made several employees redundant, primarily because it has decided to shift its focus on the more lucrative Asian markets, and more specifically on China, all point to the fact that the times ahead will be difficult if not turbulent.
Competition from other jurisdictions is intensifying, while the ever evolving market conditions which do shift the focus of most brokerages towards the Asian markets, render CySEC less attractive than before and make a lot of retail FX firms to prefer to go under the jurisdiction of the British Financial Regulatory Authority which is evidently more recognizable and respected by Chinese traders.
On the other hand, not all is gloomy in the picture. Despite valid criticism, CySEC is increasing its gear and has recently become much more vocal in terms of exercising a tighter control on the industry, issuing warnings and handing out fines, even suspending licenses and sending out the clear message to all those involved that “the grace period is over.”
Furthermore, and pending the new licenses we mentioned at the beginning, new Cyprus based companies keep entering the forex and binary markets, while despite the noticeable re-orientation of certain fore firms towards Asia, many other ones remain strong, active and ever growing, gaining recognition and even hiring new employees. The likes of FXPro and IronFX have adopted an active and highly visible marketing strategy within the country itself sponsoring all sorts of events and activities, while other firms are currently recruiting such as TOP FX. Another interesting recent story was that of FXTM which chose to recruit new staff through advertising on bill-boards, one of which was remarkably enough, although perhaps unintentionally, placed opposite the offices of rival firm Easy Forex.