Cyprus is a long-established international business centre which guarantees safety, stability and prosperity for foreign investors for a number of reasons. To name just a few there is:
The island’s advanced commercial infrastructure;
Its stable economy;
The robust and transparent legal system;
Its political stability;
The friendly environment for foreign investors, and
The Republic of Cyprus is a full member of the EU.
Together they have rendered the island an attractive destination for investors from CIS countries, the Middle East, China and lately, the US. If you add to the above the country’s strategic location, and of course its attractive tax regime offering numerous incentives and advantages to both foreign individuals and corporate entities, you have the perfect recipe for investment growth.
Also, Cyprus has become a harbour for investment firms. A Cyprus investment firm (CIF) is one of the most useful tools in the EU, and not only for those who intend to provide and perform investment services and activities either within Cyprus or abroad on a professional basis.
Cyprus has managed to put in place a robust regulatory framework which is constantly monitored by the Cyprus Securities and Exchange Commission (CySec). CySec is the regulatory body for the financial industry in Cyprus. Its mission is to exercise effective supervision in order to ensure investor protection and a prosperous development of the securities market, the collective investment market and the asset management sector. CySec also regulates the establishment of all financial services companies and particularly fund management companies which have been set up by hedge fund managers.
Obtaining a CySec licence
There is a certain process to be followed, and there are strict criteria and conditions which must be satisfied, in order to get the relevant CySec license for the provision of ‘Investment Services'.
The examination of the application can take up to six months depending of course on various factors, the most important of which is the range of the services to be provided by the applicant company. Some of the very basic criteria would include the firm having local offices and a minimum number of native directors. Of course additional key personnel may also be required. These might include a compliance officer, an AML Officer as well as an Officer authorised and licensed to provide the respective ‘Investment Service’. Additionally, depending on the ‘investment services’ to be provided and whether or not the firm will hold client funds, there is a minimum capital requirement (for more information and guidance as to how you may register a CIF please contact the author or any member of our financial services dedicated team).
Investor protection
Investor protection is taken very seriously by CySec and investors in general should feel comfortable that their complaints, if any, against CIFs will be thoroughly examined. Although CySec itself does not have restitutionary powers it has put in place a three-step complaint procedure for investors.
In brief, each complaint is given a unique reference number by CySec. The CIF has to respond and position itself in relation o the investors complaint within a certain period of time (maximum of three months from the day of the complaint). If the investor is not happy with the CIF’s response he or she can reach out to the Financial Ombudsman (FO). The FO provides an independent service for settling disputes between CIF’s and their clients, however, his decisions are not binding. Hence, it is open for the investor to take the matter to court if he is not satisfied with the decision of the FO.
CySec has also put procedures in place regarding the receipt and follow-up of reports of infringement pursuant to Article 32 of the Regulation (EU) No. 596/2014 on market abuse and has even set-up a specific electronic address for this purpose (whistleblowing@cysec.gov.cy).
Finally, segregation of client and corporate funds is a must for CySec which has also set up the ICF (Investors Compensation Fund). In a nutshell the ICF’s task to compensate investors, provided of course the conditions for compensation are fulfilled.
Conclusion
It could be argued that the last 10 years or so have shown that Cyprus is the place to be for both investment firms and investors as, unlike other jurisdictions, it offers a stable and safe environment for investment. Whilst there may have been some isolated instances in the past where some investors did lose funds, these incidents were generally confined to unregulated firms.
However, there is no room for complacency. The fact that this business is indeed thriving and the volume of the funds that are being invested on a daily basis is by all means massive, calls for a diligent approach on the part of the regulatory authority. CySec is committed to constant monitoring and supervision of the sector. However, at the same time, investors must also act responsibly. They are advised to be extra cautious and diligent when choosing an investment firm and to ensure that they act promptly when they suspect foul play on behalf of the latter.
Chrysanthos Christoforou
Partner, Elias Neocleous & Co
