2020 Cyprus Country Report

The financial
services
sector is a
significant
contributor
to the Cypriot
economy and has maintained
its status as one of the most
consistent growth sectors. I
expect to see some mergers
and acquisitions within the
sector, and I certainly see
further growth in the funds
industry. We will also see more
of fintech, blockchain technology,
crowdfunding and other
technology-based innovation in
Cyprus. At CySEC, we are committed
to promoting innovation
and the benefits it generates,
whilst simultaneously maintaining
investor protection.
Demetra Kalogerou
Chairwoman
Cyprus Securities and
Exchange Commission (CySEC)
The
professional
services
sector is
currently
facing
multiple challenges as a result
of the Covid-19 pandemic while
new worldwide developments
are affecting international
business and foreign
investment. To maintain its
dynamic profile as a key pillar
of economic growth, the sector
should focus on providing
quality services, driving
innovation and leveraging
the unlimited potential of
digital and new technologies
as well as on building the
necessary skills for the future.
Evgenios C Evgeniou
CEO
PwC Cyprus
A REFORMED INDUSTRY
Just six years ago, Cyprus’ financial sector was on
the brink of collapse as a result of the European
debt and banking crisis. The country experienced
financial difficulties following the breakdown
of the Greek economy, where Cypriot banks
had huge investments. Cyprus became the fifth
country after Greece, Ireland, Portugal and Spain
to turn to the eurozone for financial help during
the region’s debt crisis and was eventually bailed
out to the tune of €10 billon by the European
Commission, the European Central Bank and the
International Monetary Fund.
One condition of the bailout was a reform of
Cyprus’ financial system, which in combination
with other measures such as creating solid investment
opportunities that attract foreign interest,
led to a strong economic recovery in the years
that followed. For many years, the sector focused
on banking and corporate structing, particularly
facilitating investments into Europe, the Middle
East and Africa, as well as Russia and Eastern
Europe due to a fiscally attractive tax regime and
wide network of tax treaties. However, in the aftermath
of the island’s debt crisis, Cyprus sought
new economic drivers and placed greater emphasis
on diversifying its financial industry by adding
sectors such as investment funds, fintech and investment
migration to its portfolio.
WELL-ROUNDED SECTOR
Cyprus’ financial services sector has grown significantly
since its early days and has been growing
at a commendable rate of 6.5% per annum. In
2019, financial activities and professional services
contributed 7.6% and 8.2% respectively to Gross
Value Added (GVA). The Cyprus Securities and
Exchange Commission (CySEC), the country’s
financial services regulator, supervises more
than 760 entities which employ together close
to 20,000 people. Activities today centre around
three strategic areas: corporate services, financial
services and fintech/digital finance.
Foreign businesses have long been attracted
to Cyprus due to its cost-effective services and
preferential access to high-growth markets.
Corporate services and corporate structuring
continue to play an important role. Investment
funds, trust services and private wealth are today
growing elements of the island’s financial sector,
and all have potential for further expansion.
Facilitating the next steps in the finance sector’s
evolution, Cyprus has established an innovation
hub that provides a safe space for fintech entrepreneurs
who are developing the business models
of the future. These initiatives show that Cyprus
today has a well-rounded financial services sector
that developed a diverse portfolio of services and
bears little resemblance to the industry of just a
few years ago.
BASED IN CYPRUS
Cyprus is today home to a unique blend of
financial services firms. Key players in the
banking scene are Bank of Cyprus, Hellenic
Bank and RCB Bank. However, in addition,
many foreign banks, which carry out international
banking business, have a presence on the
island. Cyprus’ booming fund sector has attracted
a host of fund management companies,
including Citigrade Capital, Hanseatic Capital
Management, GMM and many more. Fund
platforms such as KMG Capital Markets and
Fortified Capital operate as third-party providers,
while an array of fund administrators such
as Alter Domus, IQ-EQ and Vistra complement
the sector.
Foreign exchange trading is probably one of
the most active segments in Cyprus’ financial
industry. CySEC issued its first forex brokerage
licence to Windsor Brokers in 1988, but with
the emergence of online retail trading interest
in setting up in Cyprus intensified significantly.
Today, some 40 forex firms are based on
the island, including companies such as FXPro,
OctaFX, FXTM and BDSwiss. The professional
services segment is headed by the ‘Big Four’ as
well as a range of top-tier legal, accounting and
corporate services providers with plenty of international
expertise.
REGIONAL BUSINESS AND MANAGEMENT HUB
Corporate formation remains one of Cyprus’
areas of specialisation. Blue-chip corporations
and corporate planners continue to establish
holding, trading and investment companies
on the island to channel investments into key
markets worldwide. Cyprus’ stable EU environment
and neutral political stance, coupled with
its low corporate tax rate at 12.5% and tax treaties
with 65 countries, have made the island a prime
destination for the structuring of investments
into Europe, the Middle East and Africa, as well
as Russia and Eastern Europe.
More recently, Cyprus has also begun posting
growth as a regional and international headquartering
location. Over the last five to 10 years, the
island’s advantages as a business hub became ever
more ingrained, with many multinationals basing
operational or corporate management functions
on the island. Companies such as NCR, Kardex,
Amdocs, Bernhard Schulte Shipmanagement
and Wargaming have all established headquarters
on the island.
Sector Profile
Country Report CYPRUS 2020 103