2020 Cyprus Country Report

International Financial Services
Sector Profile
STRONG BANKING AND INSURANCE
Cyprus’ banking sector is a symbol of the island’s
reform process following the 2013 crisis.
The industry was forced to restructure and
consolidate; and today the country has a much
stronger national banking sector than a few
years ago. Cypriot banks enjoy strong capital
ratios, and the rate of non-performing loans
has been reduced by half. International banks
continue to use the island as a launch pad into
high-growth and emerging markets. More
than 30 foreign banks are operating in Cyprus,
which mainly carry out international banking
business and have limited interaction with the
domestic economy.
Cyprus’ insurance sector is performing
well; posting premium growth year-on-year.
However, insurance in Cyprus focuses mostly
on domestic business. While the island is home
to 30 insurance companies, only a small number
of them are writing business outside of Cyprus
and taking advantage of EU passporting rights.
Industry experts are of the opinion that this
segment of the financial sector could be developed
further, highlighting that Cyprus is particularly
well positioned as a base for companies
wishing to do business in the EU and the Middle
East region.
A EUROPEAN CONTENDER IN FUNDS
Cyprus’ investment funds sector has surprised
the global asset management community with
its fast growth. A sector that was nearly nonexistent
a few years ago, Cyprus catapulted itself
into recognition by overhauling and modernising
the sector’s regulatory framework. Assets
under Management (AuM) have increased by
200% from €2.7 billion in 2016 to €8.3 billion
in 2019, demonstrating that Cyprus is able to
compete with Europe’s longer established fund
domiciles. Cyprus offers both EU-regulated
Undertakings of Collective Investment in
Transferable Securities (UCITS) and Alternative
Investment Funds (AIFs), and has become a
firm favourite of fund management companies
and fund platforms.
Cyprus has experienced growing interest
from fund professionals around the world, but
most notably from Europe, as well as Asia and
the Middle East, whose fund managers are increasingly
seeking access to the EU market. The
island is positioning itself as a cost-effective alternative
to the larger European fund centres,
Luxembourg and Ireland, and many in Cyprus
believe the sector has a great future ahead, estimating
that AuM could reach €12 billion in the
next five years.
PRIVATE WEALTH HUB
Cyprus is also rising to the fore as a wealth management
and family office destination. There is
little doubt that Cyprus’ wealth management
sector benefited from the island’s longstanding
and close relationship with Russia and
other Eastern European countries. For decades,
Cyprus has been a financial base for ultra-highnet-worth
and high-net-worth individuals from
those countries, but it is also increasingly on the
radar of wealthy individuals from the Middle
East and Asia. With an extensive banking
network and the availability of a variety of investment
vehicles, a growing fund industry as
well as no taxation on capital gains or succession,
Cyprus is a natural hub for wealth management
firms and family offices.
Another key reason for Cyprus’ appeal as
a private wealth hub is the island’s modern
trust regime, which is a unique combination of
English and Cypriot law, and hence renders the
island’s trust legislation very unique. A Cyprus
Trust can be used in a range of international
structures because it is flexible enough to accommodate
the objectives of the most demanding
client. The income of an international trust
is tax exempt as long as it is earned outside of
Cyprus.
On the back of a comprehensive package
of wealth management solutions, the island’s
wealth and asset managers are optimistic that
they will be able to maintain their robust growth
in client numbers and assets in the years ahead.
FOREX CAPITAL
For more than 20 years, Cyprus has been the
jurisdiction of choice for Foreign Exchange
(Forex) and Contracts for Difference (CFD)
brokers, and the country hosts a thriving industry
and headquarters for many global giants
in the field. Cyprus became popular due to low
corporate tax rates, excellent infrastructure and
an efficient regulatory framework under the supervision
of CySEC, which is fully aligned with
EU directives and European MiFID regulations.
Cyprus was the first country in the EU to regulate
the foreign exchange market, and CySEC is
credited with attracting foreign companies to
set up Cyprus Investment Firms (CIFs). With
years of expertise and advanced infrastructure
in electronic platforms, Cyprus offers strategic
advantages that have positioned it among the
most attractive destinations for international
forex business.
Volatility in
the market
will lead to
increased
demand for
well-informed
professional advice and reliable
solutions. The professional
services community will be
called upon to support the
economy on both sides of
the spectrum – the private
as well as the public sector.
The accountancy profession
and the Institute of Certified
Public Accountants of Cyprus
will continue to lead the effort
for recovery and emergence
of a stronger economy.
Demetris Vakis
President
Institute of Certified Public
Accountants of Cyprus (ICPAC)
850+
accountancy
firms including
all major
global firms
2,700+
registered
lawyers and
160+
law firms
provide a
competitive
market for
legal services
104 Country Report CYPRUS 2020