As Cyprus works to rebuild its shell-shocked financial sector, one might expect a big dose of negativity from those working in the market. But they are having none of it. Conservative optimism is perhaps the best description of the mood of those working in the finance industry’s offices in Nicosia and Limassol.

Insiders in the sector express their frustration that when it found itself in the global spotlight in the first quarter of 2013, accusations of money laundering and poor regulatory compliance dominated media coverage. But as Tassos Yiasemides, principal of audit and advisory services at KPMG Cyprus, says: “A Moneyval [anti-money laundering] auditor report appointed by the Troika [the EU, the European Central Bank and the International Monetary Fund] stated that the assessors did not come across any examples to suggest lack of understanding or weak compliance.”

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“A couple of months after the banking collapse it was apparent that we still had significant strengths,” says Christis M Christoforou, chief executive of consultancy Deloitte Cyprus. “We’re not the first country to experience a banking crisis and what made Cyprus what it is today is still here.”

Turning a corner

Things are looking up across the island’s financial sector. “The Bank of Cyprus has exited from the resolution status and has acquired a core Tier 1 capital ratio of approximately 12%, well above the threshold of 9%,” says the country's president, Nicos Anastasiades. “There is also a new and permanent board of directors, which, among other things, will have to implement a restructuring plan for the bank.”

Mr Yiasemides agrees that the sector has turned a corner. He says: “The recent recapitalisation of Hellenic Bank has made investors more confident and this will help gradually stabilise the banking sector.”

The country’s emerging fund industry and foreign exchange trading are key areas of opportunity for foreign investors. There are also opportunities for foreign banks to set up shop in Cyprus with the current restructuring of the local banking sector following the financial crisis. Additional opportunities include asset management, ship financing, custodian services, mergers and acquisitions, private equity and venture capital schemes, as well as large infrastructure project financing.

Cyprus has seen its foreign exchange industry flourish. ForexTime (FXTM) was founded in Cyprus in 2012 and has already grown its workforce to 70 people. “Foreign exchange regulation in Cyprus is seasoned and mature, and in line with other European countries,” says Andrey Dashin, a shareholder of FXTM. “What differentiates it with regulators in other countries is the fact that we have a much closer collaboration with the authorities, which helps us feel more secure because we understand what the authorities request from the industry. Certainty brings predictability and predictability brings safety for our funds.”

Investment funds

Cyprus is also emerging as an attractive jurisdiction for investment funds, providing solutions such as alternative investment funds and schemes under the EU's Undertakings for Collective Investment in Transferable Securities Directives (Ucits) for the establishment of private and public investment funds.

According to the Cyprus Securities and Exchange Commission, the country offers competitive incentives for Ucits, including no capital gains tax on foreign profits from the sale of financial instruments; dividend income being exempt from tax; interest income being taxed at 10% corporate tax, but exempt from defence tax; the liquidation of Ucits not being taxable for non-tax-resident investors; and there being no tax on deemed dividend distribution for non-tax resident investors.

So, does Mr Dashin have any advice for financial firms considering a move to Cyprus? “I recommend that they come here and start having open discussions with the authorities,” he says. “There are many experienced people working for the regulators; they’ve worked in the industry, so they’re not just bureaucrats. They understand the industry and they understand your needs.”