The Cyprus Securities and Exchanges Commission (CySEC) reported that it had seen a 200% increase in its market surveillance activities since 2011, with the number of entities under its supervision increasing from 250 to almost 800.
According to the financial declarations of the new chairman George Theocharides, the assets of the investment funds currently managed in Cyprus have reached 11.6 billion euros, with a strong potential for further growth. In terms of investment firms, there are currently 240 firms under surveillance. Half are traditional companies that offer services to institutional investors. The rest of these companies offer trading services to private investors.
Brexit: Driving Change
Mr. Theocharides pointed out that the exit of the United Kingdom from the EU has enabled Cyprus to place itself as a privileged host country for EU digital platforms. According to the data provided by the Commission, all Cypriot investment companies together employ around 6,000 people. A significant number of these companies also offer additional services, including legal, auditing, and compliance services. CySEC CEO says:
“It is therefore a sector which, in addition to the income it brings to the Cypriot economy, also offers many job positions”
Regulation at the heart of discussions
Regarding the regulation of digital currencies, Theocharides clarified that CySEC’s intentions were to foster innovation in fintech while respecting all legislation. The commission has already received inquiries from potential cryptocurrency asset servicing providers. She began to assess and process applications.
In its policy statement, published last September, CySEC listed the rules applicable to cryptocurrency asset service providers. They are based on existing legislation in the fight against money laundering and the financing of terrorism. They are also based on the relevant European Commission directives. CySEC takes the liberty of emphasizing:
“This initiative will limit some, but not all, of the risks associated with investing in cryptocurrency assets, although these should be considered later by the EU and under relevant legislation”
Financial innovation
“Our timely communication with cryptocurrency companies, facilitated by the European Central Bank’s Innovation Lab framework, aimed at supporting innovative companies and providing consultation to developing financial technology (fintech) providers, made it possible to clarify our expectations,” said Demetra Kalogerou, President of CySEC, last September.
“Our work on financial innovation at national and European levels is ongoing. We are determined to encourage responsible innovation while ensuring the proper functioning of markets.” Demetra Kalogerou
The commission explained that, depending on their structure, some cryptocurrency assets may meet the definition of financial instruments. They would therefore be subject to the legislation on investment services. This is defined by the European Commission’s Cyber Money Directive, as well as the Markets in Financial Instruments Directive. Additionally, these assets can be viewed as a digital representation of value. However, it is neither issued nor guaranteed by the Central Bank of Cyprus or by any other public authority.
“The digital currency industry is going to see significant growth in the future and the EU is preparing to issue a directive,” said George Theocharides. “Therefore, the commission must be ready to deal with these platforms.”
In conclusion
Cyprus has positioned itself as a dynamic hub for financial innovation, driven by its strategic regulatory environment and proactive market surveillance. With the significant increase in entities under CySEC’s supervision and the continued expansion of investment funds, the nation is solidifying its role in the European financial landscape. The effects of Brexit have further allowed Cyprus to attract digital platforms, creating thousands of job opportunities and broadening its economic base.
CySEC’s commitment to fostering innovation while maintaining stringent regulatory standards, particularly in the realm of digital currencies, reflects its forward-looking approach. The commission’s initiatives aim to balance promoting fintech growth with protecting market integrity, ensuring that Cyprus remains a competitive and compliant financial center. As the EU prepares to introduce new directives, Cyprus is ready to adapt, setting the stage for future developments in the digital finance sector.
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