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Magazine Issues » November 2021

Cyprus roundtable: On the fast track to becoming a major cross-border hub

 

Embracing technology
Cyprus will need to work hard to stay attractive amid the global competition. Technology is one area that Cyprus’s funds sector should improve in all areas, including fund management and administration. As well as being regulated and transparent, administrators will also need to adopt sophisticated technology to become more service-oriented into new products, says Tannousis. “It’s not about just having traditional products as investors are moving into more exotic areas and more complicated investments such as private equity. Fund administrators need to prove that their processes can help the asset managers, banks and the depositaries.”

For Michael Borisov, chief investment officer of Leon MFO Investments, an AIFM fund manager, technology is the missing piece that is crucial for Cyprus to be a major jurisdiction. “The fund operations and fund admin businesses are very technology-driven but need to improve. Cyprus is well known for its IT companies, but these do not focus on fund admin.

“Second, of course there is a problem of scale in Cyprus compared to larger domiciles such as Luxembourg, but I believe technology would be the key driver for some global depositary banks to establish a presence in Cyprus. This lack of global banks in Cyprus is a major obstacle for us as an asset manager.”

To tackle this issue, CySEC launched the Innovation Hub platform in 2018 to foster cooperation and share knowledge between fintech/regtech companies and the regulator.

Andria Koukounis, advocate and director for law at EY in Cyprus, says the regulator would receive knowledge from industry players and encourage them to deploy new technologies but at the same time remain compliant with regulations safeguarding transparency and investor protection.

“Cyprus is also taking further positive steps to foster technology and regulation by trying to adopt a regulatory technology to customer due diligence processes in the funds sector,” she adds. “CySEC recently issued a consultation paper proposing modernisation of the anti-money laundering (AML) regulatory framework to allow fund managers like the AIFMs that we have here today with us to give feedback on what they would see as more efficient or effective due diligence processes that would assist them in their operations.”

ESG is a big opportunity
Environmental, social and governance (ESG) factors also present a big opportunity for Cyprus’s funds sector to attract more business. Like the rest of the EU, Cyprus adopted the bloc’s Sustainable Finance Disclosure Regulation (SFDR) this year, and the focus on ESG, particularly the social aspect, has really ramped up in the post-Covid world.

Michalis Vasiliou, partner and head of asset services at KPMG in Cyprus, says the island has already embraced ESG but needs to consider how to tap into increased future demand. “The challenge here is how we increase the product offering and capitalise on the opportunities of ESG. What we need to be doing is attracting sustainable themed funds that will contribute to the further development and expansion of the product offering of the jurisdiction. That’s where we need to also invest in diversifying our offering.”

Tannousis at Bank of Cyprus points out that the long-term challenges will be around social responsibility and what we will leave for the next generations. “As a bank, it’s one of our core strategies in the future and it’s part of our core policies to dig down our strategies into these ESG factors in all respects.”

Many see ESG as a regulatory requirement that is a costly burden – but it should also be seen as an opportunity.

Christia Evagorou, director at PwC, says while there are increased costs from the regulatory requirements, there are lots of positive benefits from ESG. “In my mind, it is an indication of maturing industries and industries welcoming the more complex and current needs of their forward-looking investors. So, Cyprus embracing these initiatives as it has, and it will continue to do so, will be a brilliant token to showcase that we are in fact a mature industry, and one that we expect to place a lot of focus on ESG characteristics.”

There are many opportunities to be had by improving ESG product offerings. Panayiotou says GMM’s investors “are starting to ask for investments that are ESG-compliant” and that Cyprus’s industry needs to follow the global trend and expand its funds offering for investors.

Evagorou is also seeing more investor demand for ESG: “As a service provider, we have seen more and more of our investor clients looking into characteristics other than just the financial aspects of whether their investment is going to generate returns. These are global trends that we can see on a daily basis, and they pose a lot of opportunity for us to change and be current so that we are at the forefront of the industry.”