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BY SHAVASB BOHDJALIAN
I cannot understand why everybody keeps referring to Cyprus as a “financial centre” whereas in reality Cyprus is simply a “booking centre” offering a good service, which in some areas has remained the same and this is where all efforts should be concentrated to improve and excel.
Wikipedia describes a financial centre as “a place that is home to a large number of internationally significant banks, businesses and stock exchanges. An international financial centre is a non-specific term usually used to describe an important participant in international financial market trading. An international financial centre (sometimes abbreviated to IFC) will usually have at least one major stock market.
Now let’s analyze our strengths and weaknesses. Cyprus has 5 local banks and up to 30 foreign owned banks, most of which came to Cyprus before EU membership to take advantage of the 4.25% offshore tax rate, which since EU membership was raised to 10%. The majority of the offshore banks act as a booking centre for their mother banks, with only a couple involved in lending or investment banking services. As for the local banks, only 3 are very active and rely heavily on ex-CIS money parked in Cyprus. None of the major banks is involved in sophisticated international financing deals or services, or capital markets related transactions.
Cyprus also boasts hundreds of lawfirms and audit/accountancy firms, 90% of whom deal with simple registration of companies and acting as nominee shareholder/director. Only about 10-15 lawfirms and 5-6 audit/accountancy firms offer the full range of financial services, which among others includes setting up investment firms, private funds, trusts as well as offering sophisticated tax structures and shipping related services. Very few of the 200.000 or so offshore companies are actually based in Cyprus with a good possibility that the majority will become dormant as the owners discover much cheaper and less bureaucratic jurisdictions both inside and outside of the EU.
The Cyprus Stock Exchange, the institution which should be at the centre of our efforts to act as a “financial centre” is neglected by almost everybody and though there are 100 or so listed companies, the trading activity is concentrated in only two-and-a-half banking titles, with more than half of the actual trading routed via Greece. Efforts to setup mutual funds and attract international funds have been unsuccessful either because local legislation has not kept up pace with international developments or because Cyprus simply does not offer the sophisticated administrative and support services demanded by such clients.
In recent years there has been a satisfactory increase in the number of regulated private funds, known as International Collective Investment Schemes (ICIS), which currently number 70, but even here, Cyprus is mostly used as a booking centre for investments that are happening elsewhere. With most of the ICIS managed by investment advisors based outside, yet again, Cyprus based fund managers do not have the opportunity to acquire managerial experience.
Cyprus also has 100 and more regulated investment firms (CIFs), offering a mix of traditional stock brokerage, fund management and forex/CFD leveraged trading. The establishment of foreign owned CIFs is probably the only recent success story of Cyprus, with all of the credit due to the Cyprus Securities and Exchange Commission (CySEC), which is the only EU capital markets authority to regulate the operation of forex firms. The regulatory aspect and not the tax advantage of Cyprus is the reason why more than 80 foreign owned CIFs have based their operations in Cyprus with the majority having their management control in Cyprus, in sharp contrast to the foreign owned banks, whose effective management is based in other countries with the exception of one bank.
I believe Cyprus should ditch all attempt to sell itself as a financial centre and instead concentrate on portraying itself as a “booking centre” offering practical solutions to solving difficult issues.
The first thing that needs to be done is once and for all put the office of the Registrar of Companies in order. Get everything electronic, online and computerized. This should have been done a decade ago, but we are still talking about it. For example, while in the UK you can register a company in 2 hours and amend documents at will, in Cyprus the process still takes days/weeks.
The other practical step to take is establish a regulatory triangle made up of the Central Bank of Cyprus, CySEC and the CSE to speed up establishment and operation of banks, CIFs, UCITS IV and private funds (ICIS) and provide listing solutions under auspices of the CSE.
Under this regulatory triangle, a “house of experts” should be set up, made up of the top law, audit/accountancy, banks, CIFs and consultancy firms who will be able to identify the latest trends in international markets and come up with practical steps on how quickly and easily these can be incorporated into local law and implemented.
Hopefully the “house of experts” will not think for their pocket, but for once will come up with practical steps in a transparent way to serve the country as a whole taking into consideration the available resources, support services and ability to service particular industries.
Perhaps then, when the government and parliament are convinced that the recommendations are made for the benefit of the country in general, they will move to implement them unlike the current situation, whereby most of the recommendations are ignored and put in a drawer to collect dust.
Hopefully, the first act by such a “house of experts” will be to recommend to the government to stop wasting time and money on inefficient organizations like the Cyprus Investment Promotion Agency (CIPA) and come up with a new promotional strategy. After all, Cyprus achieved great results in attracting offshore company and shipping registrations and gaining an edge to attract CIFs and ICIS to name a few of our successes not because of governmental promotional efforts, but because the products on offer were good and were easy to sell by the private sector.
Cyprus is a dynamic place with highly educated people who can come up with practical solutions to solving different issues. All that is required is for the private sector to be able to communicate to the government/legislature to give it the wings to allow this country to fly again.
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(Shavasb Bohdjalian is an approved Investment Advisor and CEO of Eurivex Ltd., a Cyprus Investment Firm, authorized and regulated by CySEC, license #114/10 and approved by the Cyprus Stock Exchange to act as Nominated Advisor for listings on the Emerging Market. The views expressed above are personal and do not bind the company and are subject to change without notice)
