The FinTech Landscape in Cyprus and Regulatory Updates

The FinTech Landscape in Cyprus and Regulatory Updates

CX Financia’s Managing Director Xenia Neophytou had the honour to talk at the Cyprus Fintech Summit – Women’s Day Edition on the 8th of March. In our previous article, “The FinTech Sector and Innovative Research in Cyprus”, you can find the first part of the discussion. Below you can find the second part of what Xenia talked about at the summit.

What are FinTech Businesses?

Fintech encompasses the use of any technology, especially new, and emerging technologies, such as AI, machine learning, deep learning, blockchains and other distributed ledger technologies in the financial services broader industry.

The FinTech Landscape: FinTech companies operating in Cyprus

Regarding the Fintech landscape in Cyprus, the island is an internationally recognised financial center, with a sound banking sector and legal framework fully harmonised to EU laws and regulations, which has helped into a smooth transition to fintech.

Cyprus hosts a vibrant and fully comprehensive FX industry
One of the most prominent fintech-influenced markets is forex and, as widely known, Cyprus hosts a vibrant and fully comprehensive FX industry.
Other Companies in the field of fintech are electronic money and payment institutions, prime brokerages, major platform providers, liquidity management companies, regtech companies and reporting companies.

Cyprus: An emerging fund center in Europe
Cyprus is also a top emerging fund center in Europe, with visibility enhanced by being able to list Cyprus funds on international platforms such as Bloomberg, Clearstream, Morningstar and Refinitiv.

Other companies in the fintech landscape
Other thriving fintech companies include crypto-trading platforms and crypto-exchanges, which have accelerated their activity in Cyprus, including companies offering alternative payment solutions.

The Regulators in Cyprus for Financial Services

The spectrum of financial services in Cyprus is regulated through two Competent Authorities:
1. The Central Bank of Cyprus (CBC) is the regulatory authority for payment institutions, including commercial banks in Cyprus.
2. The Cyprus securities and exchange commission (CySEC) regulates investment services companies, funds, and fund management companies.

What is the Regulatory Framework in Cyprus for FinTech Businesses?

Regarding the current regulatory framework, it needs to be clarified that National Competent Authorities (NCAs) do not typically distinguish between FinTech and traditional business models in their authorisation and licensing activities. In other words, they authorise a financial product or activity and not the technology per se.

It is worth noting that fintech business models in Cyprus can be established, licensed, and operate under the existing EU regulatory framework, being the regulatory framework followed by Cyprus as a Member State.

Unfortunately, at the moment, Cyprus has yet to develop comprehensive fintech legislation. Rather Fintech activity is, at large, regulated by reference to existing financial services laws and regulations.

We are not suggesting, however, that Cyprus has fallen behind other members states. In fact, most of the member states are at the same level of development probably taking a safer approach and waiting for the EU to guide them further.

To this end, in addition to the existing body of legislation, we see specific rules been issued with the prime focus to address specific issues and innovative products and upgrade the regulative regime to adapt to new technologies and ensure investor protection and service quality.

Which are the Recent Developments in the Regulatory Framework?

CySEC issued the Crowdfunding Directive and further rules which are complementary provisions to MiFID IIs obligations and relate solely to investment-based crowdfunding.

Another step forward regarding regulation was the Circular C417 issued by CySEC which gives guidance on how Cyprus Investment Firms( CIFs) should calculate capital adequacy for cryptocurrency investment, and how to report it.

This addresses much-needed direction so that CIFs can invest in cryptocurrency and be assured of compliance but also the comfort that risks involving cryptocurrencies are managed properly.

Cyprus Implements the 5th AML Directive and the introduction of crypto-assets service providers

Another development is The EU 5th AML Directive, which has been transposed to national legislation and significantly expanded its range of application to fintech business.

Service providers of cryptoassets or custodian wallet providers and other financial services for cryptoassets fall within the AML regulation scope.

A gate is now opened for Service providers on cryptoassets, offering extended line of services such as financial services on cryptoassets, can now be regulated and get registered with CySEC but also be able to offer their services in an approved way.

Other Regulatory Regimes related to FinTech Businesses

Other Regulatory Regimes that do not specifically fall under Financial Regulation but are relevant for fintech businesses can include the Transparency Requirements Law, the processing of personal data, or (GDPR) regulation, cybersecurity and other regulations all of which may apply to fintech businesses.

Finally, Fintech is expected to further develop in Cyprus once the National Strategy for Distributed Ledger Technologies (DLT) (Blockchain) will be implemented.

To conclude, no successful fintech business can exist for long without an in-depth awareness of the prevalent regulatory framework.

If you are interested in reading more about what was discussed during the Cyprus Fintech Summit, check out our next article, “Cryptoassets: The Regulatory Approaches in Europe and Cyprus”.

How can CX Financia help you?

For us at CX Financia, our interest in fintech and blockchain technologies was a natural progression. It is something our clientele is interested in and we have managed to successfully merge technology with regulation, creating a complete offering to our customers. We are actively assisting our clients from startups to financial institutions harness their ideas implementations.

We have been advising investment professionals to obtain licenses for:

Contact our team of experts to support you, based on your unique needs.

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