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

In just a few years, the island has rapidly grown as a centre of excellence for the fund and asset management industry, according to a Funds Europe roundtable in association with the Cyprus Investment Funds Association

Cyprus is one of the top emerging investment fund centres in Europe and has developed into a credible domicile for investment funds and asset management companies that wish to achieve pan-European reach.

In April, the European Funds and Asset Management Association (Efama) noted that Cyprus has consolidated its position as an international hub for investment funds and that the island’s growth rate in the past few years has far outstripped that of its European counterparts.

It is fast evolving into a cross-border hub for investment funds, with 47% of net assets in Cyprus held by these funds at the end of 2020, according to Efama. Considering that only Europe’s more established domiciles – Ireland (92%), Luxembourg (76%) and Malta (76%) – concentrate higher percentages, it is a remarkable achievement for a country that only started its cross-border effort in 2013/14.

Remarkable growth The country’s economy has shown its resilience over the years and has continued to boost competitiveness and attract foreign investments through structural reforms and targeted incentives, according to Andreas Yiasemides, president of the Cyprus Investment Funds Association (CIFA).

He explains: “The investment fund sector is one of the most dynamic and fastest-growing sectors in the Cyprus economy. Even during the unprecedented Covid-19 pandemic, Cyprus has been rapidly growing as a centre of excellence for the international fund and asset management industry. The numbers demonstrate the remarkable and significant growth of the Cyprus funds industry over the past years.”

According to the latest statistics released by the Cyprus Securities and Exchange Commission, by the end of the first half of 2021, total assets under management (AuM) in Cyprus reached €10.7 billion. This constitutes a remarkable increase from 2016, whereby AuM was close to €3 billion, and a modest improvement of 9% from the first quarter of 2021.

The next step is to continue developing the international funds industry to meet CIFA’s target of €25 billion AuM in five years’ time. Yiasemides points out that it is crucial to have all the right ingredients in place, including an attractive tax regime, international custodians, depositaries, fund managers and fund administrators in Cyprus to support further growth of the industry.

Upgrading regulation One of the challenges revolves around upgrading the country’s legal and regulatory framework pertaining to the funds sector to stay competitive and keep up with new developments. Cyprus is doing just that, and CIFA is at the forefront of legislative proposals aiming for the introduction of new legislation and the upgrading of existing rules.

Currently, two legislative proposals have been put forward. The first relates to the introduction of the legislation on limited liability partnerships, which would enable alternative investment funds to be set up as limited liability partnerships and would further enhance the overall legal framework of the country.

The second relates to the introduction of fund administration law, aiming towards supervising and regulating the fund administration profession, which, as Yiasemides states, is “the missing piece of the legislative puzzle”. While fund administrators in Cyprus have been regulated for years under the Administrative Service Providers Law 2012, CIFA and the wider industry have been lobbying for a bespoke regime to regulate the operations of fund administrators.

“Bringing fund administration services under bespoke regulation is a vital milestone because it will provide additional protection and security to fund managers and investors so they can trust Cyprus as a reputable EU fund jurisdiction,” says Yiasemides.

Following a consultation paper on the draft bill over the summer, CIFA expects that the final version of the bill will appropriately regulate the fund administration profession while at the same time take into consideration current market practice.

Maria Panayiotou, managing director of GMM Fund Management, believes it will generate more growth in the domicile. “The new fund administration bill will give us the chance to attract more international fund administrators and expand this industry by attracting international groups and companies to Cyprus,” she says.

“It will help existing fund administrators provide more international services, and as a result have a beneficial impact on the whole industry.”

Emilios Tannousis, manager of wealth management at Bank of Cyprus, believes it will build on the island’s already robust ecosystem. “Although we have a very good fund admin industry and a lot of participants are doing a very good job, we need to connect our existing infrastructure under the auspices of our regulators, so that we can further enhance and be up-to-date with any updates on legislation or trends,” he says.

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