Should Cyprus FX brokers ride the funds wave? Here is the inside view

“Funds are something worth looking into for brokers, who have advanced technology and strong liquidity provider relationships. However, in our opinion asset management should be run fully separately from regular business of the broker, possibly by a different entity” says FXOpen’s Natalia Zakharova

Last week, FinanceFeeds demonstrated that there are now 238 undertakings for collective investment under Cysec – that’s more than there are FX brokers in Cyprus. At the end of the second quarter of 2020, the funds’ assets approached €8 billion which is an increase of about 200% compared to 2016.

Cyprus has long been a destination for retail FX brokerages from across the globe wishing to establish offices in a territory that offers very easy company establishment and off the shelf regulation via a series of specialist law and corporate consultancy firms dedicated to facilitating the start up of FX brokerages with turnkey solutions that provide full operational components and CySec regulation under Europe’s ESMA supervision, an experienced pool of multi lingual sales and marketing personnel who reside in Cyprus and are very knowledgeable with regard to all aspects of retail FX and well connected within the industry, access to off the shelf platforms and low entry barriers.

Given that the electronic trading and FX industry is vital to the government of Cyprus as it is one of the island’s most revenue generating industries, far disproportionate to any other region of the world, it is not surprising that there are over 160 FX brokerages on the island.

It is with perhaps some surprise, in that case, that the funds business outstrips the FX industry in Cyprus, therefore if investment funds are so developed and populous in Cyprus, a move toward asset management and hedge funds would be a natural progression for Cyprus based FX brokers.

We spoke today to Natalia Zakharova, Business Development Manager at FXOpen, a global company with regulated offices in various jurisdictions including Cyprus.

Ms Zakharova explained to FinanceFeeds “As the brokers who have CYSEC licenses are already familiar with Cyprus legislation, they would be more interested to run an asset management fund. Moreover, running a hedge fund is on the intersection of liquidity provision and technology, so very close to a regular fx broker activities.”

“So it is definitely something worth looking into for brokers, who have advanced technology and strong liquidity provider relationships. However, in our opinion asset management should be run fully separately from regular business of the broker, possibly by a different entity” concluded Ms Zakharova.

A yardstick for the potential to be measured by was evident in subjects discussed last week at a major event organised by Invest Cyprus and the Cyprus Investment Funds Association (CIFA), in which a large number of delegates gathered with most of them coming from abroad. Specifically, there were more than 500 delegates, of which about 400 were executives in investment funds, related service providers and supervisory authorities from abroad.

This year’s conference focused on the “Next Chapter” of the investment funds sector and addressed key issues such as the supervisory landscape, the asset allocation models of investment funds globally, asset management, sustainable and ethical investments and the role of technology.

Besides Finance Minister Constantinos Petrides and the Chairwoman of the Cyprus Securities and Exchange Commission Demetra Kalogerou, eminent individuals from the Investment Funds sector, both from Cyprus and abroad, participated in the conference.

Indicatively, Tanguy van de Werve, Director-General of the EFAMA, Vassiliki Lazarakou, Chair of the Hellenic Capital Market Commission, Bryan Stirewalt CEO at Dubai Financial Services Authority (DFSA), Rachel Turner, Global Head of Custody Commercial Product Management at BNY Mellon, Sally Wong, CEO of the Hong Kong Investment Funds Association, Lital Dagan, CEO of the Israel Hedge Funds Association, Eric Pinon, Chairman of the French Asset Management Association, David Zahn, Portfolio Manager and Head of European Fixed Income at Franklin Templeton, Daniel Farchy, Senior Investment Officer of the European Investment Bank, Danilo McGarry, Head of Automation at Alter Domus, Erik Rotander, Head of ETF and Index Sales Strategy EMEA at Bloomberg LP and many others expressed their opinions.

At the same time, the conference revealed some very positive news for the investment funds sector and the Cypriot economy at large.

John Sergides, CEO at MUFG Investor Services, disclosed from the podium that the international banking giant is about to expand its operations in Cyprus, as it considers the country to be an ideal destination for investment fund services, due to its geographical location and the quality of services that it can offer. The Mitsubishi UFG Group is a multidimensional group and its banking arm is one of the five largest banking organisations worldwide.

The Group proceeded in 2019 with the acquisition of the Cypriot fintech company Point Nine, through its subsidiary Mitsubishi UFJ Trust and Banking Corporation.

The fact that interest for registering investment funds in Cyprus remains strong even during these unprecedented times was confirmed by the Chairwoman of the Cyprus Securities and Exchange Commission Demetra Kalogerou.

During her intervention in the conference, she reported that a considerable number of business entities have applied for the relevant license. There were 238 undertakings for collective investment under the supervision of the CySec Committee at the end of the second quarter of 2020, whose assets are approaching €8 billion. An increase of about 200% compared to 2016.

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