From humble origins to FX powerhouse: A good look from within at why Cyprus is the mainstay of all things FX – Op Ed
Just a few years ago, Cyprus was regarded by many as a small island in the Eastern Mediterranean region which was famous for offshore bank accounts and European tourism. Favorable tax conditions and membership of the European Union led to Cyprus being a very interesting jurisdiction for investors from Britain, Russia and Eastern Europe to […]
Just a few years ago, Cyprus was regarded by many as a small island in the Eastern Mediterranean region which was famous for offshore bank accounts and European tourism.
Favorable tax conditions and membership of the European Union led to Cyprus being a very interesting jurisdiction for investors from Britain, Russia and Eastern Europe to establish head offices whilst conducting their business in their countries of origin….
And then came CySec in 1988 and issued the very first FX brokerage license to Windsor Brokers, headed by Johnny Abuaitah.
Mr. Abuaitah still presides over the company to this day and is very well connected with Cyprus government officials including President Nicos Anastasiades who attended the company’s 25th anniversary event and gave a keynote address.
It was not until several years later that retail electronic FX brokerages which had embraced the at the time new and all-encompassing MetaTrader 4 platform, itself developed by Russian-owned MetaQuotes Software, which now has its operations based in – yes you have guessed it – Cyprus.
As the first decade of this Millenium drew to a close, MetaTrader 4 brokerages serving retail clients via a dealing desk, using MetaTrader’s server and back office systems with no connection to the live market were beginning to become commonplace and often had unregulated operations located in places such as Israel, the Middle East, Britain, Australia and New Zealand but with their corporate registration in the British Virgin Islands or St Vincent and the Grenadines, and whilst these Carribean islands may evoke images of exotic high standards, the brokerages associated with them could not have represented a greater contrast.
The natural progression from this was to take the same, closed-system MetaTrader 4 model to Cyprus, where a very inexpensive regulatory framework existed, with CySec welcoming as many small, often start-up retail FX firms, as well as white labels of unregulated companies which could apply for a CySec license, offering what was seen at the time as a pseudo-European regulatory structure which allowed companies to approach clients in all European countries completely legally under the MiFID II passporting rulings which provide CySec regulated firms with a registration number from Britain’s FCA.
This, plus the attraction of a 10% corporation tax and very low office rent attracted so many firms that CySec’s interest was to keep the brokers on the island and continue to provide a very easy method of establishment and regulatory censuring should something go awry which was a fraction of the gravity of similar measures taken by regulators in the UK, and Australia, let alone in North America.
Those days are long gone… however this is a good thing
Nowadays things are somewhat different.
No longer is Cyprus regarded as home to small brokers that play second fiddle to the large retail sector in London.
Indeed, quite the contrary. A number of brokers that have their origins in Cyprus have become so large that they are now also prominent in London, as exemplified by FxPro which branched into the institutional sector with FxPro Prime, an FCA regulated prime brokerage in London.
In 2014, just one year after the collapse of two major Cypriot banks, Laiki Bank (Cyprus Popular Bank) and Bank of Cyprus, many Cyprus FX firms began to apply for FCA licenses creating industry speculation that they had outgrown the limitations of the island, and were heading to London. This was not the case at all, indeed quite the opposite insofar as Cyprus brokers which had experienced a degree of success were growing their businesses and creating economies of scale with their main operations well and truly rooted in Limassol.
I am a regular visitor to Cyprus, and can most certainly concur that the entire FX industry ecosystem in 2016 could not be further removed from its origins just a few years ago.
Gone are the days of white label partners with CySec licenses operating sales floors, and most certainly here are the days of a fully comprehensive, self-sustaining ecosystem.
Retail brokerages from across the globe, with large, respected names are now prevalent in Limassol, as are MetaQuotes, Spotware Systems whose cTrader platform is gaining ground with its lack of requirement for a liquidity bridge, and algorithmic capabilities.
Lawyers whose business is purely the establishment and maintenance of FX industry companies exist in numbers, prime brokerage companies which provide liquidity solutions to retail FX firms are no longer exclusive to London and Boston, as Cyprus now hosts such companies.
Broker solutions providers such as Leverate now have offices in Cyprus. Digital marketing and automated retention firms from Britain, Israel and Russia have offices in Cyprus, providing a dedicated service to FX brokerages, and there is such a skilled base of human capital that FX industry specific HR and executive search companies are abound across Limassol.
Digital marketing company ConversionPros hosts the annual iFXEXPO event in Limassol, which attracts over 1,000 industry professionals from across the globe in all sectors of the business and is widely recognized as the largest business to business FX event in the world, attracting such names as FXCM CEO Drew Niv, and GAIN Capital’s Glenn Stevens, as well as providing keynote speeches from Google, whilst all of the institutional vendors display their products to a worldwide audience.
Quality is up – so is competition
For those who regarded Cyprus as a second-rate jurisdiction just a few years ago, the establishment of such a comprehensive industry with every sector being present means that Cyprus can now provide every aspect of the entire FX infrastructure without any participant needing to seek business outside the island. Indeed, Cypriot brokers can take liquidity, technology, platforms, digital marketing, recruitment of their staff, legal services, automation of retention, training and education services all from firms within Cyprus.
This has to be viewed as a success and the quality of the services provided by retail firms in Cyprus has improved dramatically as the entire industry took its place on the island.
With the quality improvement has come competition – there are more than 180 retail brokerages in Cyprus, however that level of competition drives the quality and quest for value propositions up further.
Regulation has become somewhat more strict too. Back in 2013, a panel of specialist lawyers gathered and explained to a series of industry executives from overseas that CySec’s regulatory structure was ‘flexible’ which amounted to some degree of scorn and sarcasm, however that is absolutely not the case these days.
CySec has made a very clever move by assisting the industry to grow in Cyprus, and now that it is fully established and absolutely not going anywhere, the regulator has begun to show its mettle and monitor the activities of the companies that it oversees firmly – this year IronFX was fined 335,000 Euros for administrative breaches – a transgression which three years ago would have amounted to a penalty of approximately 5,000 Euros.
The removal of CySec CIF (Cyprus Investment Firm) licenses for breaches of compliance has also begun to occur, as CommexFX lost its license in 2015, as did that of Middle-East focused Falcon Brokers.
This month, Pegase Capital, which owns Interactive Option, had its license suspended, following a 300,000 Euro fine last year, and just before UTrade CEO Aviv Talmor was arrested in Israel last month, SkyFX, the Cyprus entity owned by him which was established by Trademarker, an entity that previously belonged to 4XP and Dealserv, two entities with common ownership that are now defunct, had its license suspended by CySec.
This was unheard of just as short a time as one year ago, when the occasional 5,000 Euro fine was handed down, much to the amusement of industry counterparts in other regions with large FX industry concentration.
Nowadays, corporation tax has increased to 12%, but that is still very reasonable compared to Australia, Britain, Israel, New Zealand or Canada which are countries that have large FX industry sectors.
FinanceFeeds spoke to several industry participants in Cyprus today in order to take a look at how things have changed from their perspective.
James Glyde, Business Development Manager at Spotware Systems explained to FinanceFeeds
“It’s quite interesting that nearly everyone I speak to for the first time has this concept that all Cyprus boasts in terms of categories within the financial services sector is retail brokerages, while the introduction to this article suggests otherwise, the fact is Cyprus is home to far more.”
“Many of the technology providers in the industry have a strong presence on the Island, and by strong presence I don’t just mean a sales rep, I mean a full blown customer support team, or are in fact head quartered in Cyprus” continued Mr. Glyde.
“Spotware Systems is also headquartered in Limassol, where I am based along with our entire team of over 90 developers and engineers. It always comes as a surprise that I am not located in London, based on the assumption that a successful technology provider must be there in almighty London. Cyprus truly is the epicenter of retail investment services. In a single day with a not so bad taxi driver you could close a deal on a trading platform, aggregator, couple of liquidity providers, a CRM provider, web designer and get started on your incorporation and application for CySec regulation with a lawyer” concluded Mr. Glyde.
The legal framework is equally vital, and last year, MAP S Platis, a legal and consultancy firm in Cyprus which hired Demetris Taxitaris from the ESMA advisory board founded its own EMIR reporting system under the name of MAP-ERS. The company has expanded into an over-arching comprehensive consultancy for the FX industry. Dr Stelios Platis, Founder of MAP S Platis today spoke to FinanceFeeds about the upward direction of the industry in Cyprus.
In addition to having founded MAP S.Platis, Dr. Platis is also Chairman today of the sector’s Association of Cyprus International Investment Firms (ACIIF). He explained to me how it came to be: “Back in 2007, CySEC was outright negative about allowing Retail FX to come under their regulatory oversight, in line with many other EU Regulators back then”.
However, Dr. Platis and his team at MAP S.Platis have managed to “not only convince the then CySEC Chairman Mr. Charalambous to allow the few FX firms who operated by exception to continue operating under MiFID, but also to grant new FX MiFID licenses making Cyprus the only EU member State, except the UK to have done so. Following this, we have undertaken to train CySEC on how the Sector works and how Retail FX Brokerages operate and could be regulated. And this is why CySEC and Cyprus have become the hub that it is now”.
As regards the future, Dr. Platis explained
“Cyprus has come under the spotlight of ESMA, due to the actions of a small number of Cypriot FX Brokerages that made the headlines, where CySEC unfortunately was not able to handle the whole thing effectively thus far. Hence the stepping up of regulatory actions. However, I am confident that the Sector, which today amounts to more than 3% of the economy’s GDP will not only survive, but also grow out of this more mature and stronger – Cyprus cannot do without it” – Dr Stelios Platis.
Yael Warman, Content Manager at Leverate explained ““We’ve seen a drastic shift in Cyprus’ investment regime in the last few years.”
“Although the once-considered tax haven still offers the lowest tax rate of the European Union and a general government policy of non-intervention in business operations, it no longer carries the reputation of “gray-area”. Cyprus today offers a lot more than tax advantages. The island offers a wide range of benefits, such as a strong and stable economy and an excellent infrastructure for businesses in the financial sector, including access to quality accounting firms, legal practices, banking services and a highly qualified, multilingual workforce. We see all these changes as very positive ones for serious brokerages looking to establish themselves as reputable companies” – Yael Warman, Leverate.
A few years ago, I was asked by a lawyer in America at the time during which many firms were exiting the US and looking overseas if Cyprus was here to stay as a jurisdiction for retail FX. If I was asked today, the answer would be a resounding yes.