Investor Services and Regulation. Challenges of the Buy-Side April 2018, Limassol Cyprus

Transcription

1 Investor Services and Regulation Challenges of the Buy-Side April 2018, Limassol Cyprus

2 Contents I. INTRODUCTORY REMARKS II. III. IV. ECONOMY AS FACILITATOR FINANCIAL SERVICES - A VITAL SOURCE FOR GROWTH STRATEGY TO ENHANCE QUALITY V. TRENDS IN REGULATION AND SUPERVISION VI. REGULATION & SUPERVISION IN CYPRUS VII. SUPPORTIVE POLICY FRAMEWORK VIII. CONCLUDING REMARKS 2

3 Introductory Remarks Following the world financial crisis events in 2008 we have observed the introduction of a plethora of regulations for the financial services industry, including in the EU, geared towards addressing systemic risks and protecting investors / consumers and taxpayers. For funds management companies and investment firms, this has led to substantial adaptation requirements in terms of management, organization, processes, reporting obligations resulting in additional burden in an increasingly competitive and technology driven environment. This development gave rise to new business opportunities driven among other by standardisation of products and practices and the added investor protection measures. Cyprus is well placed to serve the adaptation of the financial services industry in this new operating environment with its high-quality workforce, harmonized legal framework The Government is committed to support the adaptation process 3

4 Economy as Facilitator The investment fund industry operates in a supportive environment The Cyprus economy has exhibited accelerated growth at an annual GDP rate of closed to 4%. Strong growth was accompanied by employment creation with the unemployment falling below 10%. Competitiveness has improved as reflected in the containment of the relative unit labour cost The budgetary position is in surplus, close to 2% of the GDP, reflecting a strong commitment for prudent financial management, an essential prerequisite for sustainable development of the economy as well as the financial services sector. Public debt was placed on a downward trend thus allowing flexibility to the Government when dealing with the NPL challenge We do acknowledge that the NPL remains a huge challenge for the economy. We are currently pursuing a comprehensive strategy which includes (i) a carving out of NPLs in the CCB, following the intended sale of the bank to a strategic investor (ii) an incentive scheme to support the resolution of NPLs having the primary residence as a collateral (iii) a reform of the legal framework We estimate that as a result of the above actions, NPLs in the banking sector can be substantially reduced. 4

5 Financial Services a Vital Source for Growth Business services and financial services, are vital sectors for the economy - we view them as important drivers for growth, employment and investment. At the same time financial service growth provides a much needed source for the diversification of the economy, thus making it more resilient to external and internal shocks. The enhanced regulation in the investor services, including for example the Directive on the Alternative Investment Fund Managers, certainly creates additional adjustment costs for fund managers, but at the same time creates business opportunities. The standardisation of the legal provisions across Europe, gives confidence to investors, leads to standardisation of practices and in many cases products and enables companies to market their services all of the European Union through the so called passporting regime. As such, it creates the opportunity for Cyprus based firms and funds, to develop with Cyprus as a base for their operations. Financial services development could also potentially drive growth, through offering alternative financing solutions for innovative businesses, that currently have to almost exclusively rely on lending 5

6 Strategy on Enhancing Quality We believe that the more demanding regulatory requirements for investment services must be seen as a given feature of the operation environment of the industry - adaptation through specialization and upgrading quality is an one way road. The Ministry of Finance, in collaboration with CySEC, and the industry, have worked for the strengthening of the legal and regulatory framework for the investment services. MiFID II provisions have been transposed to national law in July Legislation for the enhancement of the Funds Law, which will be introducing amongst other registered AIFs has been prepared and is currently being discussed before the Parliament. Additional specialisation for the sector will be promoted with the introduction of legislation for smaller fund managers (now at the legal vetting stage) as well as legislation for fund administrators. These measures we believe, will add quality and specialisation to the industry and will add value to the services offered. We also believe that technology and specialised IT solutions, are an important way forward for the industry to tackle its regulatory obligations and minimising its costs. An example that comes to mind is the EMIR Regulation, where various IT solution have been developed and offered to market participants to satisfy their reporting obligations. 6

7 Trends in Regulations and Supervision Since the financial crisis, over 40 pieces of EU legislation have been adopted with the intention of strengthening financial supervision, introducing new tools for bank recovery and resolution, and providing more effective deposit protection and an improved regulatory framework for banks, insurance and securities markets. Though currently, these changes are being reviewed at EU level through a specific review by the Commission, with some measures already been taken to alleviate the regulatory burden (eg EMIR REFIT, Solvency II regarding infrastructure assets, proposal for a more proportionate regime for smaller investment firms) by and large, the regulatory framework will remain demanding for the industry. For the subject matter of this conference, some of the most relevant regulatory aspects of the buy side of investor services we believe are the AIFMD, MiFID II and GDPR (General Data Protection Regulation) which have to be implemented. One aspect of supervision that we see currently as gaining emphasis in the EU but also in Cyprus is the product appropriateness and level of protection to investors depending on their profile and expertise. 7

8 Regulation and Supervision in Cyprus The Government, the Parliament and the industry place a significant role to supervision and CySEC has been fostered considerably in the last few years, with personnel and means with the support of the aforementioned but most importantly with the support of the Board of CySEC and the efforts of its personnel. The Chairwoman of the CySEC s Board is more qualified to talk about CySEC s vision and policies, but we can say that through an excellent collaboration with the Ministry of Finance and the believe with market participants as well, CySEC and the Ministry strive to put forward regulation and policies that protect the interests of investors and the industry with as little administrative burden as possible. This is an on-going process that involves not only the legislative part, but also CySEC s processes in all aspects of its work be it licensing, continuous obligations of obliged entities or supervision. Good regulation and supervision is a primary goal. Sustainable development and customers are drawn to jurisdictions where supervision is fair, effective and swift. 8

9 Supportive Policy Framework Regarding the policy framework towards financial and investor services, the Government is providing support through various initiatives. CySEC s capacity has been considerably fostered Modern legislative framework has been put in place based EU law as well as on best practice. This is an ongoing process and we will remain ready to adopt any new advancements and best practice of the industry. Tax incentives are also being promoted targeting the fund managers of AIFs and AIFs. These involve the introduction of special tax rate for senior managers of AIFMs or of Funds. Additionally tax policies involve the separation of tax treatment for each sub-fund. 9