Cyprus: a financial hub for Europe and the Middle East

PWM Do you feel Cyprus is now firmly on the road to recovery and that economic growth compares favourably with other EU countries?

Natasa Pilides The crisis has yielded a lot of pain for the country, but a lot of gain has also come out of that, through the very determined process of reform, both governmental and banking, which has helped the island prove the resilience of its economy. We are one of the fastest growing economies within the EU and that has been happening for several quarters now. Last year, domestic GDP grew 2.8 per cent. We are seeing a lot of incoming investment in all sectors of the economy, which we are confident will continue in 2017 and in the years to come.

PWM Do you feel Brexit will be negative for Cyprus or do you think, like some other financial centres, there will be firms in London looking to move some of their business potentially to Cyprus, particularly on the financial services side?

Natasa Pilides Companies have interest in having subsidiaries or parts of their activities in Cyprus, not just because of Brexit but also because Cyprus is located between three continents. We do a lot of business with the Mena region, with countries like Israel and Egypt. Multi-national companies doing business in those areas often choose Cyprus as a location for their regional headquarters. But we would very much like to see more custodians, managers, and companies in the financial services sector moving parts of their activity to Cyprus.  

PWM When potential investors ask you about the prospects for the unification of the island with the Turkish occupied north and the Republic of Cyprus, what do you tell them? It has been close before, can it happen this time?

Natasa Pilides  We certainly hope so. We are very positive towards a settlement. It would open up great opportunities for us as Cypriot citizens, not just economically and from a financial perspective but in terms of unifying our island, which is the primary aim. In terms of the economy, it would involve the lifting of the embargo for shipping, which is one of the major economic benefits of a potential reunification. 

PWM When you look at the next wave of clients for Cyprus, for financial services in particular, the first wave from the Middle East, the second wave from Russia, where will that third wave come from?

Natasa Pilides I am hoping we will obtain investment from a variety of places. That is certainly the case in recent years. We have had a lot of investment from the US recently. We have had investment from South Africa, the UK and other European countries and of course also from the Mena region. We certainly have a lot to offer from a number of different perspectives and the requirements for physical presence and operation on the island are definitely opening up opportunities, because of the human talent and the availability of very highly qualified people here. 

PWM There are many countries jostling for position today all trying to attract citizenship by investment (CBI). Why is it such a hot topic?

Charles Savva These programmes, if structured properly, can be very effective tools for attracting foreign direct investment. Cyprus is definitely a success story, a case study that one could look at to see how a properly structured CBI programme can draw significant interest into a country, even during a very difficult time as we experienced in 2013.  

The Cyprus programme is currently the quickest route to European citizenship. In approximately six months from the date of application, a successful applicant can hold in their hand a Cypriot passport along with their entire family. The absence of a donation, making the Cyprus programme purely investment in nature, has also been quoted amongst its major strengths. 

The programme is also quite flexible in the investment options it offers. An applicant can invest in a range of investments, including Cyprus government bonds, corporate bonds, creation of a new business or acquisition of an existing Cyprus company. And of course, investment into real estate, which is among the more common investment options chosen by clients pursuing a citizenship application through this route.

PWM The Limassol and the Ayia Napa marina developments are proving very popular at the moment. Limassol was very difficult to sell a couple of years ago and now its value has increased quite dramatically. Can investment in those type of projects be wrapped up into the CBI schemes?

Charles Savva  Absolutely. We have seen big ticket investments and projects such as these do very well in terms of attracting CBI investment, not just the marina projects but some of the tower projects that are underway in Limassol and in all parts of Cyprus.

Russia, Ukraine, CIS (Commonwealth of Independent States), China and the Middle East are primarily the three jurisdictions from where  applicants are currently being sourced.

PWM Are you convinced that all applicants can be properly vetted to make sure their assets were not acquired in a questionable manner?

Charles Savva The programme introduces a very diligent and stringent vetting process. This is why there is approximately a six-month processing time frame, whereby the Ministry of Interior, in conjunction with the Ministry of Finance, undertakes a very careful review of the applicant themselves. 

The citizenship programme was introduced and amended in its current form very shortly after the banking crisis of March 2013. The programme has been a huge success, the biggest success story for a post crisis initiative for the island.

PWM Cyprus has pulled off quite an incredible economic turnaround. Do you feel the financial services sector will now have to re-orientate itself to more of a diversified economy, and the growth in future will come from areas such as shipping and natural gas, rather than banks just taking in deposits from a wealthy Russian clientele?

Harris Georgiades Yes, definitely. The financial services sector spearheaded the recovery of our economy, together with tourism. These have been the two key productive sectors, which pulled the economy out of the recession. The financial services sector has demonstrated resilience, and has great prospects but is also a sector which should continuously adapt to the global norms and the evolving needs of its international client base. 

The model of a very simple sector, which basically oversaw the holding of foreign deposits, was not beneficial to our economy and it belongs to the past. Now the emphasis has been placed on offering real services attracting economic substance, physical presence of corporates in Cyprus, making the best use of the broad spectrum of comparative advantages Cyprus and the financial services sector have to offer, primarily the world class expertise and the know-how which has been created over the years. Plus the very credible regulatory framework, the stable tax regime, the broad network of double tax treaties, which make Cyprus an attractive and competitive international business centre.

PWM How are you going to address the issue of the non-performing loans (NPLs), as some clients feel they were penalised during the bail-in, with banks taking their deposits and calling in the loans?

Harris Georgiades The banking sector has undergone a very deep transformation. It is much smaller in size but much healthier, based on much more solid foundations, with good capital advocacy and good solvency ratios. I believe it has fully regained the trust and confidence of its client base. Capital controls, which were inevitable at the height of the crisis, have long gone without any problems at all. 

There is a significant presence of new foreign investors, and new shareholders in banks, which is something we absolutely support. Through their presence, confidence is strengthened in the banking sector. Obviously supervision, oversight, and the regulator framework have all been enhanced. Problems of the past have been tackled. NPLs constitute a legacy problem. The fact that the economy is now registering a very strong recovery helps because the ability of households and corporates to service their loans is enhanced when the economy is performing strongly. 

So, I think all the pieces of the puzzle are now in place and steady progress is being made.

PWM Is the fact that so many lawyers and accountants have been educated in the UK of great benefit to the setting up of trust companies here?

Christos Michael The education of the people of Cyprus and the strong professional bodies, especially the accountancy and legal professions, have always played a very significant role in the development of this industry. If you go back 30 years, accountants and lawyers went to the Middle East and Russia to gain new business. They always knew they had the capacity and the expertise to service these clients when they came back to Cyprus. 

Our education system is quite strong. One of the competitive advantages of Cyprus is the highly skilled labour and the fact they can offer high quality services at a reasonable price. Mainly private clients might look for a high quality but lower cost service centre, in which they can structure their groups and manage their worth. 

But also because of its very robust financial and legal system, which is based on the UK common law, people will definitely feel comfortable transferring their business to Cyprus.

In terms of the legal framework, we do have the necessary provisions in our legislation to set up trusts. Our law is not significantly different from Jersey or the UK.  We also have fund legislation, which is aligned with the European directives. With Brexit, I believe Cyprus can become an alternative jurisdiction, where trust in funds, especially small private ones, can be set up. 

PWM The banking industry almost collapsed in 2013 during the Cyprus crisis. Do you think that is going to put off potential investors or do they know the island has recovered, that the banks have been recapitalised and foreign investors have entered the market?  

Christos Michael There was a period where there was probably no reliance and no faith at all in the banking system, but this has gradually improved. Nowadays we can see that our clients are still showing preference to Cypriot banks, which are completely recapitalised. They have been tested by the European Union very recently and there is therefore an independent view to support this. Cypriot banks also have the advantage to be closer to the international business we service through Cyprus and are able to take a more commercial approach. 

PWM Is the dream of Cyprus as a regional financial centre, as a hub for investment funds, which could then be distributed across the region through the Middle East, Eastern Europe, going south into Africa, still very much still alive?

Christos Michael I think that is not only a dream. It is becoming more and more a strategic objective of the country. Now is the time to go out and sell the jurisdiction in markets which are, first of all, closer to us. As a hub, I believe we can be the best option for Middle East people who are looking to invest into Europe. We also have the opportunity with our natural resources right now to create additional services, a lot more synergies and expand our position and offering as a jurisdiction, and as a hub in the Eastern Mediterranean Sea.