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Cyprus takes first steps in grappling with Fintech

Cyprus has taken the first baby steps in preparing the ground for the introduction and promotion of game-changing Fintech and Regtech products which will revolutionise the way we do business.


With a need to regulate the new Fintech and Regtech companies, and the technology they are using, the Securities and Exchange Commission (CySEC) has established an Innovation Hub.

 

Cyprus is following the global trend of replacing traditional methods in the delivery of financial services with new technology and innovation that aims to provide faster and safer ways of completing financial transactions.

The technology is already being used in smartphone applications for mobile banking, investment services and of course the use and trade of cryptocurrencies.

A series of local startups and established companies are either promoting the use of Financial Technology (fintech) or trying to replace or enhance the usage of financial services providing companies with the use of technologies such as Distributed Ledger Technology (DLT) such as blockchain.

 

CySEC said it aims to build a “more effective relationship between entities operating in this area and the way they are regulated”.

 

“The Innovation Hub will be a place where both supervised and non-supervised entities in innovative or new industries will have ongoing access to CySEC to best understand and implement their regulatory requirements.” 

CySEC chair Demetra Kalogirou said the “establishment of the hub marks an important and exciting step for CySEC’s supervision of new and innovative fintech companies in Cyprus”.

“We aim to best protect investors by fully understanding the risks and benefits these new products bring,” she told the Financial Mirror.

 

Kalogirou said that there is a growing number of companies using ‘regulatory technology’ that was created to address regulatory challenges in financial services through innovative technology.

There is also demand from local and foreign start-up fintech companies, and older established companies active in the sector who are using these technologies more and more, from hedge funds to companies active in the banking sector.

“So, there is a need to better understand these technologies used, their advancements. That is where the Innovation Hub comes in,” said Kalogirou.

“It will act as a dialogue platform in which we will be able to understand the risks behind these technologies and to be able, further down the road, to regulate these companies and form a national strategy,” the head of CySEC added.

She referred to the need to regulate companies using regtech, such as those using the technology to apply anti-money-laundering policies complying with EU directives.

One of the leading companies providing regtech services is MAP Fintech which specialises in supporting companies with the necessary technology needed to comply with regulatory reporting obligations deriving from EU directives such as EMIR and MiFID II.

Demetris Taxitaris, the General Manager of MAP Fintech, told the Financial Mirror that while their services are helping the financial industry to adapt to the new environment created by global trends, CySEC’s move is more than necessary. 

“Our economy is integrated with the EU market, and we need to follow the European and global trends if we want to keep up with developments in financial services”.

He added that banking institutions are adopting more intelligent technologies such as blockchain in applications such as mobile payments and transactions between institutions. “This technology allows for faster and safer transactions without the need of an intermediary institution,” said Taxitaris.

 

He said that fintech and regtech are the future of the financial industry, giving as an example the Amazon store in New York which is fully automated.

“There are no cashiers in the store. You simply walk in, take what you want, and your purchases are electronically monitored and charged to your electronic wallet the moment you set foot out of the door,” said Taxitaris.

Blockchain

While these technologies are taking over the financial industry, other sectors can also to benefit from their application.

 

Dr George Theocharides, the chairman of the Board of Cyprus Blockchain Technologies, said he wants to promote cutting-edge research in the field of blockchain and distributed applications, as well as organise transfer of knowledge sessions.

Theocharides, who is also heading the MSc programme in Financial Services at the Cyprus International Institute of Management, said that blockchain technologies can be used in electronic governance, essentially removing any form of red tape between governmental departments and citizens.

 

“Blockchain is essentially a decentralised ledger which allows information to be transmitted from one party to another in a safer way because information cannot be deleted or manipulated.”

He added that this technology allows faster transactions which are less costly for the participants on either end.

 

Theocharides said cryptocurrencies are gaining ground and have a place in the future of exchange transactions.

He said the field of cryptocurrencies is essentially in its early stages but developing into an alternative way of exchange.

 

“At the moment, however, these currencies are very volatile and cannot be used as a means of exchange at present.”

However, there are many fintech startups that are using cryptocurrencies to raise capital. They issue an Initial Currency Offering (ICO) in the form of tokens, which can be exchanged either for the company’s equity or services provided.

 

Countries like Malta and Switzerland have laid down the legal framework in order to attract these kinds of companies.

Theocharides argued that Cyprus too should follow in their footsteps and create the necessary regulatory framework to facilitate such companies.

 

He would like to see the state’s involvement, in cooperation with the private sector and the regulatory authorities, to create an ecosystem which will promote and finance startups in the fintech industry, as in Israel.

Cryptocurrencies attracting students

 

The cryptocurrency industry seems to be attracting an ever-growing number of students embarking on their postgraduate journey. Antonis Polemitis, CEO of the University of Nicosia that runs a Digital Currency programme, said the course which started in 2014 has attracted hundreds of students.

UNic has also been running a free online three-month programme called “Massively Open Online Course”, which is an introduction to cryptocurrencies, with 30,000 students from around the globe attending.

 

The university’s MSc course employs 35 academic and administration staff for digital currencies.

“Our course has one of the highest employment ratios for graduates. The vast majority of our students have moved on to work in the financial industry, in banking institutions, with many setting up their own companies and hedge funds which are active in the cryptocurrency market”.

 

Deniz Omer, a graduate of UNic’s Digital Currencies course, has ventured into the world of cryptocurrencies setting up a hedge fund and a fintech company with the help of colleagues active in the sector.

Cryptodyssey Capital, Omer’s hedge fund invests in cryptocurrency protocols and has brought in a return of 6000% for 2017. ICO Due Diligence, the fintech company set up by Omer offers information on ICO projects around the world.

 

Deniz said: “The magic behind this technology is that you do not have to be an accredited investor to invest in cryptocurrencies. You do, however, need some knowledge, and that is where the masters came in handy”.

He also referred to obstacles they are facing in Cyprus, saying that they cannot open a bank account in their company’s name as the banks are wary of any investment vehicle dealing with cryptocurrencies.

Source: http://www.financialmirror.com/news-details.php?nid=35702

 

Oliver Smith

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