After rigorous budget discipline the Cypriot government has delivered a very solid performance according to a joint announcement issued by the “troika” – the European Commission, the European Central Bank and the International Monetary Fund. According to the review the rescue program of the Cypriot financial system remains on track with the biggest risks surrounding further implementation of budget discipline.
The review has been conducted between July 14th and 25th, stating that “authorities have continued to meet the fiscal targets with significant margin in the first half of the year, as a result of prudent budget execution.”
More than a year after the Cyprus crisis imploded, banking institutions in the financial sector are continuing with their restructuring plans, while being closely monitored. At the same time, while the existing FX industry has remained largely intact, there are several reasons to believe that there would have been even more forex companies choosing the island for a base of operations.
Regulatory Credibility Damage
During the past year, most big companies which have been registered in Cyprus have obtained FCA regulation with FxPro and IronFX amongst the first to react. the reputation of the island as a safe heaven only because it is a part of the European Union has been tarnished. That said existing business is still widely present with the applications for Cyprus Investment Firms (CIFs) certification for employees on the island exceeding 1200 this year according to Forex Magnates research.
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According to the “troika” announcement, “ongoing efforts by banks to proactively raise capital in the private markets are welcome. Such efforts will also be conducive to a smooth transition to the Single Supervisory Mechanism (SSM) following the completion of the pan-European comprehensive assessment and should therefore help to strengthen the banks’ resilience to shocks and ability to revive lending.”
Prospects Going Forward
If the Cypriot government continues with its effort on track to over-achieve its fiscal targets set by the “troika”, there is a consensus expectation that the medium-term primary fiscal surplus target of 4 percent of GDP will be achieved in 2018 which would result in the country’s public debt being put on a sustainable downward trajectory. The disbursement of the next tranche of €350 million by the European Stability Mechanism (ESM), and about €86 million by the IMF is likely to be a formality which will be discussed by the relevant authorities in September.
At the same time, its purely up to CySEC to establish strong credibility as a regulator. While the licensing costs remain cheap, it is also crucial for any company choosing its jurisdiction that the authority will be viewed positively by the brokerage’s customer base. That could only be helped by the ongoing budgetary discipline effort. As the latest edition of the iFX Expo in May this year has demonstrated, companies are keen in coming to Cyprus, however the crucial question is how much business they do on the island…
Recently Liquid Markets have announced the migration of their clients of their Cyprus entity to their FCA regulated entity LQD Markets UK. In the meantime only eight new companies have received a license to operate from CySEC in the second quarter of 2014.