The Peer Review Committee (PRC) European Securities and Markets Authority (ESMA) noted the progress made by the Cyprus Securities and Exchange Commission (CySEC) in strengthening supervisory and enforcement practices following recommendations issued in a 2022 review of cross-border investment firm supervision.

The PRC assessed actions by national authorities, including CySEC, with regard to authorisation, supervision, enforcement and cooperation with other supervisory authorities. It found clear progress in integrating cross-border activities into risk-based supervisory frameworks across national authorities. “The increased supervision and enforcement path by CySEC since the peer review is a constructive and encouraging development,” the PRC said.

CySEC chairman George Theocharides welcomed the PRC’s recognition of the strengthened framework, which enhanced supervision. He said the follow-up report to the peer review of four years ago identified the improvements made and reflected the progress achieved in strengthening the regulatory framework for Cyprus investment firms (CIF) operating across borders.

Praise from the European supervisory authority on securities and markets, after being on the receiving end of criticism for lax supervision for many years, is certainly a positive turnaround and CySEC has every reason to be pleased. It is recognition for the work it has done in the last four years, although Theocharides recognised there was no room for complacency. There was a need for continued vigilance among regulators because cross-border investment had become more widespread and complex, he said.

Although better supervision is no bad thing, CySEC should be mindful that it does not overdo it, because this could force investment firms leaving the island. A little over two weeks ago, the Sunday Mail published a letter from someone working in one of the supervised investment firms, expressing concern about the regulatory environment in Cyprus. Among the issues most frequently raised by firms are the “lengthy investigations, inconsistent supervisory practices, delays in decision-making and a lack of regulatory predictability.” These procedures often restricted firms’ ability to conduct business and pursue growth strategies, the letter-writer said.

The writer felt CySEC had abandoned the old policy of maintaining a balance between regulatory objectives and business development, which focused on attracting foreign investors and encouraging the introduction of new products. He said there was now a policy shift, CySEC finding it easier to restrict or block new initiatives than to support market development.

Although such remarks could easily be attributed to an industry’s dislike for strengthened supervision, it would be a mistake to do so. Cyprus authorities should consider that cross-border investment is a very competitive industry in which companies will always look for jurisdictions that are business-friendly and do not make it difficult for businesses to operate efficiently. CySEC should engage in a constructive dialogue with the representatives of the industry to address their concerns.

What good would the praise from ESMA be if it leads to the departure of CIFs for other European jurisdictions?