Several people who, like me, work in investment firms regulated by CySEC have serious concerns about the current state of the regulatory environment in Cyprus.

They feel that the regulator has in recent years lost part of its effectiveness both in terms of supervision and in promoting Cyprus as an international financial centre.

As a consequence, some large firms are already considering scaling down their presence in Cyprus or relocating certain functions to other European jurisdictions unless meaningful structural changes are introduced within the regulator.

Among the issues most frequently raised by firms are lengthy investigations, inconsistent supervisory practices, delays in decision-making and a lack of regulatory predictability. According to industry representatives, such processes can in some cases effectively restrict firms’ ability to conduct business and implement growth initiatives.

What has caused this is the change in the regulator’s approach to assessing its own role. Previously, the industry focused on attracting foreign investors, supporting regulated companies’ interests, and introducing new products while maintaining a balance between regulatory objectives and business development. Today, this philosophy appears to have shifted – it is often easier to restrict or block new initiatives than to support market development.

There is a big need for the regulator to act strictly within the boundaries of legislation and regulation, with clear, predictable and evidence-based decision-making. In practice, a business often faces situations where rules appear to be interpreted inconsistently, without a sufficiently qualified assessment of the commercial and market context.

What is needed is experienced leadership with a deep understanding of how the market functions. The head of the regulator should be able to act as a mediator between business objectives, government objectives, which are often aligned, and legal requirements. Enforcement is an important part of the regulator’s work, but its leadership should ensure the right balance between regulatory requirements, business development and the broader interests of the jurisdiction, without going beyond the legal framework.

There must be stronger dialogue between the regulator and the industry, as well as the involvement of experienced professionals capable of ensuring both effective supervision and the long-term competitiveness of Cyprus within the European financial sector.

In the view of regulated firms, CySEC should not only ensure investor protection and compliance with applicable laws, but also actively contribute to the development of the financial services industry, the attraction of new investment and the retention of existing market participants.

Companies also point to an increasing tendency for the regulator to impose requirements and supervisory expectations that, in the view of market participants, go beyond the obligations expressly set out in applicable legislation and European regulatory frameworks. This approach creates additional regulatory burden, reduces legal certainty and undermines the competitiveness of Cyprus compared to other EU jurisdictions.

CySEC appears to ignore that this is a very competitive industry in which investment firms will always look for jurisdictions that are more adaptive and business friendly. Some Cyprus-based companies have already started licensing processes in other countries, while others are seriously considering alternative jurisdictions for future expansion.