Cyprus Mulls Law To Overhaul Financial Services Rules

by Carla Johnson, Investors Offshore.com

12 November 2001

A bill is currently making its way through parliament in Cyprus that aims to impose stricter rules on Cyprus's investment services providers by bringing regulations into alignment with the European Union and creating more uniform standard practices.

The provisions of the proposed law include implementing a new system concerning the way in which financial institutions and advisors provide financial advice in order to better safeguard investors. Investment advice will only be given by companies and individuals in Cyprus who come under the supervision of the Securities and Exchange Commission (SEC).

The bill will also enable local investment companies such as brokerages and banks to compete in a liberalised financial services single European market when Cyprus becomes a member of the EU.

A report accompanying the bill explains that currently there are legislative question marks that allow unscrupulous investment advisors and companies to take advantage of the system and the laws only really apply to brokers. Obtained by the Cyprus Weekly online news service, the report states: 'Experience has shown that regulating only the secondary securities market, and specifically only organised stock markets without at the same time regulating providers of investment services is not only imperfect, but spells dangers for the smooth operation of the securities market.'

The proposed law covers a multitude of investment services including brokers acting on their clients or their own behalf and portfolio investment managers among others, and identifies which companies are permitted to offer such services.

In addition, it will be compulsory for local finance service providers to contribute to a compensation fund for investors; foreign advisors on the Island can make voluntary contributions.

The content of the bill has been drafted with the advice of investment experts such as CSE officials, the Central Bank, local brokers and the Greek stock market expert Demetris Tsimpanoulis who headed a team, at the behest of the government, to examine the problems that have recently beset the CSE.

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