How would you characterise the current state of Cyprus' international financial services sector? 

The international financial services sector has been one of the most productive and growth-related sectors of the Cyprus economy. It has evolved over time and is currently experiencing a phase of maturity and targeted growth. It plays a vital role in our national economic model and continues to demonstrate adaptability in a fast-evolving global financial environment. The sector encompasses not only the banking and insurance sectors, but also the professional activities licensed under the Cyprus Securities and Exchange Commission (CySEC), as well as the services offered by professionals, such as accountants, auditors, lawyers, and service providers.

Following the adherence to international sanctions against Russian businesses and other financial interests, the local financial services sector adapted to serve other types of business activities, including funds, fintech companies, FX products, and other lines of related activities. Overall, the sector’s performance confirms its resilience and its relevance as a trusted jurisdiction for cross-border financial services.

What have been the most significant developments or milestones in the industry over the past few years?

The last decade found the financial landscape being volatile, enigmatic, and turbulent on the one hand, and on the other resilient and innovative. The cycle started with the economic crisis of 2013 and the introduction of the severe conditions by international institutions. The exit from the Memoranda in 2016, indicated that the economy was resetting from the predicament, and the challenges that came from various publications by international media about the credibility of the country regarding its investment schemes and sanctions follow up.

However, the government and the industry in general took serious measures in reverting the situation, and via collective efforts, the Cyprus economy has been steadily improving, reaching the emblematic development of the collective upgrade of Cyprus’ sovereign credit rating to investment grade by all major international credit rating agencies – including Moody’s, S&P, Fitch, and DBRS Morningstar. This milestone demonstrates the country’s long journey from the financial crisis to stability and renewed credibility. It has created a more favourable climate for international investors, reduced the cost of capital, and reinforced the country’s economic reputation.

What are the biggest regulatory and compliance challenges facing financial institutions in Cyprus today? And how are these challenges affecting foreign investment and cross-border business?

Financial institutions in Cyprus today operate within a more complex and demanding regulatory environment, shaped by EU directives, international compliance standards, and growing geopolitical uncertainties. One of the most immediate challenges has been the implementation of the EU and UN sanctions, coupled by those issued by third countries, especially the ones linked to the war in Ukraine. All supervisory authorities responded decisively, with each one taking all necessary actions and measures to safeguard the effective regulation of their supervised entities.

Another important development is the formation of the National Sanctions Implementation Unit (NSIU) under the Ministry of Finance, which will take a central role in the sanctions compliance activity.

We are also anticipating the bills regarding the Single Supervisory Authority for Anti-money Laundering, which will be closely linked with the new EU Directives and Regulations that will be effective from June 2027 onwards, establishing thus the EU central authority called AMLA. ICPAC, being a competent authority under the said legislation, submitted its proposals aligned to the AMLA context.

Another pending development is the transposition into domestic legislation of the Foreign Direct Investment Screening EU Regulation, that is expected to further enhance the protective mechanism of the EU and of course Cyprus, to external threats.

Besides these, there have been a number of additional regulatory measures adopted by the government to further improve substance requirements, tax treatments, exchange of information with other jurisdictions, and the transparency and disclosure requirements.

Inevitably, all of the above measures increase the operational cost, overheads and risks of the industry, as well as of the regulated entities. There has been an outflow of business to regions outside the EU and condensation of business exposure in Cyprus by a number of businesses, yet it is crucial to maintaining Cyprus as a credible and trusted jurisdiction of good repute. Overall, while compliance demands are intensifying, Cyprus is responding with professionalism and maturity, which will strengthen its long-term competitive advantage.

How has Cyprus responded to the global push for greater transparency, especially regarding tax matters, AML/CFT standards, and beneficial ownership disclosure?

Cyprus has taken substantial and verifiable steps in recent years to align its legal and regulatory framework with evolving international expectations. In the field of anti-money laundering and counter-terrorist financing (AML/CFT), our national regime is now in full compliance with FATF standards and has received positive evaluations from MONEYVAL. Cyprus is following OECD’s guidelines and keeps up with the EU directives for administrative cooperation in the areas of taxations (DACs).

The country is firmly moving away from the legacy of the past, and today it is portraited as a jurisdiction that adopts AML compliance best practices. Substance requirements have also been tightened, sending a clear message that only entities with real commercial presence are welcome. Equally important, beneficial ownership registries have been implemented and are now operational for both companies and trusts, granting competent authorities transparent access to real ownership structures. These reforms are not only necessary, but they are also transformative, reinforcing Cyprus’ credibility as a jurisdiction of substance and transparency. 

With the increasing role of digital finance, how is the sector adapting to emerging technologies such as blockchain, AI, and fintech innovation?

Digital transformation is no longer optional – it is a strategic necessity. The financial services ecosystem in Cyprus is actively embracing this transition. Fintech innovation is being supported not only by the market but also by regulators, particularly through the Innovation Hub, which provides a controlled environment for the development of novel financial products and services. We are seeing practical applications of blockchain in areas such as fund administration and digital identity, while artificial intelligence is increasingly being deployed for purposes ranging from risk profiling to enhanced customer service and internal compliance.

Financial services sector should also be compliant with the new Digital Operational Resilience Act (DORA), which aims at significantly strengthening the digital infrastructure and cybersecurity capabilities of the financial institutions. At the same time, artificial intelligence is rapidly gaining more and more space in the business territory.

The professional services sector is also evolving in parallel. At ICPAC, we are investing in professional education to ensure that accountants, auditors, and finance professionals are equipped with the digital competencies required in today’s environment. This convergence of regulation, talent, and technology is positioning Cyprus to be a competitive and agile participant in the digital finance era.

How and to what extent has Cyprus’ financial services sector been impacted by recent international developments, such as rising geopolitical tensions, sanctions, changes to FATF lists, or evolving EU regulations?

Inevitably, due to the geographical location and the nature of our business model, Cyprus cannot remain immune from all of the above challenges, most of which are far beyond its control.

However, it has given rise to negative and positive developments. Traditional business affiliations and collaboration with the Russian element have been seriously affected and reduced in size, the volatility in the area suggests immigration risks and cost, maritime service and logistic lines may have become more expensive, and the EU Regulations impose additional bureaucracy whilst limiting competitiveness with respect to third countries. The banking sector had to undergo considerable reform as they were compelled to reassess and, in many cases, terminate relationships involving sanctioned entities or high-risk jurisdictions.

On the other hand, during the last few years there has been a fast and noticeable relocation of fintech, regtech and other finance and IT companies to Cyprus from the areas affected by war – with significant influx of new foreign direct investment, creation of new job openings, and an economic drive into these new sectors.

As mentioned earlier, all competent and regulatory authorities took advanced steps in enhancing their supervisory roles, imposing additional requirements to the risk assessment of their supervised entities and their client acceptance procedures, and elevated ongoing monitoring and background checking.

Similarly, continued monitoring under FATF and MONEYVAL frameworks has driven improvements in internal controls, due diligence procedures, and the culture of compliance across firms.

What opportunities do you see for Cyprus to grow its financial services exports, for example, in fund administration, advisory, or corporate services? And which markets or sectors are most promising?

Cyprus continues to offer tangible growth opportunities to its financial services industry in areas that combine technical expertise with cost-effective delivery and regulatory alignment. The investment funds sector has seen consistent expansion, and this creates strong downstream demand for fund administration, custody, legal, and tax support services. Cyprus has the right mix of EU credentials, a skilled workforce, and modern infrastructure to support cross-border fund activity, especially in the alternative investment space.

Beyond that, advisory services are becoming increasingly vital. As the regulatory environment becomes more intricate across jurisdictions, clients, particularly mid-sized international businesses, are actively seeking specialised advice on structuring, tax efficiency, risk management, and compliance. This is a space where Cypriot firms can provide real value, especially those with multilingual teams and regional insight.

There is also another optimistic angle for creating more space for the provision of premium corporate services, trust, as well as for moving into the provision of foundations and family-office services.

In terms of geographies, while Europe remains a natural base, we are seeing encouraging interest from the Middle East and Asia – markets that appreciate Cyprus’ strategic location and familiarity with international standards. Sectorally, technology, renewable energy, maritime services, and private wealth continue to offer promising avenues for tailored financial services, provided we continue to invest in our capacity and expertise.

We need to underscore though that in order to yield a successful outcome, it is imperative to establish a robust, consistent, stable, transparent and effective operational framework, which should include the justice system, the tax and corporate regime, the legal framework and a supportive infrastructure by the State, enabling thus the osmosis between the business world and the society.

Are there deficits or gaps in training or skills in the industry that you believe need urgent attention? And what initiatives is ICPAC taking to attract and retain young talent within the accounting and broader financial services industry?

Learning is never ending, and knowledge is never adequate. With the transition into a modified economic activity, based upon technological advancement, training, re-skilling and up-skilling are fundamental.

At the same time, the regulatory environment becomes additionally complex, and the global landscape gets increasingly more competitive. Hence, it is a daily struggle to remain abreast of the developments whilst serving clients, pursuing new ones, keep innovating and producing outcomes. The principal professions or specialisations in the financial services industry will have to be adjusted and adapted to the upcoming conditions, should they wish to remain relevant and required.

At ICPAC, we have been for some time now seeing this shift, and we are responding on multiple fronts. We have strengthened our collaborations with other professional bodies and universities to ensure that programmes and study courses are better aligned with market needs. We have also significantly expanded our continuing professional development offerings, introducing targeted modules in ESG, digital governance, cybersecurity, and relevant soft skills to take the members into the new era.

In parallel, we are working hard to showcase that the accountancy profession is a digital one, which constitutes the underlying factor for the effective functioning of all business endeavours. We are fully aware of the current generational trends, yet, through school outreach, internship schemes, and mentoring initiatives, we are trying to communicate a simple but important message: a career in accounting and finance today is far broader, more dynamic, and more globally relevant than ever before.

Retaining young professionals, however, goes beyond technical training – it requires meaningful work, a supportive environment, and clear long-term prospects. That is something we are encouraging both firms and policymakers to address seriously.

Setting the tone for financial literacy and, simultaneously, advocating ethical consciousness, is the least we can do so as to have a promising new generation of professionals, entrepreneurs and open-minded citizens.

How would you assess the level of trust and public perception internationally toward financial professionals and institutions in Cyprus?

Trust is never static, it must be earned and protected continuously. Cyprus’ financial services sector has undoubtedly faced reputational challenges in the recent past, but I can confidently say that the progress made over the last decade has been real and widely acknowledged. Today, the international perception is one of cautious confidence. This has been achieved through a combination of legislative reforms, credible supervision, and a stronger compliance culture across the board.

The reinstatement of investment-grade status by all major rating agencies is a milestone that reflects the improved fundamentals of our economy and the seriousness with which Cyprus has addressed earlier concerns. In parallel, our alignment with international AML/CFT frameworks, the full implementation of beneficial ownership registries, and the increasing enforcement capacity of our regulators all contribute to a more favourable image.

As ICPAC, we follow the internationally enforced financial reporting and auditing standards, the Code of Ethics, and we have partnered with renowned global professional bodies for our syllabi and exams for membership, and our onsite supervisory inspections to our members.

Still, we must be realistic. Trust can be eroded quickly if vigilance slips. It is not enough to comply on paper – we must demonstrate consistently that Cyprus is a jurisdiction where good governance, transparency, and ethics are not optional, but fundamental.

Looking ahead, what do you see as the top three strategic priorities for the profession and the financial services sector in Cyprus over the next five years?

Looking ahead, the path is clear but demanding. First, we must embrace the digital transition not as a buzzword, but as a structural transformation. Technology is reshaping financial services from how we manage risk and deliver services, to how we interact with clients and regulators. Cyprus must be ready, not only with infrastructure, but with digitally capable professionals who can navigate this shift with competence and confidence.

Second, we must remain unwavering in our commitment to regulatory credibility. The ability to attract long-term, high-quality international business depends directly on how we are perceived in terms of governance, supervision, and compliance. The bar is high – and rightly so – but it is within our reach if we stay focused.

Third, and perhaps most importantly, we must invest in our human capital. No jurisdiction can thrive without a steady pipeline of motivated, well-trained professionals who see a future here. We need to inspire young people to choose this profession, to stay in it, and to lead it forward. That requires collaboration between regulators, educators, firms, and institutions like ICPAC – and a shared understanding that people are our most valuable asset.

In short, the future of the financial services sector in Cyprus will depend not just on the rules we write or the technology we adopt, but on the values we uphold and the talent we nurture.