What is going on in Cyprus FX industry?

The bailout in Cyprus has been postponed and will not play itself out as scheduled. The deal that had been arranged by the EU and the IMF on March 15th did not take place on time, adding further fuel to the fire of panicking investors who fear for the safety of their funds, amid the reality that the Cypriot Government in agreement with the lenders mentioned have appropriated or "levied" private individual capital to the tune of roughly 10%.

On the surface while shocking, the Cypriot Financial Industry should be on notice. Over the last decade hundreds of regulated companies have been established in Cyprus. The regulatory institution that oversees the financial industry in Cyprus, "CySec" created conditions that made the island a safe haven for financial companies, with a low corporate tax rate, and pan European MiFid EU Regulatory coverage, and respectability. Being party to the EU Mifid Directive has allowed all regulated companies in Cyprus to operate within Europe with ease.

Current events will certainly force these companies to reconsider their options.  Some will take on the task of actually physically moving their operations off the island to greener pastures (Aplari as an example is a major broker that has moved all its clients to the UK under FSA Regulation in an attempt to avoid future risks). The reality is under current conditions individual clients who hold accounts with Cypriot Regulated brokers should realize that they are presently allowing a weak and unstable financial system to protect them.

Of major concern is a current predicament that has for the most part been kept quiet. Several CySec listed brokers have recently found themselves hit with large fines by CySec, with little or no evidence of wrongdoing. Being well aware of the consequences of bad publicity many have chosen to absorb the cost, comply, and say nothing. Irrespective the situation is still shocking and sets the stage for an industry exodus off the island to a more stable environment.

A healthy alternative for relocation would be to choose to a more stable financial center within the EU like Malta that has its own regulator, the MFSA (Maltese Financial Services Authority), and a solid economy in better shape than both Cyprus and the UK. The Global Financial Services Index ranked Malta 4th place in 2008, as the financial center which is most likely to increase in importance over the next decade. Furthermore, Malta ranked 5th as the financial center for new financial operations outperforming the European mainland. Most importantly Malta ranked 10th in the world in terms of a "sound and safe banking system", positioning Malta to be on the list of safe-zone countries within the EU debt crises reality.  Ultimately the health of a country comes down to the standards by which its economy operates.

At the moment due to the fact that the MFSA has incredibly high standards there are only a few solid brokers that have received this license, FXDD and a smaller Boutique Brokerage called NSFX Ltd. With the turmoil that is going on traders will look for a safe and secure alternative to the CySec regulated Brokers which would be good news for FXDD and NSFX. Cyprus as of late is showing patterns of behavior that makes other alternatives clearly more practical. Good Luck Cyprus if you intend to "levy" your way out moving forward you're going to need it.