Andreas Kapsos: The derivatives industry was misunderstood but zero-tolerance CySEC has managed to cleanse it

"The derivatives industry was misunderstood or treated with suspicion in other EU capitals because of certain bad apples. CySEC has managed to cleanse this negative approach from other EU Regulators and has earned their respect over the years for its fair, transparent and zero-tolerance attitude to firms behaving badly towards consumers," Match-Prime Liquidity CEO Andreas Kapsos suggests.

While examining the challenge to provide accurate and timely derivatives reporting under new EU regulations, he noted that other directives are also benefiting the market by adding better frameworks to keep out bad actors.

"Overall, while the EMIR Refit aims to streamline reporting, it has resulted in increased complexity, operational strain and costs for many firms," the expert told GOLD magazine recently, adding that, "Moving forward, it is crucial for firms to have strong technology infrastructure, clear procedures and good communication and transparency with their counterparties."

The EU’s recent regulatory blitz to protect retail investors has kept everyone on their toes. Which recent regulation has been the biggest help to the industry and which one made you feel like squeezing a stress ball?

One of the recent regulations that I find beneficial for the industry is the Markets in Crypto-Assets (MiCA) regulation. MiCA aims to establish a unified framework for regulating cryptocurrencies throughout the EU. Its implementation has been vital in providing clarity for crypto firms, enabling them to operate across all EU member states under a clear set of rules.

By enhancing transparency and consumer protection, MiCA has also contributed to legitimising the crypto market, building trust among retail investors. More broadly for the industry, MiCA could motivate traditional financial institutions to engage with crypto-assets, as it provides them with a clearer understanding of their obligations and the regulatory framework. Additionally, it reduces compliance challenges by standardising requirements and simplifying the process for firms looking to expand across borders.

One of the most challenging regulatory updates was the EMIR Refit (European Market Infrastructure Regulation Regulatory Fitness), introduced at the end of April. This updated version of the original EMIR regulation was designed to simplify derivatives reporting; however, it has created several challenges for firms, particularly smaller ones.

The updated regulation includes more complex reporting requirements with new data fields, expanded counterparty obligations, putting significant pressure on internal systems, and significantly raises costs. The requirement for dual-sided reporting means that both counterparties must report transactions, leading to potential discrepancies and reconciliation issues. Additionally, the focus on data quality has increased, with stricter validation checks requiring firms to enhance their data management processes, which adds to the workload. Although many firms are outsourcing the reporting to service providers, the responsibility of data accuracy and reconciliation remains with the firm, making it essential to invest in personnel with expertise in this area.

Overall, while the EMIR Refit aims to streamline reporting, it has resulted in increased complexity, operational strain and costs for many firms. Moving forward, it is crucial for firms to have strong technology infrastructure, clear procedures and good communication and transparency with their counterparties.

With 253 CIFs now on CySEC’s books, Cyprus is looking like the EU’s CFD broker capital. How would you assess the local market’s growth and what more can be done to attract more firms to Cyprus?

Cyprus has become a hub for the Fintech industry, and especially derivatives, for three main reasons: (1) The country’s educated and capable workforce, ( 2) low taxes and (3) the ease of doing business under English Common Law with a Regulator that is fair, stable and approachable.

The derivatives industry was misunderstood or treated with suspicion in other EU capitals because of certain bad apples. CySEC has managed to cleanse this negative approach from other EU Regulators and has earned their respect over the years for its fair, transparent and zero-tolerance attitude to firms behaving badly towards consumers.

This reason, together with the two aforementioned, has allowed the industry to flourish and go from strength to strength since Brexit, making Cyprus a clear winner, where the derivatives brokers of the world need to operate from and bring their C-Level managers to run their business.

This is evidenced by the plethora of global names present on the island, starting from platform providers like MatchTrade and MetaQuotes, the ultra-large derivatives brokers that have become household names and many other complementors of the industry like service providers, payment service providers and tech providers.

Cyprus has all the potential to keep growing exponentially as the jurisdiction of choice for derivatives brokers, so long as the three key factors are maintained!

This interview first appeared in the October edition of GOLD magazine. Click here to view it.