A new
report from the European Securities and Markets Authority (ESMA) has unveiled a
complex picture of cross-border investment services in the EU, with Cyprus
emerging as the primary hub for firms while Germany claims the lion’s share of
retail clients.

Cyprus Reigns, Germany
Gains in Cross-Border Investment Firms Landscape

The annual
analysis, which examined data from 386 firms across 30 EU and EEA
jurisdictions, found that Cyprus is home to 20% of all firms providing
cross-border investment services in the region. This concentration of firms in
the Mediterranean island nation significantly outpaces other financial centers,
with Luxembourg and Germany following at 15% and 14% respectively.

“The
distribution of firms by home Member State is found to be relatively skewed.
Out of the thirty (30) EU/EEA countries, Cyprus, Luxembourg, and Germany
accounted for about 50% of the 386 firms,” ESMA
commented in its newest report.

However,
when it comes to the distribution of retail clients, the landscape shifts
dramatically. Germany leads the pack with approximately 1.63 million retail
clients receiving cross-border investment services, accounting for about 20% of
the total 8 million clients identified in the study.

“From a
firm reporting perspective, the 2023 market for crossborder investment services
in the EU/EEA comprised about 8 million retail clients was, or about 5% above
the 2022 figure of 7.6 million clients,” ESMA added.

France,
Spain, and Italy joined Germany as the top destinations for cross-border
investment services, collectively representing over half of all retail clients
in the study. This concentration of clients in the EU’s largest economies
suggests a gravitational pull towards established financial markets.

Notably,
the report found that investment firms slightly outnumber credit institutions
in the cross-border services landscape, accounting for 56% of the total firms
analyzed. The results of the report are similar to those published
by ESMA last year, showing that three countries accounted for 75% of the
EU’s cross-border retail trading.

The
regulator plans to conduct its next data collection in 2025, aiming to track
ongoing trends and shifts in the European cross-border investment services
market.

Growing Importance of
Cyprus as a Financial Hub

Finance
Magnates last year held
an exclusive interview with Dr. George Theocharides, who has been the
Chairman of the Cyprus Securities and Exchange Commission (CySEC) since 2021. The
conversation highlighted Cyprus and CySEC’s escalating roles in the global
FX/CFD and financial regulatory landscape.

Dr.
Theocharides revealed that CySEC now
oversees 840 entities, with 32 additions since October 2021. The regulator
is also enhancing its supervision capabilities by recruiting 42 new staff
members. According to a recent report by Finance Magnates, CySEC is looking to
hire an investigation expert among others to help identify potential regulatory
breaches by investment companies within Cyprus.

The CySEC
Chariman also noted a significant rise in the number of investment firms in
Cyprus post-2013, stabilizing at around 240 Cyprus Investment Firms (CIFs). The
count stood at 247 by the end of 2022, up slightly from 248 in the prior year
and 243 at the end of 2021.

Additionally,
the sector for Cypriot collective investment funds has witnessed robust growth,
now encompassing over 330 entities and a 200% increase in managed assets since
2016. Managing nearly 10 billion euros, this sector shows strong growth
potential, solidifying Cyprus’s status as a prospective regional hub for funds.

In 2023,
over 700 on-site and remote inspections were conducted on supervised entities, resulting
in fines totaling more than $2.2 million. These thematic audits were
conducted to enforce compliance with regulations and safeguard investors.