Cyprus has since the early 80s been well known as a major financial hub in the Mediterranean region and with its favorable tax regime Cyprus is an obvious choice for businesses and investors.
Cyprus has acceded to the European Union on May 1, 2004 and has since became a prime business and financial business center within the EU. Since 2008 Cyprus has managed to become a hub in the investment services industry following a boom in the field of financial technology. In September 2018, CySEC, Cyprus’s financial regulatory body launched the “Innovation Hub.”
The Innovation Hub provides a platform where both supervised and non-supervised entities will have ongoing access to CySEC’s regulatory insights in order to better understand and implement their regulatory requirements. The aim is to create a better and more effective relationship between companies operating in this area and the way they are regulated. It is this transparency that opens the door for blockchain technology to develop and obtain capital safely and legally. In fact, Cyprus is such a blockchain-friendly island that the University of Nicosia has already been allowing students to pay their tuition with cryptocurrencies.
There is a growing enthusiasm for blockchain technology and with good reason- if done properly, an initial coin offering (“ICO”), which is a form of crowdfunding, has the potential to open new markets and attract the venture capital needed to launch a business. Platforms such as ExsulCoin and Dropdeck have based themselves on Ethereum’s platform and use smart contracts on public ledgers to secure and track every transaction. According to a recent study, Google, Citi Bank, and Goldman Sachs are three giants that show interest in projects like Ripple, Axoni, Digital Asset, and Blockchain info. Large U.S. banks such as JP Morgan Chase, Morgan Stanley, Wells Fargo, and Bank of America are also investing in blockchain.
So why are such industry giants interested in blockchain? Because blockchain has also proven incredibly effective as a means of fundraising for deserving technology projects. Moreover, depending on how you structure an ICO, it is possible to raise capital without giving away your company’s equity like one does in an IPO. This makes it an even more attractive alternative for business to create liquidity and growth equity.
With such potential to raise billions, one of the key requirements for such startups or tech platforms is expert legal advice. If a business does not comply with the law in setting-up their venture, they may be subject to heavy fines by the financial regulatory authorities and even risk losing potential investors. According to the November 2017 Press Release by the European Securities Markets Authority (ESMA), where ICO’s qualify as financial instruments it is likely that firms involved in ICO’s conduct regulated investment activities, in which case they need to comply with the relevant legislation, including the Prospectus Directive, Markets in Financial Instruments Directive (MiFID), Alternative Investment Fund Managers Directive (AIFMD); and the Fourth Anti-Money Laundering Directive.
With such nuanced financial legislation, having the right legal and compliance team can mean the difference between “going big or going home”.
Visit our FS Regulatory section for more information about cryptocurrencies, ICOs and Blockchain.