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.