Accountancy Cyprus - Issue 128

No. 128 | :,7;,4),9 2017

CYPRUS’ NEW THE NEW COMPLIANCE COUNCIL

CULTURE

HOW REGULATED ENTITIES ARE RESPONDING TO CONTEMPORARY DEMANDS FOR CORPORATE GOVERNANCE, TRANSPARENCY AND MORE

ACCOUNTING & AUDIT, BUSINESS, ECONOMY, FINANCIAL SERVICES, ITC, MANAGEMENT, REAL ESTATE, TAXATION

INTERVIEWS WITH MARIOS ANDREOU GEORGE MALEKKOS DIETER ROHDENBURG ELENI VICKERS DISTRICT POST OFFICE CY-1901 NICOSIA, CYPRUS POSTAGE PAID LICENCE no.33

The Journal of the 0UZ[P[\[L VM *LY[PÄLK 7\ISPJ (JJV\U[HU[Z VM *`WY\Z

SEALED UNDER PERMIT no. 133 ΠΕΡΙΟΔΙΚΟ ΤΑΧΥΔΡΟΜΙΚΟ ΤΕΛΟΣ ΠΛΗΡΩΜΕΝΟ ΚΛΕΙΣΤΟ ΕΝΤΥΠΟ ΑΔΕΙΑ ΑΡ. 133 ΑΔΕΙΑ ΑΡ. 239

© 2017 Ernst & Young Cyprus Ltd. All Rights Reserved. ED None.

EY celebrates 80 years in Cyprus

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ACCOUNTANCY CYPRUS

C O N T E N T S URGENT! VISION REQUIRED!

By Kyriakos Iordanou

20

54

opinion KEEPING THE AUDIT PROFESSION ATTRACTIVE

By Panicos Charalambous

42

DISCLOSING GOVERNMENT PAYMENTS: IMPLICATIONS FOR THE OIL & GAS INDUSTRY

By Charlie Anastasiades

46

IFRS 17: FUNDAMENTAL CHANGE

By Nicos S. Stavrou

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accounting & audit

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CORPORATE RESTRUCTURING PLANS AND THEIR IMPORTANCE TO THE ECONOMY

By Georgios Karrotsakis

DYING OF HUNGER

By Tassos Anastasiades

BUILDING A FAIRER EUROPE AND STRENGTHENING ITS SOCIAL DIMENSION

By George Markopouliotis

62

AT WHAT COST?

66

CYPRUS: A MODERN FUND JURISDICTION

68

TRUMP VS MERKEL: STEPS TOWARD A TRADE WAR AND MORE

70

By Lena Panayiotou

By Christos Vasiliou

By Jim Leontiades

TERTIARY EDUCATION IN CYPRUS

By Michalis Antoniou.

ABUSIVE EXCESSIVE PRICING

72

By Dr. Panayiotis Agisilaou & Stephanie Theodotou

economy

74

THE MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING AND ITS APPLICATION IN CYPRUS

By Marissa Christodoulidou & Philippos Aristotelous

taxation

06 THINKING AHEAD

ISSUE 128 SEPTEMBER 2017 CYPRUS SHIPPING: THE FUTURE IS BRIGHT Interview with Dieter 5RKGHQEXUJ &(2 RI ,QWHUVKLS Navigation Co. Ltd

INNOVATION AND TAX INCENTIVES

By Margarita Liasi

GOING GREEN

By Michael Karasavvas

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PREPARING YOUR HOME FOR SALE

By Antonis Loizou

COMBATING MONEY LAUNDERING, TAX AVOIDANCE AND TAX EVASION

By Andreas Kettis

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real estate

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business in cyprus

98

management

80

By Dr. Sotiroula Liasidou

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$ ¶6:((7· %(*,11,1* THE EVOLUTION OF HUMAN RESOURCES MANAGEMENT

SOFTWARE AS A SERVICE: CHANGING BUSINESS IN CYPRUS

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Interview with George MalekNRV &(2 6RIWZDUH ,QQRYDWLRQ Architect at Powersoft Computer Solutions Ltd

TIPS TO PREVENT INFECTION WITH RANSOMWARE

By George Agathangelou

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UNDER THE MICROSCOPE: EXAMINERSHIP

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INSTITUTE NEWS

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ISSN 1450-2380 Editor-in-Chief Ninos Hadjirousos, FCA Editor Tasos Anastasiades, B.Sc., M.A. (Econ) The Institute Council Marios Skandalis (Chairman) Stavros Pantzaris (Vice-Chairman) Maria Pastellopoulou (Secretary) Members Andreas Andreou, Demetris Vakis, Antonis Vasiliou, Christos Vasiliou, Karlos Zangoulos, Pieris Marcou, Philippos Raptopoulos, Spyros Spyrou, Demetris Taxitaris, Nicos Chimarides, Odysseas Christodoulou General Manager Kyriakos Iordanou Address 11 Byron Avenue, 1096 Nicosia, Cyprus Mailing Address P.O.Box 24935, 1355, Nicosia, Cyprus Tel: +357 22870030, Fax: +357 22766360 e-mail: info@icpac.org.cy www.icpac.org.cy The publication is prepared by

Managing Director George Michail General Manager Daphne Roditou Tang Media Manager Antonis Antoniou In-house Editor-in Chief John Vickers Coordination Voula Loizou Art Direction Anna Theodosiou Design Alexia Petrou, Marios Kouroufexis Marketing Executive Kevi Chishios Commercial Manager Neofytos Constantinou Contact us for advertising Erika Phylakti erika.phylakti@imhbusiness.com Tel: +357 22505555, +357 22505550, Fax: +357 22679820 Address 5 Aigaleo St., Strovolos 2057, Nicosia, Cyprus, P.O.Box 21185, 1503, Nicosia, Cyprus Accountancy Cyprus is published quarterly by the Insti[\[L VM *LY[PÃ&#x201E;LK 7\ISPJ (JJV\U[HU[Z VM *`WY\Z HUK PZ ZLU[ free to all members if the Institute as well as to a large number of other persons, companies and organisations.

The Institute can accept no responsibility for the accuracy of contributed statements or articles appearing in this publication and any views or opinions expressed are not necessarily endorsed by the Institute, its Council or by the Editors.

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ACCOUNTANCY CYPRUS

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By Kyriakos Iordanou, General Manager, ICPAC

NEW CHALLENGES AHEAD! A NEW ERA BEGINS FOR THE AUDIT PROFESSION

W

ith the signing of the Delegation Agreement with the Cyprus Public Audit Oversight Board (CyPAOB) on 12 September 2017, following the enactment of the Auditors Law of 2017 at the beginning of June, ICPAC has become the State’s agent with respect to the audit profession, assuming all responsibilities and duties provided for in the Agreement and as allowed by the Law. This means, essentially, that while ICPAC maintains its role as a regulatory body, the legal background is changing and much greater responsibility (and cost) will be placed on its shoulders as the recognised body of auditors. The Delegation Agreement thus turns a new page both for ICPAC and the audit profession in general. This is actually the third significant milestone in the evolution of the profession in Cyprus, following (i) the introduction of the self-regulation regime in 2001 and (ii) the passing of the Auditors Law of 2009.

The new order places specific emphasis and onus on the auditors of public interest entities (PIEs) with the direct supervision of CyPAOB on the one hand, and the recognized body of auditors (i.e. ICPAC) on the other, for the regulation and monitoring of the rest of the auditors.

Despite the fact that various issues remain to be refined, we have in front of us a brilliant opportunity to refresh the audit profession and see it from a new perspective, to introduce more effective practices, to

enhance transparency and accountability as well as relevance and, basically, to improve the quality of the whole profession. At the same time, the new Law provides the tools to finally establish a level playing field for professional auditors, with common responsibilities and opportunities, thus closing the loopholes of the past. Hence, safeguarding the public interest will be more robustly achieved, leading to an overall improvement of the profession We at ICPAC have already taken up our new role very seriously. After careful planning and analysis, we are now moving into the implementation stage. A new strategic plan has been prepared to transform ICPAC into a better structured and resourced organization, which will be more dynamic, responsive and outward-looking. Fundamental to its new structure is the focus on compliance as well as on the continual professional development and support of our members. The cornerstone of this transformation remains, of course, the adoption of all necessary technologies and digital tools.

This is, however, only one side of the story. The new era calls on the auditors themselves to come up to speed with the new developments and the new regime. All professionals will need to reevaluate their goals, structures and, principally, their modus operandi in order to remain competent, relevant and profitable. Each one will need to reassess his/her business and operational model and decide upon his/her core competencies and most beneficial activities. Regulation is undoubtedly soaring, as are the costs related to the specific professional activity. Hence,

it is time to make the most suitable and smart choices, either in combining forces and sharing resources, overheads, risks, expertise and knowledge, or in selecting the precise business lines to be involved with, thus abandoning the traditional habit of the “mini store”, where all sorts of services are offered at the same time. As things develop, the latter will undoubtedly entail considerably higher risks and costs.

Another key component of the new era is the undisputed need to establish close cooperation and collaboration among the State and the private sector, the regulators and the professionals, CyPAOB and ICPAC. The objectives of all parties involved are the same and we should all, therefore, be committed to working towards the same end. Hence, capitalizing on one another’s expertise and knowledge and working in a spirit of mutual trust and respect is the only way forward.

On an international level, the audit profession has been under the spotlight for many years now, with more regulation, reporting and compliance being required. As a result, we have to continuously prove ourselves, not only as regards our technical skills but also our ethics and overall competence.

It should not be overlooked that, in the last 15 years, our profession has undergone several phases of regulatory evolution, the last two being expressly dictated by the European Union. This fact alone highlights the significance of our work, the value of the advice we give and the importance of our opinion as auditors.

So, big challenges await and it is up to us to make the best of them!

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30/8/2017 The President and

NEWS FROM THE BOARDROOM Although the Council held three meetings during the third quarter of the year, this period proved particularly busy for the Council and management of the Institute, despite the summer season. The SULQFLSDO LVVXH RQ WKH DJHQGD ZDV WKH ðQDOL]DWLRQ RI WKH 'HOHJDWLRQ Agreement between Cyprus Public Audit Oversight Authority and ICPAC, as stipulated in the Auditors Law of 2017, which was signed on 12 September 2017.

The main activities and decisions of the Institute’s Council included the following:

MEETINGS WITH OFFICIALS During the third quarter of 2017, the President, Council Members and General Manager held a number of meetings with Government, political, business and other officials, including, inter alia, the following: • The President, Council members and General Manager met on various occasions with members and staff of the Cyprus Public Audit Oversight Board, to discuss and finalise the Delegation Agreement, as stipulated by the Auditors Law of 2017. Extensive commitment and preparatory work was required for the specific issue, as well as an extraordinary Council meeting, which was held on 6 September for this purpose. The agreement was finally signed on 12 September 2017 and ICPAC assumed its new duties as a Recognised Body of Auditors.

and Industry, as well as with the Chairman of the Democratic Rally (DISY) and the Chair of the House Finance Committee. Although the meetings were of a courtesy nature, issues relating to ICPAC, the accountancy profession and the economy were discussed, reaffirming the good mutual cooperation between the Institute and the various bodies.

10-16/7/2017 Responding to an of-

ficial invitation from the Chinese Embassy in Cyprus and the Chinese National Audit Office, the General Manager attended the International Audit Seminar for SAIs along the Belt & Road Routes in China. During his stay, he had the opportunity to meet with the Auditor General and Deputy Auditor General of China, as well as with the Auditors General and • Marios Skandalis, in his capacity Deputy Auditors General of other as the newly elected President of the European counties who also atInstitute, escorted by the General tended the seminar.

Manager, met with the Speaker of the House of Representatives, the 13/7/2017 A delegation of the CounMinister of Finance, the Minister cil met with representatives from of Transport, Communications & Standard & Poor’s for the annual Works, the Under-Secretary to the assessment meeting.

President, the Auditor-General, the Chair and Vice Chair of the 18/7/2017 The General Manager adCyprus Securities and Exchange dressed the GMN European conCommission (CySEC), the Presi- ference, which took place in Ayia dent and Secretary General of the Napa. GMN is an international Cyprus Chamber of Commerce network of accountancy firms.

the General Manager met with ACCA officials at the Institute’s premises to discuss matters of mutual interest and sign the renewal of contracts of services.

• A delegation of the Council led by the General Manager met with the Data Protection Commissioner to discuss the implementation of the new forthcoming revised legislation, as a result of the EU’s General Data Protection Regulation.

MAIN COUNCIL DECISIONS • The Council ratified the agreement with Cyprus Public Audit Oversight Board and authorized the President to sign it on its behalf.

• The Council, having recognised the new duties and responsibilities assumed by the Institute as a result of the new Auditors Law of 2017 and the provisions of the Delegation Agreement with Cyprus

Public Audit Oversight Board, decided to adapt its strategic plan to accommodate the new developments. Going a step further in order to effectively perform its tasks, the Council decided to broaden its staff base by gradually increasing its internal human resources and to rent more office space in order to accommodate these changes.

OTHER IMPORTANT MEETINGS AND ACTIVITIES • During the 3rd quarter, ICPAC representatives appeared before various Parliamentary Committees dealing with matters relating to the Companies Law, tax, VAT, the Auditors Law, etc.

• There was significant activity regarding the revision of Cyprus’ anti-money laundering (AML) legislation. A number of meetings took place and views were

exchanged on the proposed bill, discussion of which commenced in the House of Representatives in September.

• Both the President and the General Manager had various meetings during the quarter with other officials, stakeholders and Members of Parliament, on issues relating to the Institute and the profession

2ND EU ARAB WORLD SUMMIT, ATHENS ICPAC is very proud to announce that it has been invited to participate at the 2nd EU Arab World Summit which takeS place on 9-10 November in Athens. The President of ICPAC will be among the speakers at this high-level event, which will be addressed by Heads of State, Ministers and other State officials from European and Arab countries, as well as other important personalities from EU, the Middle East and Northern Africa.

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FROM THE ARCHIVES CYPAOB AND ICPAC SIGN DELEGATION AGREEMENT Pursuant to section 18 of the Auditors Law of 2017 (L.53(I)/2017) the Cyprus Public Audit Oversight Board (CyPAOB), as the supreme competent authority, and ICPAC, as the Recognised Body of Auditors, signed a Delegation Agreement on 12 September 2017. Rea Georgiou, Chairwoman of CyPAOB, and Marios Skandalis, President of ICPAC, signed the agreement on behalf of the two parties.

This agreement opens a new era for the audit profession in Cyprus as it completes the effective implementation of the European Directive 2014/56/EU and Regulation 537/2014.

The Delegation Agreement stipulates that CyPAOB delegates the following functions to ICPAC: a. The application of technical standards and of other standards on professional ethics and internal quality control of Registered Auditors and statutory audit work (including the provision for securing compliance with those standards); b. The application of the Auditors Law of 2017 criteria for the purpose of determining whether individuals and firms are eligible for appointment as Registered Auditors, the registration of such individuals or firms, maintaining and updating within a reasonable period of time, and making available for access by CyPAOB, the Public Register, as provided for in the relevant provisions of section VIII of the Auditors Law of 2017; c. Procedures for maintaining the competence of Registered Auditors; d. Monitoring of Registered Auditors and audit work, except for Retained Tasks; e. Investigations and imposing and enforcing sanctions in relation to breaches of the relevant requirements by Registered Auditors, except for Retained Tasks.

At the same time, CyPAOB retains the following tasks: a. Determining technical standards and other standards on professional

ethics and internal quality control of Registered Auditors and statutory audit work; b. Determining the manner in which the standards are to be applied in practice; c. Setting criteria for the purpose of determining whether persons are eligible for appointment as Registered Auditors; d. Determining procedures for maintaining the competence of persons eligible for appointment as Registered Auditors; e. Monitoring audits of Public Interest Entities; f. Investigations, adjudication and disciplinary measures arising out of (e) above or through any other functions of CyPAOB or arising from referrals from other authorities related to the audit of a Public Interest Entity.

Hence, ICPAC shall operate as a designated subcontractor to CyPAOB as far as the audit profession is concerned, being simultaneously under the review and evaluation of the competent authority.

The new Auditorsâ&#x20AC;&#x2122; Law of 2017 envisages the continual improvement of the audit profession and places particular emphasis on Public Interest Entities, as it promotes better governance, transparency, accountability and application of the ethical standards. Its ultimate goal is to protect the public interest.

ICPAC, being committed to all of the above, shall take all necessary measures to discharge its increased obligations in the best possible way.

Concerns about unemployment seem to be the same today as they were 30 years ago. The June 1987 issue of Accountancy Cyprus featured news of an event organized with what was then known as the Industrial Training Authority of Cyprus (now the Human Resource Development Authority of Cyprus).

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INTERNATIONAL AUDIT SEMINAR FOR SAIS ALONG THE BELT & ROAD ROUTES Kyriakos Iordanou, General Manager of the Institute, participated in the International Audit Seminar for SAIs along the Belt & Road Routes in China, following an official invitation from the Chinese Embassy in Cyprus and the Chinese National Audit Office. The seminar

took place at the Nanjing Audit University from July 10-16, 2017.

The seminar was very insightful, providing the opportunity to learn how the participating countries work with respect to the government audit, as well to get to know how the Chinese National Office is organized

and performs its tasks.

The seminar was also attended by the Auditors General and/or Deputy Auditors General of Hungary, Serbia, Croatia, Bosnia & Herzegovina, Montenegro and FYROM. By participating at the event, the

General Manager had the opportunity to discuss various issues of mutual interest with the Chinese Auditor General and Deputy Auditor General, as well as with Nanjing Audit University officials in an effort to establish a mutual line of cooperation and communication.

RENEWAL OF COOPERATION WITH ACCA On 30 August 2017, ICPAC and ACCA reaffirmed their excellent cooperation with the renewal of the service orders for another five years.

The service orders cover the ACCA-ICPAC Joint Examination Scheme, the CPD Scheme and the Aptitude Tests Scheme.

Present at the meeting and acting on behalf of their organisations were Marios Skandalis and Kyriakos Iordanou, President and General Manager of ICPAC respectively, and Andrew Steele, Market Director â&#x20AC;&#x201C; Partnerships & Recognition and Julie Hotchkiss, Director â&#x20AC;&#x201C; Europe & Americas, ACCA.

ACCOUNTANCY CYPRUS

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Institute Committees Update

ACCOUNTING STANDARDS COMMITTEE During the third quarter of 2017, the Committee continued with the implementation of its action plan and dealt with the following: PROJECTS COMPLETED â&#x20AC;¢ Revision of Company Law checklist: We completed the English version of the updated Company Law Checklist. The Company Law Checklist has been amended due to recent amendments to the Companies Law as a result of the transposition of the EU Accounting Directive into domestic law. The updated Company Law Checklist will be circulated to our members in early October 2017. â&#x20AC;¢ Disclosure of non-financial and diversity information by large undertakings and groups: The Committee Chairman held meetings with the Directorate General for European Programmes Coordination and Developments regarding the application of the amendments to the Companies Law as a result of the harmonization of Cypriot legislation with the European Directive 2014/95/ EU, relating to the disclosure of non-financial and diversity information by large undertakings and groups. â&#x20AC;¢ EFRAG consultation on Annual Improvements to the IFRS Standards 2015-2017 Cycle: Following a request, we provided feedback to the European Financial Reporting Advisory Group (EFRAG) for the possible impact of the EFRAG consultation on Annual Improvements to the IFRS Standards 20152017 Cycle. â&#x20AC;¢ Definition of Turnover for classification of companies into small, medium and large: The Committee received a legal consultation from ICPACâ&#x20AC;&#x2122;s lawyers with regard to the definition of revenue for the purposes of classification of companies into small, medium or large as per the Companies Law. PROJECTS IN PROGRESS â&#x20AC;¢ International Accounting Standards Board Discussion paper on disclosures in financial statements: A subcommittee has been set up to review the impact of the International Accounting Standards Board Discussion paper on changes to disclosures in financial statements. â&#x20AC;¢ Technical circulars 29 and 40: The subcommittee is in the process of issuing a combined technical circular as a result of the recent amendments in the Companies Law. â&#x20AC;¢ Restrictions to distribution on development costs: The EU Accounting Directive, which has been transposed into the Companies Law, contains provisions based on which no distribution of profits takes place unless the amount of reserves available for distribution and profits brought forward is at least equal to costs of development not written off and recognised under â&#x20AC;&#x2DC;Assetsâ&#x20AC;&#x2122;. The committee concluded that a legal consultation from ICPACâ&#x20AC;&#x2122;s lawyers is required for some interpretation to assist in understanding how the above provision affects upstream Oil & Gas companies and how the definition of â&#x20AC;&#x2DC;development costsâ&#x20AC;&#x2122; captures other balance sheet items such as costs relating to intangible as-

sets arising in the context of IAS38. â&#x20AC;¢ Insurance Companies and Solvency II: The subcommittee concluded that the adoption of Solvency II has no impact on the Financial Statements of insurance companies. The Tax Committee is dealing with possible tax impact.

Yiannis Leonidou, Chairman

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Costas Christoforou, Chairman

ACCOUNTANCY CYPRUS

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VAT COMMITTEE The Committee continued to deal with a number of outstanding issues, as well as examining new issues brought to its attention. The Committee scheduled various meetings with the Commissioner of Taxation and when invited, attended meetings of the House Finance Committee to make comments and express opinions on proposed new pieces of VAT legislation covering the following issues: â&#x20AC;˘ Imposition of VAT on the letting of immovable property, except that used for private dwellings â&#x20AC;˘ Imposition of VAT on buildable land â&#x20AC;˘ Application of the reverse charge provisions with regard to the transfer of new or semi-completed buildings under a loan restructuring procedure â&#x20AC;˘ Duties and responsibilities of the Tax Tribunal as well as, those of taxable persons appealing to the Tribunal.

Discussions on the buildable land bill are still in progress. Nevertheless, a number of suggestions made by the Committee during discussions with the Ministry of Finance (MOF) and the House Finance Committee were adopted. A characteristic example is the abandonment of the MOFâ&#x20AC;&#x2122;s initial intension to tax the sale of shares of companies holding taxable immovable property.

Following discussions with the VAT committee and other interested parties, the House of Representatives passed amendments to Articles 50 and 51A of

the Cyprus VAT Act, effectively replacing the right to appeal to the Minister of Finance with the right to submit anappeal to the Tax Tribunal. Also, the reference to â&#x20AC;&#x153;Supreme Courtâ&#x20AC;? was replaced by â&#x20AC;&#x153;Administrative Courtâ&#x20AC;? since the role of the former has now been assigned to the Administrative Court. The Committee persuaded the MOF to accept its position that taxpayers should only pay the non-disputable VAT amount before the Tribunal could accept their appeal. The Bill was passed by the House of Representatives and became Law. The Committee submitted comments and suggestions in relation to the online VAT refund system introduced by the Tax Department in order to facilitate refunds to taxpayers. Suggestions include the following: a. For refunds to be deposited in accounts nominated by the taxpayer, provided written approval is communicated to the Tax Department; b. For transfers to be allowed to bank accounts operated in the name of the taxpayer in non- EU banks; c. During the liquidation process, to allow the liquidator to collect the funds, provided that a written notification is submitted to the VAT Office; d. To make refunds to bank accounts possible in foreign currencies (USD) and not only in euro.

During scheduled sessions with the Tax

Commissioner, the following issues were addressed and are awaiting the Commissionerâ&#x20AC;&#x2122;s response: â&#x20AC;˘ Various VAT issues concerning services provided by administrators/liquidators. â&#x20AC;˘ The consequences to the economy of the abolition of article 11B, which passes the liability of accounting for VAT to the recipient of services or services with goods in the construction industry (local reverse charge). â&#x20AC;˘ The current practice followed by the Tax Department in relation to VAT group registration and the possibility of non-legal persons as well as holding companies to be able to join a VAT group.

A number of High Court and ECJ cases were presented by the members of a subcommittee to ensure that the findings in these cases are in line with the treatment applicable by the VAT Authorities.

Where there is doubt as to whether the VAT Authorities apply the said findings, it is brought to the attention of the policymaking unit for examination and further consultation.

Finally, the draft bill amending the relevant regulations on margin scheme supplies by tour operators to other operators for resale (B2B) is expected to be submitted to the parliament for discussion and voting soon.

Charis Charalambous, Chairman

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Marios Hadjidamianou, Chairman

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18

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SHIPPING COMMITTEE

LIMASSOL-PAPHOS COORDINATING COMMITTEE Between 1 July and 30 September 2017, the Committee carried out the following activities: 12 September The Committee coordinated a seminar on Electronic Invoicing in Cyprus at the St Raphael Resort in Limassol.

20 September The Committee organised a Happy hour gathering for ICPAC members. The event was also dedicated to Frixos Savvides, recipient of the Instituteâ&#x20AC;&#x2122;s Outstanding Achievement Award for 2017. The gathering was held at the Marina Beach Bar in Limassol.

22 September The Committee coordinated a seminar on â&#x20AC;&#x153;IFRS 15 â&#x20AC;&#x201C; Revenue Recognitionâ&#x20AC;? at the St Raphael Resort in Limassol.

Neophytos H. Neophytou, Chairman

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Akis D. Kolokotronis, Chairman

In the 3rd quarter of 2017, the Committee continued to participate in the Ministry of Transport Shipping Incentive Schemes & Ship Registry Pricing Policy working group set up in an effort to develop a national shipping strategy. It also continued to discuss industry issues such as freight taxes, the Department of Merchant Shipping (DMS) forms (MSTTs), the restructuring of the DMS, and other matters. The Committee also discussed the proposed law on the establishment of the Deputy Ministry of Shipping and is currently in the process of submitting to the Minister of Transport its comments on the structure and terms of reference of the proposed Advisory Committee on Maritime Affairs.

Sylvia Loizidou, Chairwoman

NEW MEMBERS During the period July â&#x20AC;&#x201C; September 2017, the following persons were accepted as New Members of the Institute

SOCRATES

SOCRATOUS

Î&#x2018;CA

ARISTOS

ARISTARCHOU

ACCA

STELIOS

PAPANICOLAOU

ACCA

KALLIA

APOSTOLOU

Î&#x2018;CA

JOSEPH

Î&#x2018;NTONIADES

Î&#x2018;CA

MANTALENA - KRISTIA

PANAYI

ACCA

ANNA

IVANOVA

ACCA

STELLA

LAZAROU

Î&#x2018;CA

MARINA

PARASKEVA

ACCA

NICHOLAS

THOMA

Î&#x2018;CA

KYRIAKI

ATHANASIOU

ACCA

ANDREANA

PHIDIA

ACCA

LOUKIA

SIAMPLETTOU

Î&#x2018;CA

NATALIYA

KOBERNIK

ACCA

VRYONIS

ANTONIOU

Î&#x2018;CA

SOTEROULA

SAVVA

Î&#x2018;CA

IOANNIS

CHARALAMBOUS

Î&#x2018;CA

MARGARITA

STROVOLIDOU

Î&#x2018;CA

YIANNIS

SAVVIDES

ACCA

AMALIA

IOANNOU

Î&#x2018;CA

PANTELIS

FOULIS

ACCA

NIKI

PAPANICOALOU

ACCA

NORMAN VICTOR

HUMAN

SAICA

SOTEROULA

IOANNOU

Î&#x2018;Î&#x2122;Î&#x2018;

DEMETRA

DEMETRIADOU

Î&#x2018;CA

IRINA

STYLIANOU

ACCA

Mark Ashley

Bruce Smith

ACCA

Removals

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URGENT! VISION REQUIRED! WHAT CYPRUS CAN LEARN FROM CHINA

R

ecently I had the opportunity to visit China as an official guest of the Chinese government and the Chinese National Audit Office (CNAO). I was honoured to represent ICPAC at the CNAO’s international seminar, which was addressed to Supreme Audit Institutions, and I had the pleasure to be among the Auditors-General and Deputy Auditors-General

of six more countries of SouthEast Europe.

The overall experience was fantastic but I have to admit that I returned with mixed emotions. On the one hand, I was overwhelmed by what I had encountered in China and the unique hospitality that I had enjoyed but, on the other, I couldn’t refrain from comparing what I saw there with the reality in Cyprus!

It was a truly eye- and mindopening trip. If I were to summarize the lessons learned, it

would be these three simple words: Vision, Strategy and Commitment.

The Chinese government is clearly working with a vision, deploying the relevant strategies, employing all the necessary resources and remaining dedicated and committed to its goals and targets.

Although the Chinese National Audit Office was only established in the ‘80s, what it has achieved is magnificent. It currently employs more than 95.000 staff (!!!) and performs

Commitment, dedication and consistency are essential audit work on all governmental institutions and state-owned enterprises. It is committed to continuous training at all levels, hence it has its own academy based at the Nanjing Audit University, whose premises and facilities it shares.

A fundamental element in the CNAO’s work and train-

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By Kyriakos Iordanou, General Manager, ICPAC

ing is technology and it has succeeded in adapting its operations to today’s advanced technological era. To mention just one example, the Office changed its auditing strategy in 2004 as the available Internet speed at the time was considered slow and insufficient (i.e. ‘only’ 10mbps!).

Compare current internet speeds in Cyprus for business or home use… No further comment!

In addition, the CNAO has introduced Big Data audit tech-

niques on a large scale in order to foster efficiency and minimize costs. This also helps significantly in ensuring that the audit results are predominantly objective, free from bias, obtained on time and derive from a wider and deeper evaluation.

Furthermore, the CNAO’s mandate also includes what it calls a “performance and accountability audit”. Thus, it reviews the performance of government officials and checks the results achieved, while investigating whether those officials have taken advantage of their position for their own personal benefit.

It is obvious that China has decided to become a world leader in a number of areas and the country is investing hugely in order to achieve this aim. The Chinese have decided that becoming more outward-looking and learning from others will improve them further. They want to partner with other states and international organisations on projects outside China, giving special emphasis to developing their networks of cooperation.

During our stay, I had the honour to be hosted at three official dinners by the Auditor-General, her Deputy and the Deputy Mayor of Shanghai respectively.

Shanghai is an example that ought to be followed all over the world. In just 25 years, the authorities have turned the place around, converting the city into a spectacular creation. Despite its size (more than 24 million permanent residents), Shanghai is a blend of a traditional Chi-

nese city and a Western- type metropolis, where vision, perception, design, construction and execution combine perfectly with environmental concerns.

The result is phenomenal. And as the Deputy Mayor said, Shanghai is very interested in further development and cooperation with the rest of the world in order to render the city a global financial, shipping, tourism, technology, trade and innovation centre. This is the vision and everyone is working relentlessly to realise it.

Goals have been set and strategies designed in a manner that best supports this vision and everything is underpinned by the latest technological advancements, which are the cornerstone of the city’s growth and development. This is Shanghai’s new culture: to work on the future on today’s terms or, to put it differently, working today for tomorrow!

So, coming back to the reality of Cyprus, it is easy to spot the differences!

It is crucial that we go back to the drawing board in order to define our vision for the country, the economy and each sector individually, with all being congruent. We need to be honest and realistic in identifying our core competencies and our comparative advantages. This calls for a collective effort, where nobody can be spared, i.e. the political establishment, the public and private sector, academia and, of course, the younger generation of this country. In my opinion, it is of paramount importance to summon the

Our future modus operandi has to be based on technology institutional stakeholders of the economy and society, instead of individuals, as current practice stands, so as to avoid possible conflicts of interest and engage those stakeholders as entities.

We must then devise our longand short-term strategies and policies, coupled with the necessary resources and given the objective capabilities. In order to accomplish the above, commitment, dedication and consistency are essential.

At the same time, our future modus operandi has to be based on technology, passing into a digital transformation phase and rendering Cyprus digital.

It is time to think outside of the box and foresee the society, economy, business we want to have in the near future and start to work on it from today, based on a defined business plan.

All of the above need to be structured within a clearly defined vision and embraced by a new culture, where all of us are stakeholders. Should we truly decide to move on, there can be no alternative, no turning back.

We only need to learn from better examples, adopt best practices, adapt to the new state of play and improve; otherwise, we are doomed to remain stranded in our nirvana, lagging behind the rest of the developed world.

The need for a vision at national level is more than urgent.

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CYPRUSâ&#x20AC;&#x2122; NEW COMPLIANCE CULTURE

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â&#x20AC;&#x153;Many of the smaller banks have had to get to the point where they now have more compliance people [OHU [OL` OH]L SLUKPUN VÉ&#x2030;JLZ ;OH[»Z JYHa` ¹ Wilbur Ross, US Secretary of Commerce & former Vice-Chairman, Bank of Cyprus

C

orporate compliance and transparency are two key factors of growing importance for companies and organisations around the world and Cyprus is no exception.

Following the global Ã&#x201E;UHUJPHS JYPZPZ SH^ HUK WVSPJ` THRLYZ PU[YVK\JLK H U\TILY VM ZPNUPÃ&#x201E;JHU[ UL^ YLN\SH[PVUZ PU YLZWVUZL [V ^OPJO JVTWSPance has become a Board level issue in THU` ZLJ[VYZ ^P[O ZPNUPÃ&#x201E;JHU[S` PUJYLHZLK investment in compliance infrastructure and personnel to cope with the new demands of the times. Although increased compliance requirements undoubtedly place an additional commercial burden on an organization (as shown in the view expressed in the above quotation by WilI\Y 9VZZ [OL` HJ[\HSS` L_PZ[ [V LUZ\YL the long-term health of the banking and other sectors. Cyprus has adapted well [V [OL UL^ ZP[\H[PVU PU[YVK\JPUN UL^ SLNPZSH[PVU [OH[ OHZ ZPNUPÃ&#x201E;JHU[S` LUOHUJLK

the islandâ&#x20AC;&#x2122;s compliance framework. In the SVUN Y\U [OPZ ^PSS IL ILULÃ&#x201E;JPHS UV[ VUS` MVY JP[PaLUZ I\[ HSZV MVY *`WY\Z ^OPJO wishes to be viewed as an international I\ZPULZZ HUK Ã&#x201E;UHUJPHS JLU[YL ( SHJR VM JVTWSPHUJL VU [OL V[OLY OHUK JHU IL ]LY` KL[YPTLU[HS [V H I\ZPULZZ P[Z KPYLJ[VYZ HUK LTWSV`LLZ 0U [OL WHZ[ compliance may have been viewed ULNH[P]LS` I\[ HZ H MVYTLY <: +LW\[` ([[VYUL` .LULYHS 7H\S 4J5\S[` MHTV\ZS` ZHPK ¸0M `V\ [OPUR JVTWSPHUJL PZ L_WLUZP]L [Y` UVU JVTWSPHUJL¹ 0U YLJLU[ `LHYZ HUK WHY[PJ\SHYS` ZPUJL [OL JYPZPZ YLN\SH[LK LU[P[PLZ PU *`prus have had to deal with a growing number of regulations and most of them are taking their responsibilities seriously. /V^L]LY ^P[OV\[ WYVWLY PU[LYUHS JVU[YVSZ compliance policies that look perfect on paper can fail and the consequences can be substantial yet incalculable. Besides Ã&#x201E;UHUJPHS SVZZ [OL YPZR VM YLW\[H[PVUHS damage is of primary concern to regulated entities. It is the responsibility of each organisation to keep ahead by viewing

compliance not simply as a control function but as an integral part of the organisationâ&#x20AC;&#x2122;s business activities.

On the following pages we present views on compliance as expressed representa[P]LZ VM ]HYPV\Z ZLJ[VYZ ¶ IHURPUN SLNHS PUZ\YHUJL Ã&#x201E;K\JPHY` -VYL_ WYVMLZZPVUHS HUK Ã&#x201E;UHUJPHS ZLY]PJLZ ¶ HUK HZ `V\ ^PSS ZLL HSS [OL PU[LY]PL^LLZ HYL \UP[LK PU the view that (a) compliance is an essential component of the operations of HU` Z\JJLZZM\S VYNHUPZH[PVU HUK I [OH[ [OL )VHYK VM +PYLJ[VYZ PZ YLZWVUZPISL MVY setting the compliance culture and ensuring that it is understood and adopted by management and staff.

(Z *`WY\Z» Ã&#x201E;UHUJPHS Z[HIPSP[` HUK JYLKibility are being restored in the eyes of the PU[LYUH[PVUHS JVTT\UP[` P[ PZ PTWVY[HU[ that compliance is not seen as a burden I\[ PUZ[LHK HZ H \UPX\L VWWVY[\UP[` MVY organisations to stay ahead of the curve by developing long-term sound corporate governance.

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The View from CySEC

Andreas Andreou, Vice-Chairman, Cyprus Securities and Exchange Commission (CySEC)

The Board cannot and should not be involved in the everyday management of the company.

This is the role of the executives and senior officers

AWARENESS There is undoubtedly greater awareness in Cyprus of the need for stronger compliance by companies and organisations today than there was a decade ago and this was bound to be the case, bearing in mind that accounting scandals around the world have brought about significant changes in financial regulation. For instance, officers and directors of public companies are required to sign a statement in the financial reports which clearly means that they take more personal responsibility. This became manda-

tory, initially in the US, following the collapse of Enron and WorldCom in 2001. Also, CySECâ&#x20AC;&#x2122;s own investigations revealed that the problems that had accumulated, especially in the banking sector, were to a large extent the result of poor corporate governance, the lack of risk management and a disregard for basic compliance principles. Although awareness at board level is significantly higher these days, the level of willingness to disclose risks still leaves much to be desired. Furthermore, MiFID II, which will enter into force in January 2018,

implements new rules that take into account recent developments in the financial services environment, and particularly the financial crisis and technological growth, to improve the functioning of the financial markets in order to be more efficient, resilient and transparent.

SIGNIFICANCE When it comes to Europe, compliance will become even more significant in the future. I believe that its importance is widely understood and accepted.

In more mature financial centres, organisations

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strengthen their compliance functions to such a high level that qualified people are difficult to find and, therefore, are generously rewarded. I am glad to say that I sense this trend is developing in the financial market in Cyprus as well.

This makes me confident that we are moving in the right direction.

CORPORATE GOVERNANCE I believe it is one of the most important aspects. It operates like a firm’s compass, showing the way to the destination. If a firm adheres to corporate governance rules, it is certainly less probable that it will make mistakes and, if it does face difficulties, they are easier to overcome.

BOARD OF DIRECTORS Certainly, the role of the Board cannot be overstated. It must set out the framework within which an organisation operates and create the right culture within the organisation and its people, as this is the only way to make it responsible and compliant. But there is a fine line that must not be crossed. What I mean is that the Board cannot and should not be involved in the everyday management of the company. This is the role of the executives and senior officers.

Otherwise it could prove disastrous.

The Board should have an overview role to make sure that the policies that have been introduced are being properly implemented in order to safeguard good corporate governance. Moreover, Boards may periodically bring in outside experts to review the policies in place regard-

ing their effectiveness, performance and compliance.

‘Placing the interests of the client ahead of our own’ is a simple principle that is found in hundreds of pages of regulation ROBUST AND APPROPRIATE POLICIES In the past, we have seen firms that had these but still failed. The simple reason was that, although they had everything on paper, these policies were not followed and their Boards of Directors failed to properly overview their implementation. Good codes of conduct that bind employees to certain principles are also a good way to create the right culture that, in turn, will foster compliance. For example “placing the interests of the client ahead of our own” is a simple principle that is found in hundreds of pages of regulation.

PROFESSIONAL SERVICES, FINANCIAL AND BANKING SECTOR REGULATION

25

Generally, I believe that the existing framework is satisfactory. There can always be improvements but this is not the point. The point is to make professionals realise the importance of adhering to applicable laws and regulations and, of course, to apply sanctions where there are violations. It is equally important to apply the spirit rather than the letter of the law. The supervision of auditors has been stepped up with the creation of the Oversight Committee and audit firms are taking more rigorous measures to address the quality of audit reports. When it comes to consumers, I would say that they should be more aware of their rights and be more vigilant when choosing the right product for them.

IMPLEMENTATION Regulators should check during the licensing process that the proper compliance procedures are in place and that applicants will appoint qualified compliance officers. This effort should be continuous in the sense that regulators should perform regular on-site and off-site audits to determine if regulated entities are in compliance. Let me conclude by saying that trust is the cornerstone of every investment. Building the reputation of our jurisdiction requires a concerted effort. Αll market participants should contribute towards this by improving the quality of the services offered, thereby fostering trust and enhancing the reputation of Cyprus as a credible financial centre.

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The Banking Sector

Marios Skandalis, Director, Bank of Cyprus Group Compliance Division & President, Institute of Certified Public Accountants of Cyprus (ICPAC)

AWARENESS Despite the fact that Cyprus has always adopted one of the strictest regulatory frameworks, awareness of the need for a more robust and effective compliance function has increased tremendously over the last few years (especially since the bailout of the economy in March 2013), triggered primarily by the significant increase in the volume as well as the level of complication and complexity of the overall regulatory framework.

The enhancement of the compliance function is also the result of weaknesses that were occasionally evident in the area of effective imple-

mentation and monitoring of the compliance framework.

SIGNIFICANCE The compliance and anti-financial crime function is set to be one of the most significant corporate functions. All organisations have now realized that, unless their strategy is based on a robust compliance function, it is set to fail!

For this reason, they are now evolving and their focus is shifting from the increased resources and competency in the area of compliance of the past few years to the introduction of efficiencies and the deployment of Artificial Intelligence and digitization to turn the compli-

ance function into an efficient one, ready to effectively address all future regulatory challenges.

CORPORATE GOVERNANCE How important is heat for cooking or a foundation for erecting a building?

Effective corporate governance is what sets the tone of the overall compliance function.

Although not the only constituent factor, it is the primary

component for ensuring that all required compliance objectives are met. It is the prerequisite that will create the relevant mood in the middle management of the organization and drive the necessary buzz at its bottom level.

BOARD OF DIRECTORS Unless the Board of Directors is actively involved, not only in setting the right tone for com-

Transparency and Integrity should be the underlying components of any strategy or action plan

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competency is not enough to do so. What

is really needed to establish such a culture is The Central Transparency and Integrity should Bank of Cyprus Ethos! be the underlying components of any has been the strategy or action plan to be implemented and the shared values of all members of an main catalyst organisation. for the spectacular BANKING SECTOR REGULATION transformation As mentioned above, Cyprus had – and continues to have, to an even greater extent of the over the past 4 years – one of the strictest compliance regulatory frameworks. The key aspect of ensuring the further enhancement of function in its effectiveness concerns how this regulaall regulated tory framework actually applies in practice financial and is monitored. The focus for further strengthening should therefore be on the institutions in quality and efficiency of the implementaCyprus tion and monitoring aspect of it, rather pliance through the relevant risk appetite and other corporate governance-related policies, but also in ensuring that this tone is infused in the strategy and eventually in the various middle management action plans, the goal of effective corporate governance will never crystallize! A modern Board of Directors takes a further step and focuses on creating the right corporate culture of values which will inherently ensure that the principles of a robust compliance function apply effectively.

ROBUST AND APPROPRIATE POLICIES Prior to 2013, Cyprus had one of the best regulatory frameworks in Europe but we missed achieving its objectives in terms of rightly implementing and monitoring it. Any organisation can claim to have robust and appropriate policies/procedures/ systems but only a few can actually demonstrate through their results that this is so! This is why the competent regulatory authorities always seek to verify through factual data what regulated entities claim and this is the only way to ensure achievement of the compliance objectives.

Only organisations that focus on implementing the right corporate culture of values can actually demonstrate such factual data; having the necessary resources and

than on its size and complexity.

IMPLEMENTATION The Central Bank of Cyprus, which is the regulator of Cypriot banking services has, in my opinion, been the main catalyst for the spectacular transformation of the compliance function in all regulated financial institutions in Cyprus over the last 4 years.

The robustness of our new AML regulatory framework has been with no doubt one of the key developments that facilitated our exit from the Troika’s Economic Adjustment Programme!

The Cyprus economy now is gradually entering into recovery mode. It is crucial that the emphasis and focus at this stage should be to further fine-tune and enhance the effectiveness and efficiency of this robust regulatory framework, to ensure: • Its easy adaptability to each institution through the pursuance of principles guidance rather than procedural guidance • The practicality of its risk-based approach.

• A basis to easily promote and implement digitization and technological advancements in all respects, In this way, Cyprus will not only ensure that a robust compliance framework is in place but it will be given the necessary flexibility and the support of the regulatory

27

authorities so as to establish a competitive advantage over other jurisdictions that also focus on the financial services industry.

Monitoring is the other aspect on which focus should be demonstrated. All regulated institutions should ensure that they introduce internally rigorous and, where possible, automated monitoring procedures.

This will ensure that their policy and procedural frameworks apply effectively without any tedious effort. At the same time, the regulatory authorities should further enhance their monitoring/audit activities to ensure: Rigorous and effective audits by adopting a risk-based approach.

The practicality of the risk-based approach is further pursued through the recent guidelines issued by the European Supervisory Authorities (applicable from June 2018), which basically allow financial institutions to determine the extent of due diligence and riskiness of the customer involved, rather than imposing the risk categorization of specific groups of customers.

Pursuance of a supportive and coaching role rather than a punishing one Combating financial crime effectively is not a one-sided obligation but a common objective requiring coordinated and aligned actions by regulated entities, all regulators and other active stakeholders like the Unit for Combating Money-Laundering (MOKAS), the CCCI, CIPA, CIFA, the Ministry of Finance, etc. The remediation success over the last 4 years is largely due to this effective cooperation that needs to be further enhanced and strengthened.

A level playing field for all regulated institutions.

Compliance principles should not, under any circumstances, be compromised and used as a means of gaining a competitive advantage on an institutional basis. The regulators have a huge responsibility to prevent this by applying and ensuring a level playing field for all regulated entities, irrespective of size.

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The Insurance Sector

Eleana Spyris, Legal Advisor/Compliance Officer, Eurolife Ltd

Effective corporate governance promotes accountability at all levels and is a necessary pillar of a truly effective compliance framework

AWARENESS The 2008 financial crisis, the impact of which is still being felt in Cyprus, has brought about an increased awareness that stronger compliance is the means through which risks associated with illegal and unethical conduct are mitigated, allowing for major disasters and failures to be avoided.

Another crucial factor in raising awareness is the increased regulatory and reporting requirements, including the obligation for regulated entities to have a dedicated compliance function. The attention now afforded to a company’s

compliance framework by regulators and company stakeholders alike has also led to the elevation of compliance as one of the most important functions in today’s organisations.

SIGNIFICANCE I believe the benefits of a robust compliance framework are becoming increasingly apparent. Further to the obvious benefit of the avoidance of criminal charges, penalties or even revocations of licenses for violations of law, at its best compliance can significantly add to the value of your company.

Effective compliance can

help improve the company’s operations with internal rules and policies that assist in the prevention of errors and operational failures and safeguard the ethical treatment of clients. Its proper implementation ensures the positive image of a company and fosters consumer trust and confidence. As the role of compliance becomes better understood, escaping the confines of a businesslimiting ‘police function’ to become a more flexible and business-enhancing approach, it will become even more significant and necessary to the business operations of a company.

ACCOUNTANCY CYPRUS

CORPORATE GOVERNANCE Effective corporate governance allows for the clear establishment of roles and duties. Such clarity helps prevent the failure to identify critical issues and irregularities in the operations of the Company. In addition, the clear delineation of rules and procedures for the functioning of the Board of Directors and of Senior Management allows for transparency in the decision- making process and enhances the internal controls required for the safe and prudent management of a company. In my experience, effective corporate governance promotes accountability at all levels and is a necessary pillar of a truly effective compliance framework.

BOARD OF DIRECTORS Compliance is the responsibility of all the employees of a company or organization but the ultimate owner of compliance is always the Board of Directors as it is the Board that sets ‘the tone at the top’. A company’s compliance culture is established by the Board, which should not only visibly lead by example but should also provide the necessary oversight to ensure that appropriate internal controls are in place at all levels of an organisation and are sufficient. In our organisation, the role of the Board of Directors in setting the compliance culture of the company is fundamental.

Not only does the Board adhere to a set of corporate governance principles that allow for a sound governance framework but it also confirms that the company has the necessary policies and procedures in place to ensure strong risk

management and prudent compliance.

It takes a proactive role in safeguarding the sound and prudent management of the company. With a current regulatory regime that serves to emphasize Board accountability for company noncompliance, it is safe to say that that the Board’s involvement in ensuring company compliance is more necessary than ever.

ROBUST AND APPROPRIATE POLICIES Although it may initially appear that the creation of new rules and procedures does not add to efficiency but only increases the ‘red tape’ surrounding business operations, given time, practice actually indicates otherwise. Further to the fact that policies, processes and systems serve to reduce inefficiencies, errors and operational failures, they also offer a consistency to the quality of the company’s operations and safeguard the ethical treatment of the customer. The efficiency of compliance is enhanced when it takes a more flexible ‘hands on’ approach than that exacted by more traditionally minded notions of compliance. The goal is to embed compliance throughout the company or organisation and this can be achieved by ensuring not only that regulatory compliance is actively incorporated into business processes and workflows but that ethical standards and best practices are also maintained and appropriately reflected in the company’s operations.

INSURANCE SECTOR REGULATION The insurance sector has been subjected

29

The ultimate owner of compliance is always the Board of Directors as it is the Board that sets ‘the tone at the top’ to a strong regulatory regime brought about with the enactment of EU Solvency II Directive into Cyprus law.

EU legislation set to be implemented in 2018 serves to further safeguard the industry and protect consumers, by raising the standards for insurance distribution services and requiring insurance companies to provide more detailed and comprehensive pre-contractual information to clients regarding their insurance policies. The Cyprus regulatory framework is, to a great extent, the result of EU policies and laws enacted to regulate insurance businesses across Europe, the majority of which have a size and scope of operations that far exceed that of insurance businesses in Cyprus. Bearing this in mind, I would be more inclined to consider that the Cyprus insurance industry is already subject to a more than sufficient regulatory framework, than to suggest that even more regulation should be required.

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The Fiduciary Sector

Christos Michael, Managing Director, First Names Group & President of the Cyprus Fiduciary Association

AWARENESS Without any doubt, in the vast majority of organisations today – in the financial services sector at least – there is a much greater awareness of the need for stronger compliance. Over the last few years, we have seen the introduction of regulation to areas that were previously unregulated, like the fiduciary industry. Following pressure from international organisations like the OECD, the G20 and the European Commission, regulation and monitoring practices had to be aligned to international standards, which leaves very little room for regulated

companies to ignore regulation or try to hide from it.

of compliance will become heavier and unbearable.

SIGNIFICANCE

CORPORATE GOVERNANCE

Compliance is no more just part of the game in the financial services world but, in my view, it is “the name of the game” and will continue to be so in the coming years.

Although most organisations consider regulation as a “necessary evil” and simply try to live with it, I suspect that it won’t be long before they become cleverer and devote more effort and resources to gaining a competitive advantage through their advanced compliance systems and processes, otherwise the cost

Corporate governance always plays an important role in the effective implementation of policies and procedures and meeting compliance requirements is exactly about that. Compliance is about following a specific set of rules that the regulator has defined as critical in addressing a risk for a specific group of people, an industry, the economy or the community in general. Quite often, organisations find that these rules are usually about

“ticking the box” rather than about effective risk management and, as a result, this creates resistance to the implementation process.

Effective corporate governance ensures that the policy decided by management is embedded in the relevant procedures, while appropriate monitoring ensures that the defined procedures are implemented consistently.

BOARD OF DIRECTORS The Board definitely plays a critical role in defining and implementing an organisation’s culture, which can very often be the most important factor for the establishment

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and implementation of an effective compliance framework. In smaller organisations, where most board members are executives, they should act as role models in all aspects by demonstrating the right compliance culture and leading the implementation of policies and procedures. They also need to ensure that they monitor the implementation of all compliance policies and procedures across all levels and take appropriate corrective action as soon as they identify any gaps.

We can easily find and follow relevant examples by looking at the regulatory frameworks of some of the more advanced/ traditional financial services centres ROBUST AND APPROPRIATE POLICIES Efficiency can definitely be achieved with robust and appropriate policies, processes and systems but compliance usually requires changes to those policies, processes and systems that create inefficiencies and this is currently a huge challenge for the whole financial services industry. The experience up to now has been that compliance is an obstacle to efficiency for most organisations and their success and profitability are increasingly affected by their ability

to keep the right balance between these two conflicting forces.

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and the upgrading of the service offering under certain conditions.

FIDUCIARY SECTOR REGULATION

IMPLEMENTATION

I believe that the fiduciary sector needs a redesigned regulatory framework, one that is relevant and specific to the industry and capable of addressing the particular risks associated with it and, at the same time, raising the standards of the services offered. Currently, when people refer to regulation they only consider AML, which is definitely an important part but the regulation of a profession, sector or industry is much broader than AML. We can easily find and follow relevant examples, without the need to “reinvent the wheel” once again, by looking at the regulatory frameworks of some of the more advanced/traditional financial services centres with a mature fiduciary business. The Law that was enacted at the end of 2012 following pressure from the Troika simply aimed at the appointment of regulatory authorities for AML purposes for the fiduciary industry, as the whole financial services sector was under scrutiny following allegations of money laundering and our particular industry was not under the authority of any supervisory authority.

The Law does not impose any criteria for being licensed as a fiduciary service provider other than appointing a compliance officer and submitting an AML procedures manual to the relevant regulator. In essence, it doesn’t recognize any other risks for the industry (unless it deliberately ignores them) and, as a result, doesn’t impose even basic capital adequacy requirements or minimum professional indemnity and Directors’ and Officers’ insurance. The numbers in the industry talk for themselves: we have more than 750 licensed fiduciary companies on the island and the vast majority employ fewer than 20 people, a lot of them fewer than 10. Stronger regulation would force consolidation in the market

The first step towards effective compliance in fiduciary services is the implementation of a common regulatory framework, which should be specifically designed for the fiduciary industry. As there appears to be no intention at present to design a comprehensive framework that covers licensing, staffing requirements, capital adequacy, insurance coverage, etc., the minimum that should be done is the drafting and implementation of an AML Directive that imposes relevant and effective measures, which take into account the particular circumstances and risk of the fiduciary sector.

The biggest regulatory challenge to the fiduciary sector in Cyprus, apart from the constant changes and the introduction of new rules internationally, is the implementation of a directive that was designed for a different industry with a lot of the basic provisions being totally irrelevant to our industry. As a result, fiduciary companies either establish policies and implement monitoring processes that are parallel but not integrated with their business processes, in order to appear compliant (which defeats the ultimate purpose) or struggle to align and integrate the two, which is a hopeless process and bound to fail, with negative consequences for both the regulator and the regulated companies. Football and basketball are both sports with players and one ball but you cannot apply the rules of one sport to another! Likewise, banking, brokerage, investment and fiduciary services are all financial services but they have distinct characteristics, which create the need for distinct and separate regulation. We have examples of failures in our financial services industry over the last couple of decades, which are bound to happen again unless we take proactive corrective action.

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The Accounting & Audit Sector

Katerina Antoniou, Reputation & Practice Protection Director, Deloitte

AWARENESS In today’s financial jungle, compliance can sometimes make the difference between life and death. Regulators across the world are imposing big fines on offenders.

While only a decade ago, companies were paying lip service to compliance, they can no longer afford to ignore its significance. Compliance has never been so important.

SIGNIFICANCE Clearly the development of compliance will continue, perhaps at an even faster pace, to catch up with market’s rapid changing environ-

ment. MiFID II is testament to that. Product governance, for instance, is a new subject that will dominate the field of compliance in Europe next year when the new regulation comes into effect.

I believe that we might even see Compliance Committees on the Board in the future, just as we saw the creation of Audit Committees in the ‘70s.

CORPORATE GOVERNANCE Although poor corporate governance is typically perceived as responsible for many corporate failures, recent audit failures – as well

as compliance failures that resulted in huge fines for global banking giants – cannot be squarely attributed to the Board of Directors.

Inadequate resources or poorly trained senior compliance officers can have equally catastrophic results.

In the quest for performance, organisations sometimes ignore or even undermine the importance of compliance.

And while people are being rewarded for improving financial performance, nobody is being rewarded for improving the quality of compliance. Some organisations even view compliance as a burden on business when, in

reality, compliance is a driving factor for sales because it improves the quality of services. As long as these misconceptions about compliance continue to persist in audit and financial services, more problems will surface in the future. In a nutshell, effective corporate governance, together with effective compliance, are the pillars for a succesful organisation.

Compliance has never been so important

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In reality, compliance is a driving factor for sales because it improves the quality of services Without these two pillars, it would be in a disadvantageous position in meeting the high compliance requirements that regulators demand today.

Effective corporate governance is now embedded in many EU Directives and other local regulations, for example the new EU Directive 2014/56/EU on statutory audits of annual accounts and consolidated accounts and Regulation (EU) No 537/2014 on specific requirements regarding statutory audit of public-interest entities require that PIEs must have an Audit Committee composed of non-executive members with responsibilities for auditor selection procedure, pre-approval of Permissible Non-Audit Services, monitoring of auditor Independence, etc. Also International Standard on Auditing (ISA 260) requires that the auditor of a listed EU PIE must communicate with those charged with governance (TCWG) all relationships between the firm/network firm and the entity that may reasonably

be thought to bear on independence and any safeguards to eliminate identified threats to independence or reduce them to an acceptable level. These are only a few examples that indicate the importance regulators place on effective corporate governance and the responsibility they have.

BOARD OF DIRECTORS To further promote the engagement of the Board, it is important that it becomes more aware of the issues through internal training and outside conferences. This should be a continuous process. After setting up the overall strategic compliance objectives in an organization, a monitoring process must be in place to evaluate and consider future objectives.

ROBUST AND APPROPRIATE POLICIES The tone at the top is important but without robust and appropriate policies and adequate resources to address the organisation’s increasing compliance needs, the job cannot be done and eventually corners will be cut. This is a reality that Boards must understand or face the risk of missing an elephant, so to speak.

ACCOUNTING AND AUDIT SECTOR REGULATION As mentioned earlier, the new EU regulations are now very restrictive. I believe that organisations should become more aware of the compliance challenges

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through internal and external training because, ultimately, success is not measured by financial results at the year’s end. It takes only one mistake – one failed audit – to tarnish the reputation of even the biggest firm and that can spell disaster on a global scale. Like thousands of professionals, I was proud to work for Arthur Andersen in my younger years and it took just one big mistake to bring down the 88-year-old firm in 2001.

Equally, the promotion of ethical conduct in the organisation and adherence to a code of ethics is an excellent practice that works best with continuous education and training programmes. History has a habit of repeating itself when forgotten. The bottom line is that even the biggest and greatest organisations can be candidates for disaster. Sound supervision can play a decisive role in preventing one.

IMPLEMENTATION Enforcement of the rules can level the playing field but that requires resources that many regulators are currently deprived of. Perhaps some regulators should consider a risk-based approach to supervision and employ less conventional tactics, such as whistle blowing policies to warn them ahead of pending disasters. It is no exaggeration to say that some of the biggest financial disasters we’ve had in Cyprus over the past couple of decades could have been avoided had regulators enforced existing rules. Roads are safe, not because of the existence of speed limits but because the police are there to enforce them.

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The Legal Sector

Elias Neocleous, Managing Partner, Elias Neocleous & Co LLC

AWARENESS

SIGNIFICANCE

There certainly is increased awareness of the need for compliance and it is a product of many factors, the most important of which is the immense increase in regulation that has occurred in recent years. Anti-money laundering legislation has become much more wide-reaching, the pressure against tax evasion (and, unfortunately, against legitimate tax mitigation) has led to increased reporting and information exchange requirements and businesses are subject to more detailed and rigorous financial reporting requirements.

Compliance is set to gain even more significance and I do not see the regulatory tide turning any time soon. Ten years after the start of the global financial crisis, there is no sign of any sustained recovery and the global business and financial systems are still vulnerable.

People running businesses are under enormous pressure to deliver results, and this sometimes leads to them cutting corners â&#x20AC;&#x201C; the various vehicle emissions scandals being a case in point. In my opinion, regulation is likely to continue to increase in rigour and in scope, extending to previouslyuntouched areas.

CORPORATE GOVERNANCE Effective corporate governance is necessary but not sufficient. Ineffective corporate governance has been a factor in most major corporate failures all over

the world and also here in Cyprus. But corporate governance also needs to be backed up with effective monitoring and sanctions.

Otherwise rogue elements will find a way to bypass the controls and hide their misdeeds. Effective policing has a deterrent effect: if people know they are going to be found out they will be less likely to trangress than if they think they have a good chance of getting away with their misbehaviour.

The fear of detection and punishment BOARD OF DIRECTORS is the most There must be full comeffective mitment to good corporate governance and compliance deterrent

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throughout the organisation and it must be led from the top. Directors and senior management must not only be committed to compliance but they must also demonstrate that commitment, Otherwise, those lower down the chain of command will conclude that the organisation is merely paying lip service to the concept, and they will not take compliance seriously. I remember the case a few months ago of the chief executive of a major global company trying to unmask a whistleblower.

ROBUST AND APPROPRIATE POLICIES Organisations which operate honestly and transparently will succeed in the long term. They eliminate waste and reward the best people, increasing their efficiency and providing their customers with the best value. However, unscrupulous companies may be able to gain advantages in the short term by doing the opposite, for example by bribing corrupt government officials, as several international armaments companies are known to have done. The law must provide the appropriate tools to prevent this: self-regulation is not enough.

However, there does need to be a sense of proportion. I am rather afraid

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Organisations which operate honestly and transparently will succeed in the long term that, in some areas, regulation is being introduced for its own sake, without consideration of the costs and benefits.

Indeed, there is a widespread perception that regulation impacts disproportionately on law-abiding people, and is ineffective against organised criminals.

Let me give you one example. In order to fulfil their tax reporting obligations, banks have to obtain confirmation from their customers of their tax residence.

This requirement applies to all customers, even if the balance of their account is only a few euros. It is an enormous and costly administrative exercise, and for the overwhelming majority of customers it serves absolutely no purpose, since they receive no interest on their account, and have no tax to evade.

Governments and regulators should be focusing their resources on the big fish, who currently seem to be immune.

LEGAL SECTOR REGULATION The legal sector is, in my experience,

well-regulated, with the right balance being struck between allowing lawyers to get on with their businesses and ensuring that users of legal services and the wider public interest are safeguarded. Of course, there will always be cases from time to time that lead people to argue that more or less regulation is needed in certain areas but, on the whole, I consider the level of regulation is right.

IMPLEMENTATION I would not presume to offer advice to the regulators, who I believe are doing a good job. The only general comment I would make is that it is important for lawyers to know that, if they do breach standards, they will be found out and punished accordingly. In the final analysis, the fear of detection and punishment is the most effective deterrent. If people know that they cannot get away with bad behaviour, they will think twice before misbehaving.

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The Forex Sector

Regulation is continuously evolving so compliance is an integral part of being in business and our collective experience ensures that we are always up to date.

ROBUST AND APPROPRIATE POLICIES

AWARENESS A significant amount of regulation has been put in place in the last 10 years. Changing financial landscapes and technology have made it vital for companies to comply.

Regulation is not a static requirement: it is continuously evolving so compliance is an integral part of being in business.

SIGNIFICANCE Compliance will gain in significance as financial entities continue to work within a strict regulatory framework. I believe that the authorities will become more efficient when implementing and identifying the relevant requirements to protect the industry and the consumer.

CORPORATE GOVERNANCE Directors and management should be constantly aware of regulatory changes,

Systems and processes are vital to ensure that nothing slips through the net. Automation is a core focus in our business and this assists us in carrying out the processes efficiently, Eleana Massoura, holistically and thoroughly. It is important Head of Compliance, ForexTime Ltd (FXTM) to take a risk-based approach: if you analyse the risks you can mitigate them. I think current legislation should be updated in order to reflect todayâ&#x20AC;&#x2122;s environment; for example, nowadays everything is done electronically including the risks associated with non(from the registration and verification of the compliance. Companies need to ensure that client to the execution of the client) so actual the custodians of compliance are fit and processing in the industry is one step ahead proper to handle the position and that they of written regulation. More technological are equipped with the relevant academic integration would help improve compliance qualifications and experience to navigate and efficiency. this fast- paced and complex environment.

BOARD OF DIRECTORS Our Board of Directors closely monitors compliance at all levels of the company. I believe a strong and appropriately qualified Board is critical to the overall effectiveness and uptake of compliance initiatives.

The compliance ethos has to be infused throughout the entire company. Our Board of Directors is kept informed of all regulatory changes and actively participates in the discussions required to carry out compliance. The Board is made up of individuals that have many years in the industry

FOREX SECTOR REGULATION

The regulation that engulfs Forex is highly effective and it is evident that the rules are getting firmer. The key to a stronger framework is consistency on both sides of the equation; in other words there must be no exceptions to established rules.

IMPLEMENTATION The regulators should continue their on-site inspections, announce results from thematic reviews in order for the companies to adopt them and ensure that they have the same approach towards all brokers in the industry.

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Compliance: A Never-Ending Story ADVICE TO NEW COMPLIANCE OFFICERS ON SETTING UP A UNIT

By Maria Aristidou, Chief Compliance Officer, Cyprus Cooperative Bank

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few years ago, compliance was mainly perceived as the unit within a company which handled money laundering cases. Today it is much more complex than that and compliance plays an important role in the success of any business.

Compliance is not something you can study.

Compliance is a road of continuous knowledge and experience, which helps you develop and makes you able to deal with issues more maturely and confidently as time passes. It is not recommended that you should

take over full responsibility for a Compliance unit or the role of the Money Laundering Compliance Officer (MLCO) if you have no prior experience in this area.

The demands are high and prior experience is an absolute must for your and your organisation’s safety.

There is a huge volume of rules and regulations being issued on a daily basis, all requiring the Compliance Officer’s attention. You must ensure that you are a person who likes reading and finds the subject interesting.

Compliance is often perceived as a regulatory requirement that mainly

acts as an obstacle to business development. It is up to the Compliance team to convince people otherwise.

This is a clear goal that all Compliance Officers must achieve and it comes down to the skills of each one to gain understanding and cooperation from the business lines. Without such cooperation you will never be able to reach your goal.

Compliance is a neverending story. Be aware of what you are getting yourself into and of the long hours required to set up the unit before you can make it work efficiently and effectively.

Failures of regulatory per-

formance of others reflect on the Head of Compliance and/or the MLCO. The risks are high, equal to those taken by Directors, meaning that, in the worst case scenario, the Head of Compliance and the MLCO could be sent to jail or required to pay big administrative fines.

You must ensure that you are covered by Directors’ and Senior Officers’ Liability Insurance and that you receive adequate compensation for any risks you take. Your compensation should never be linked to the performance of the units monitored/reviewed by you.

You cannot do it alone. You

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must ensure that you are supported by a team of skilful, committed staff, who are bound to confidentiality. If the staff are not well trained and experienced, be prepared and ready to provide this training yourself. However, due to the risks involved, it is recommended that you demand adequately trained and skilful staff from the outset.

You must be aware that you have reporting obligations towards many parties: the Senior Executive Officer, Board committees, the Board and/or other supervisors/regulators locally and abroad. This requires excellent communication skills, good interpersonal relationships and a detailed knowledge of your area of command.

In most cases, your employer will have hired you because of an obligation to fill the position of Compliance Officer.

Don’t expect him/her to know what you should do and not do. Your must have the patience to train your boss and also other key players in the hierarchy of the organisation. Without senior

Compliance is often perceived as a regulatory requirement that mainly acts as an obstacle to business development.

It is up to the Compliance team to convince people otherwise

management support, there is little you can achieve alone.

There isn’t a ‘one size fits all’ template.

Depending on the size of the organisation, the following measures mentioned may be required to a different extent.

You must be able to identify which actions are necessary and to what extent they are required, based on your organisation’s risk profile.

REPORTING HIERARCHY It must be made clear to those in your organisational structure that the Compliance Unit reports directly to the Board. The Compliance Officer also reports to the Management because correcting any breaches must be undertaken at executive level. The Compliance Unit must be independent of any executive activities or activities that it is obliged to monitor.

Depending on the size of the organisation, and subject to the approval of the relevant regulatory authority, the Compliance and Risk Departments may be allowed to operate as one.

STRUCTURE As a first step, you need to identify the Unit’s processes and procedures and decide on the most efficient and effective internal structure, always taking into account the number of staff available and the possibility of new recruits.

You need to start with what is available but always have a ready agenda for the right number of staff for the future.

This must be clearly communicated to the HR Manager and the CEO. Assuming that you have the necessary – or at least an adequate – number of staff, the Compliance Unit usually has two departments: Regulatory and AML/TF. The Regulatory Department deals with the monitoring of all the rules and regulations that are relevant to the organisation’s operations and ensures the organisation’s compliance.

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The AML/TF department deals with the prevention and monitoring of AML/TF risks and handles suspicious cases. The provision of guidance to other divisions on these two areas is also part of the CU’s duties.

INTERNAL PROCEDURES It is recommended that you prepare a CU procedures manual. This will not only help your staff to have a clear understanding of what to do and how to

Communication and constant interaction with all involved parties creates trust, mutual understanding and a compliance culture do it but will help others in the organisation to understand your role. Areas covered in the CU manual may include the following, depending on the business sector in which your organisation is active: Regulatory Department Procedures • The Compliance Charter and Policy and keeping them updated.

• How to be aware of changes in the regulatory framework at all times.

• How, when and whom you notify of such regulatory changes.

• Monitoring the implementation of regulatory changes.

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The Compliance Officer or the MLCO must provide at least one training session per year • How you are informed of any regulatory breaches in the organisation.

• How often and to whom you report regulatory compliance level or regulatory breaches.

• Preparing and submitting regulatory reports.

• Assessing compliance risk and how this is communicated to/shared with the Risk Department.

• How other divisions contact the CU for guidance, identifying the areas which are within the scope of Compliance work and how the CU staff should respond.

AML/TF Department Procedures • The AML/TF procedures manual (you need to provide for the role of the MLCO or the Compliance Officer, which may be carried out by the same person).

• AML/TF policy.

Sanctions policy.

• Customer Acceptance policy.

• Assessing high-risk countries, to be incorporated into your client acceptance policy and risk categories.

• Assessing third parties for KYC reliance.

• Assessing correspondent banks for Vostro accounts (applies only to banks).

• Assessing AML/TF risks.

• Monitoring suspicious transactions (depending on the size of your organisation, automatic checking systems may be necessary).

• Assessing suspicious transactions/activity reports and filing SARs/STRs to the FIU. • Provision of guidance to other departments as and when necessary.

• Provision of opinion on the onboarding of new clients categorised as High Risk.

• Provision of Training to the organisation • How often and to whom you report AML/TF compliance level or regulatory breaches.

• Archiving – audit trail.

All the actions of the CU must be stated in the Annual Compliance Plan, which must be approved by the Board and monitored by the CEO and the Board.

The Annual Compliance Plan reflects the actions deemed necessary within the year, based on the findings of the annual compliance risk assessment.

EDUCATING THE ORGANISATION Once the framework is set up, the Compliance Officer needs to get out and communicate it to his/her colleagues and the Board of Directors. Communication and constant interaction with all involved parties creates trust, mutual understanding and a compliance culture, which it is a whole topic by itself!

This exercise takes time and it needs patience. Don’t be disappointed if you provide training and still observe the same mistakes or the same attitudes. Repeat the seminars as necessary until you

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achieve the desired results, which will be achieved when people bear compliance and the risk appetite of the organisation in mind when they do business. When the Compliance Unit becomes active, it can create a shock to the business, which may be followed by resilient opposition.

Through constant interaction, explanation and training, this will lessen and cooperation will be achieved. Such cooperation is necessary if the organisation wants to achieve its business goals and avoid regulatory fines.

It is recommended that each year you develop a training programme based on the areas in which you have identified weaknesses during the Risk Assessment process. It is also recommended that you prepare different sessions for the Board and Senior Management and for the business lines. For each group, you must ensure that you offer the necessary depth of training. For example, for the Board you must cover the role of the CU, the main regulatory obligations and possible penalties for non-compliance, while for the Senior Management you must cover the same areas as for the Board but add a chapter on the challenges faced during regulatory implementation and how they can be handled. For the business lines, you must explain the CU’s role and go through the compliance/AML/TF procedures in detail.

You may provide the training via external trainers or e-learning but I strongly believe that the Compliance Officer or the MLCO must provide at least one training session per year, in addition to the continuous guidance that they must offer.

To conclude, compliance is not a joke.

You either love it or hate it. But once you love it you will see that it’s a thrilling area, full of challenges which never end! Good luck!

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KEEPING THE AUDIT PROFESSION ATTRACTIVE A SUMMARY OF THE MAIN FINDINGS OF A PAPER ISSUED IN JULY 2017 BY ACCOUNTANCY EUROPE (AE).

By Panicos Charalambous, FCCA, Managing Director, PKC Quality Training Ltd, Director, Professional Studies & Senior Lecturer, P. Stylianides Institute of Accountancy

INTRODUCTION Following previous stakeholder discussions, it seems that a career in audit is less appealing today than before. The paper starts by explaining why this project was undertaken and attempts to understand which features of the audit profession may act as a barrier to attracting professionals.

Despite some concerns, the relevance and role of audit in society is undeniable. The audit profession has a role to play in a sustainable economy and in answering to the evolving needs of the business world. It is key that the audit profession remains able to attract high quality professionals, given the changes and challenges it faces in the

European Union after the regulatory complexity and stricter requirements introduced by the audit reform.

Technology is also at the top of the agenda.

New digital tools such as Data Analytics and Artificial Intelligence (AI) are on the brink of being implemented, especially by the larger audit firms. This will have profound implications on the way that an audit is performed and on the role of the auditor.

ATTRACTIVENESS The best way to keep the audit profession attractive is to promote its achievements and the benefits it brings to society, especially now that auditors often find them-

Very strict requirements and high failure rates can discourage a lot of candidates, including the best ones, from considering entering the profession

selves in the spotlight when something has gone wrong. It is, therefore, important that clients, investors and society as a whole can easily perceive the positive value of an audit.

Students need to be told the right story and what the attractive features of a career in audit are (e.g. develop professional judgement, get a greater insight to the business world, be part of an international working environment, be part of strategic discussions with high level management, etc.).

Millennials in particular want to be part of a profession that performs rewarding work and where they feel that they are contributing to a better society. The audit profession needs to recognize this.

RETENTION A 15-20% annual turnover in staff is common, especially in larger audit firms. Over time, the average number of years that young professionals remain in the audit profession has been decreasing from five to

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We need to maintain a strong human dimension of the audit profession three years. This is partly explained by the fact that the audit profession is a very good starting point for rapid career progression, known as a source of desirable talents and qualities for the business world. Audit firms face the constant challenge of managing the outflow of staff, especially in periods of economic growth with more jobs and opportunities elsewhere in the job market.

Staff turnover also leads to a loss of knowledge and experience within audit firms and some inefficiencies as new members of staff have to be trained and integrated within the audit teams each year, requiring continuous investments. On the other hand, audit firms can also benefit from the fresh ideas and skills that newly hired people bring in. This aspect is especially important at times when an ability to adapt to new situations is key.

REGISTERED AUDITOR: TO BE OR NOT TO BE? Strict requirements to enter the profession tend to be seen as a way to ensure that only the very best professionals are able to become registered auditors. In turn, you

would expect this to be evidenced in enhanced audit quality. But this may not be necessarily true. Very strict requirements and high failure rates can discourage a lot of candidates, including the best ones, from considering entering the profession. Young professionals see this as a low return on such a high investment, especially when they compare audit with other non-regulated professions (e.g. advisory, consultancy, etc.).

REGULATION Following audit reform in the EU, several aspects of the audit profession are now subject to tougher regulation. This helps reinforce the public interest dimension of the profession but increased regulation may have a negative impact on the attractiveness of the audit profession in the long run. This can deter students from joining an audit firm or, even if they do join, to opt for another area in the firm (e.g. consultancy). Although they understand that this is part of the job, they notice that the nature of their work gradually changes, focusing more on tasks related to oversight and quality assurance.

The common goal should be to achieve the best audit quality.

COMPLIANCE MINDSET In some instances, the audit profession has been gradually developing a compliance mindset to the detriment of the use of professional judgement. This can act as a deterrent factor for students as they may view the work of the auditor as a mere box-ticking exercise with limited intellectual challenge and therefore perceive the audit profession negatively. But what has led to this compliance mindset? On the one hand, the regulatory environment is increasingly complex and the approach taken by the audit supervisory authorities may have encouraged a box-ticking exercise. Audit firms sometimes feel that the substance of their work is not even being challenged or that the supervisory authorities are more interested in the steps followed in the audit process than the key judgements made. Conversely, in order to be efficient and consistent, audit firms, especially the larger ones, often adopt strict internal procedures applicable to the whole network, sometimes limiting creativity and

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We need to maintain a strong human dimension of the audit profession opportunity for adaptation.

The appropriate balance between demonstrating compliance and exercising professional judgement while focusing on audit quality might be found by: • Placing greater emphasis on the judgmental aspects of the audit • Providing more training and development on ethical and assertive behaviour • Focusing more on the thought process within the judgments made instead of documenting every step

TECHNOLOGY The millennial generation is proficient in the use of modern technology. Automation of audit processes may lead to a decrease in the number of staff that firms need. However, such developments might provide the auditor of the future with the opportunity to focus more on substantive matters and to apply professional judgment, eliminating many current mechanical and complianceoriented tasks. Technology is seen as a means to improve audit quality and not only audit efficiency. In parallel, the efficiencies from the use of these new tools such as Data Analytics and AI might enable audit firms to focus on new areas of work.

WORK-LIFE BALANCE This is still an important factor deterring students from joining the profession and a contributing factor in auditors leaving the profession. The new generation of auditors seems to value increasingly its personal and social achievements, imposing a new equilibrium regarding work-life balance on the audit firms. Aware of this, audit firms have become more flexible and have developed new ways to meet the demands of the millennial generation.

AUDITOR SKILLSET AND INTERACTION WITH OTHER PROFESSIONALS Auditors have to increasingly engage with professionals with very different backgrounds in order to perform their work.

The more specialists get involved in an audit, the more skillsets auditors have to change to ensure that they understand what

specialists are telling them. In this context, project management skills will become even more important.

education and to develop their study programs accordingly.

THE IMPORTANCE OF SOCIAL SKILLS

Other actions taken by our members include broadening the auditor’s profile, setting up forums of young professionals, promoting the achievements of the audit profession and maintaining a close contact with regulators.

OTHER ACTIONS Audit is a people business. Communication is at the core of the work of the auditor. It is therefore essential that auditors continue to develop their soft skills (and especially social skills) to better engage with all relevant stakeholders. Technology may create a more distant relationship with clients, with potential negative consequences in the long run as the work of the auditor is done with less contact with the client.

A good relationship with the client undoubtedly provides a better understanding of the business model, enhancing the ability to ‘read’ the client. We need to maintain a strong human dimension of the audit profession. This is especially important when auditing SMEs (trusted business advisor).

GROWING DEMAND FOR SPECIALIZED PROFESSIONALS This is due to three main factors: technology, increasing complexity in financial reporting and new services provided by audit firms. The growth in specialized professionals also results from the market demand for other types of services to be provided by audit firms, mainly concerning non-financial information. Audit firms need to involve professionals with different types of expertise, such as data specialists, environmentalists, engineers, economists or sociologists. A well balanced multi-disciplinary team is key to face the challenges ahead. Audit firms have to appear at least equally competitive and attractive to these professionals who have an extensive range of career opportunities available to them.

INTERACTION WITH UNIVERSITIES A close interaction with universities allows students to better understand what they can expect from the audit profession and what is expected of them when they join an audit firm, for example through the use of case studies. This also enables universities to better understand market needs in terms of

WHAT SHOULD BE DONE? Audit firms should: • Take advantage of new technologies and introduce, where possible, flexible working practices for their employees in order to improve work-life balance • Adapt their recruitment model in order to cope with the challenges posed by the growing need for professionals without an audit or accounting background • Be particularly transparent and realistic regarding the use of technology in some of the audit procedures Audit firms and professional bodies should: • Address the public perception issue that the profession faces and promote the achievements of auditors and their contribution to society • Better explain what an audit is about in order to inform students about the profession.

• Develop initiatives to broaden the auditors skillset Audit firms, professional bodies and regulators should: • Work together to find the appropriate balance between demonstrating compliance and applying professional judgement to achieve the ultimate desired objective: audit quality.

Professional bodies and regulators should: • Reflect on how to achieve a balance between demanding requirements to join the profession and ensuring that the best professionals are not discouraged from becoming registered auditors.

(The full paper can be accessed at www.accountancyeurope.eu and at the IFAC website www.ifac.org)

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DISCLOSING GOVERNMENT PAYMENTS: IMPLICATIONS FOR THE OIL & GAS INDUSTRY

By Charlie Anastasiades A Associate, Energy Team, PwC Cyprus

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n estimated 3.5 billion people live in countries endowed with oil, gas and mineral reserves. Despite the fact that the citizens of these countries are the legal owners of the natural resources, in many cases governments have hindered the efficient exploitation of such resources, resulting in unequal wealth distribution, poverty and a lack of sustainable economic development. Evidence suggests that this

occurs mainly in under-developed countries, with high levels of corruption and a lack of transparency.

There are a number of examples of nations with a long history of poor governance and corruption which, despite significant hydrocarbon discoveries and an initial hope of long-term development, have experienced almost total economic collapse. Per capita income dropped to half of what it was before the hydrocarbons were discovered and only a fraction of total oil & gas revenues accruing to the government was transferred to the budget, with the majority not properly accounted for.

The Extractive Industries Transparency Initiative (“EITI”), introduced in 2002, was the first major global initiative aimed at promoting revenue transparency and accountability in the extractive sector (oil, gas & mining). The EITI supports improved governance through the verification and disclosure of company pay-

EU and US regulators have made efforts to create a global standard for transparency and accountability in the extractive sector ments and government revenues (a country’s decision to implement the EITI is taken voluntarily).

In recent years, EU and US regulators have made efforts to create a global standard for transparency and accountability in the extractive sector, based largely on the principles/guidelines set out by the EITI. In 2010, the US introduced Section 1504 of the Dodd-Frank Act and in 2013, the EU brought into force the amended Accounting and Transparency Directives. More recently, the relevant payment disclosure rule applicable to oil, gas and mining companies operating in the US has been repealed.

Even though EU Directives are much wider in scope, here we focus on the specific rule requiring disclosure of payments to governments by extractive companies and discuss key aspects of the new reporting rule, which is based on the provisions of the new Accounting Directive (2013/34/EU) and also the relevant Cyprus Companies Law, Cap. 113 (Annex 13) which transposes the said Directive into local legislation.

Who needs to report and for which activities?

Companies active in the extractive sector (i.e. involved in the extraction of crude petroleum or natural gas, or involved in the mining and quarrying of various commodities) or the logging of primary forests which are either Public Interest Entities (“PIEs”) (notably listed entities on EU regulated markets) or are Large undertakings incorporated in the EU. This does not include entities

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that only provide ancillary and support services. Companies are required to report all payments over â&#x201A;Ź100,000 (whether made as a single payment or a series of payments) made to governments (including local authorities, organisations and companies controlled by governments) of the countries in which they operate in relation to their activities stated above.

How do the rules apply to consolidated groups?

Parent undertakings are required to prepare a consolidated report if any subsidiaries are active in the stated industries, subject to the exemptions mentioned below. Such a consolidated report should only include payments resulting from those activities.

Who is responsible for reporting in the case of a Joint Venture?

All members of a joint venture are required to report any payments that they individually make directly to governments. There are differences of opinion on the correct treatment of payments that operators of joint ventures make to governments on behalf of all of the partners of the joint venture. In most cases, operators will report the full amount of the payment they made on behalf of the joint venture (which results in the other partners having to state that they do not need to report any proportion of the payment as it was already made by the operator). In some cases, however, non-operators have reported their proportional share of payments made by operators. Currently, there is no specific guidance issued within the relevant Cypriot Law to clarify this.

by value and, where applicable by volume (e.g. in the case of production entitlements).

If reported by value, the method used to determine the value should be disclosed.

How should the payments be disclosed?

For entities operating out of Cyprus and subject to the provisions of the EU Directive, the rule is to be applied for the financial year beginning on or after January 1, 2016. There is no prescribed EU-wide format and deadline for producing the relevant information; this will depend on implementation by each member state. For large (non-PIE) undertakings there is no deadline specification in the relevant Cypriot Law; the report, however, must be attached to the companyâ&#x20AC;&#x2122;s annual report and must therefore comply with annual report submission deadlines as per Article 120 of the Cypriot Companies Law, Cap. 113.

For PIEs, the deadline is set by the Directive at six months after the financial year end.

quirement as per Article 121, Annex 13 of the Cyprus Companies Law, Cap.113, which include subsidiaries or parent companies which are included in consolidated reports and companies that are already subject to equivalent reporting.

Are there any penalties for not complying with this disclosure requirement?

Failure to comply is considered a criminal offence and every official responsible for the omission is subject to a fine of a maximum of â&#x201A;Ź8,000. By July 2018, the European Commission will review and report on the implementation and effectiveness of the requirements. The review will take into account international developments and will consider other aspects such as whether the report should be audited, the possibility of extending to other sectors, etc.

Conclusion There is a wide range of examples of countries, which have suffered economically and socially due to poor governance and corruption. Western and other societies have been experiencing an intensive social plea for increased transparency and accountability by corporations and governments. We are, therefore, of the opinion that companies affected should carefully study the new reporting requirements regarding payments to governments and proceed with full transparency to disclose all required information. Even the voluntary disclosure of such information could be beneficial.

Every new legal obligation creates challenges in thoroughly understanding and complying with the Is an audit of the report required?

What types of payments must be requirements. Companies will This is not required at the moment. Howreported? first of all have to consider the ever, the rule calls for a post-implementation applicability of the rule to their According to Article 121, Annex 13 of the review (performed by the European ComCyprus Companies Law, Cap. 113 these business and examine the apmission by July 2018), which will consider include: (a) Production entitlements, (b) petite for voluntary applicawhether the report should be audited in the taxes on income, production or profits, (c) tion of the rule, and then royalties, (d) dividends, (e) signature, discov- future. In practice, a number of companies in ensure that they develop the ery and production bonuses, (f) licence fees, other EU member states have sought a limappropriate policies, systems, ited assurance opinion from audit firms on rental fees, entry fees and other consideraprocesses and controls for tions for licences and/or concessions, (g) pay- this information. the collection and review of ments for infrastructure improvements. the required information in Are there any exemptions from this report- order to comply with the ing requirement?

How are in-kind payments valued? new requirements by the Payments in kind are required to be reported There are exemptions to the reporting reeffective date.

Companies should carefully study the new reporting requirements regarding payments to governments and disclose all required information

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FUNDAMENTAL CHANGE IFRS 17 WILL BRING ABOUT THE BIGGEST SHAKE-UP OF INSURANCE REPORTING FOR DECADES

By Nicos S. Stavrou Director, Assurance & Advisory, PwC Cyprus

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n 18 May 2017, the International Accounting Standards Board (IASB) concluded its long-standing project to develop an accounting standard on insurance contracts and published IFRS 17, ‘Insurance Contracts’. IFRS 17 replaces IFRS 4, which permitted a broad range of varying practices. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features. The standard is applicable to annual accounting periods commencing on or after 1 January 2021, with earlier application permitted provided IFRS 15, ‘Revenue

from Contracts with Customers’, and IFRS 9, ‘Financial Instruments’, are also applied.

SCOPE IFRS 17 applies to insurance contracts issued, to all reinsurance contracts and to investment contracts with discretionary participating features if an entity also issues insurance contracts. For fixed-fee service contracts whose primary purpose is the provision of services, entities have an accounting policy choice: to account for them in accordance with either IFRS 17 or IFRS 15. Similar to the position under IFRS 4, financial guarantee contracts are allowed to be within the scope of IFRS 17 if the entity has previously asserted explicitly that it regards them as

IFRS 17 transition will inevitably represent a long implementation process.

insurance contracts.

Insurance contracts (other than reinsurance), where the entity is a policyholder, are not within the scope of IFRS 17. Embedded derivatives and non-distinct investment and service components should be ‘unbundled’ and accounted for separately in accordance with the related IFRSs. Voluntary unbundling of other components is prohibited.

THE MEASUREMENT MODEL IFRS 17 requires a current measurement model, where estimates are remeasured in each reporting period. The measurement is based on the building blocks of discounted, probability-weighted cash flows, a risk adjustment and a contractual service margin (CSM) representing the unearned profit of the contract.

A simplified premium allocation approach is permitted for the liability for the remaining coverage if it provides a measurement that is not materially different from the general

model or if the coverage period is one year or less. However, claims incurred will need to be measured based on the building blocks of discounted, risk-adjusted, probability weighted cash flows.

For presentation and measurement, insurers are required at initial recognition to disaggregate a portfolio (that is, contracts that are subject to similar risks and managed together as a single pool) into three groups of contracts: onerous; no significant risk of becoming onerous; and remaining contracts.

Changes in cash flows related to future services should be recognised against the CSM. The CSM cannot be negative, so changes in future cash flows that are greater than the remaining CSM are recognised in profit or loss. Interest is accreted on the CSM at rates locked in at initial recognition of a contract. To reflect the service provided, the CSM is released to profit or loss in each period on the basis of

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IFRS 17 will impact businesses well beyond the finance, actuarial and systems development areas passage of time.

Under IFRS 17, entities have an accounting policy choice to recognise the impact of changes in discount rates and other assumptions that relate to financial risks either in profit or loss or in other comprehensive income (‘OCI’).

The OCI option for insurance liabilities reduces some volatility in profit or loss for insurers where financial assets are measured at amortised cost or fair value through OCI. The variable-fee approach is required for insurance contracts that specify a link between payments to the policyholder and the returns on underlying items, such as some ‘participating’, ‘with profits’ and ‘unit linked’ contracts. The interest on the CSM for such contracts is accreted implicitly by adjusting the CSM for the change in the variable fee. The variable fee represents the entity’s share of the fair value of the underlying items less amounts payable to policyholders that

do not vary based on the underlying items. The CSM is also adjusted for the time value of money and the effect of changes in financial risks not arising from underlying items such as options and guarantees.

Requirements in IFRS 17 align the presentation of revenue with other industries. Revenue is allocated to periods in proportion to the value of expected coverage and other services that the insurer provides in the period, and claims are presented when incurred. Investment components (that is, amounts repaid to policyholders even if the insured event does not occur) are excluded from revenue and claims.

Insurers are required to disclose information about amounts, judgments and risks arising from insurance contracts. The disclosure requirements are more detailed than currently required under IFRS 4.

On transition to IFRS 17,

an entity applies IFRS 17 retrospectively to groups of insurance contracts, unless it is impracticable. In this case, the entity is permitted to choose between a modified retrospective approach and the fair value approach. In applying a modified retrospective approach, the entity achieves the closest outcome to retrospective application using reasonable and supportable information and choosing from a list of available simplifications. Alternatively, the CSM at transition can be based on fair value at transition. In practice, using different approaches to transition could result in significantly different outcomes that will drive profit recognised in future periods for contracts in force on transition.

SYSTEMIC IMPACT IFRS 17 will impact businesses well beyond the finance, actuarial and systems development areas (for example, product design and distribution, development of revised incentive and

wider remuneration policies and reconfigured budgeting and forecasting methodologies feeding into business planning). There could also be an impact on the cash tax position and dividends, both on transition and going forward.

IFRS 17 transition will inevitably represent a long implementation process. Gap analysis and impact assessments to develop an implementation roadmap will enable entities to begin the detailed implementation project. A fundamental shift might be required in the way in which data is collected, stored and analysed, changing the emphasis from a prospective to a retrospective basis of analysis and introducing a more granular level of measurement and additional disclosures. Before the effective date, insurers will need to diligently craft and manage the impact that IFRS17 will have on investors and analysts, as well as the key metrics that they will apply in the new era of insurance reporting.

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CORPORATE RESTRUCTURING PLANS AND THEIR IMPORTANCE TO THE ECONOMY

By Georgios Karrotsakis, Head,Insolvency Service of Cyprus and Bankruptcies and Liquidations Section, Department of Registrar of Companies and Official Receiver

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he leading principles in introducing and implementing the Insolvency Regime of 2015 were those of encouraging investments, sustainable economic growth and social cohesion, decreasing non-performing loans and maintaining employment. With regard to corporations, these are now reflected in the corporate restructuring mechanism of Examinership, a tool that enables viable companies to restructure both financially and operationally.

Financial research by the European Commission has indicated that restructuring mechanisms should be utilized for finding viable solutions for companies that face financial difficulties, so as to encourage the

When a company closes down, it inflicts financial shortcomings not only on its creditors but on the economy of the state

continuation of their commercial activity and maintain employment. It is crucial to understand that, when a company closes down, it inflicts financial shortcomings not only on its creditors but on the economy of the state.

The Insolvency Service is constantly providing information to businesses, credit institutions and the public at large on the restructuring tools provided, both personal and corporate, mainly via its website, which is enhanced daily, through the media and the circulation of manuals.

As for the implementation and promotion of Examinership, the Insolvency Service, in collaboration with the Cyprus Chamber of Commerce & Industry and the Employers & Industrialists Federation is conducting a campaign which includes seminars to inform businessmen on this restructuring tool. Further, the Insolvency Service has issued informative guides on the Examinership procedure, which have been distributed to all members of the said organisations.

Restructuring through Examinership This procedure may be initiated by appli-

cation of the debtor-company, any of its creditors, including future or contingent ones, any employee, guarantor or even a shareholder holding more than 10% of the company’s paid up share capital. To enter Examinership, a company must be unable to pay its debts as these fall due, and have a reasonable prospect of survival as a whole or any part of it as a going concern. A company that is already in liquidation by Court Order or by the relevant special resolution of its members, cannot enter Examinership. If, however, a Receiver and Manager is appointed by a floating charge holder, the company itself may apply to the Court for Examinership within 30 days of the Receiver’s appointment.

The Court evaluates mainly the prospect of survival of the company as a whole or any part of it and, if there is reasonable prospect of survival of the business as a going concern, it will appoint an Examiner. With the same Court order, the company is set under Court protection for an initial period of four months, with a right to extend this time limit under special circumstances. During this stay of proceedings, the creditors of the company cannot initiate any procedure against it, nor may any of its guarantors without the Court’s consent, liquidate it and this is to provide and ensure the time and conditions necessary for the Examiner to negotiate with all stakeholders and prepare a restructuring plan. Also, any organisations or corporations providing utilities to the company will continue to do so during the protection period, provided the company pays the cost.

The appointed Examiner must be an Insolvency Practitioner, licensed by either the Insolvency Service, the Institute of Certified Public Accountants of Cyprus or the Cyprus Bar Association, and registered

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in the Insolvency Practitioners’ Register kept by the Insolvency Service and published on its website. The Examiner has the power to call, attend, vote and preside over Board meetings and shareholders’ meetings but does not, in any case, replace or set aside the Board of Directors, unless special circumstances apply and the Court so orders.

The Examiner must prepare and submit to Court within 60 days of his/her appointment a report referring, among others, to the present and expected future assets and liabilities of the company, a list of its creditors, the proposed restructuring plan set before the creditors and contributors committee for approval, the classes of creditors and contributors that voted in respect of the proposed plan, the voting procedure and its results.

The Court will examine the Examiner’s application for confirmation of the plan, along with his/her report and any objections by any creditor or contributors and decide whether to affirm in its entirety, affirm with amendments or decline the proposed restructuring plan or any proposal set before it. In doing so, the Court will consider whether the proposed plan is just and equitable for the viability of the company and to maintain employment and to see that creditors are not set in a worse position than they would have been, had the company been wound up.

Further, the Court in approving a proposed plan, considers the provisions of the Unfair Terms in Consumer Contracts Law and the Liberalisation of the Interest Rate and Related Matters Law. Once the proposed restructuring plan is affirmed by the Court, all affected parties are bound by its provisions and the plan must be effected within 30 days of the relevant Court order. Upon the issuance of the Court order affirming the plan, the

protection period expires and the Examiner’s appointment is terminated.

Restructuring an entrepreneur’s corporate and personal debts simultaneously An entrepreneur who has mortgaged his primary residence to finance his business may be eligible to apply for the simultaneous restructuring of both his personal and corporate debts. This is achieved through the coordinated scheme, which is designed to restructure the loans of a natural person owning micro-companies with up to 10 employees, (SMEs with up to 10 employees represent approximately 96% of Cyprus’ SMEs), without having to remove the corporate veil, with the aim of protecting the primary residence that has been mortgaged to finance businesses activities and operations. This is a new, pioneering insolvency practice introduced throughout Europe, aiming to boost business continuity, sustainability, maintaining employment and social cohesion.

The prerequisite for entering a coordinated scheme is that the entrepreneur’s primary residence is mortgaged or in any way withheld as a guarantee, for financing his/her micro-business. In a coordinated scheme, the insolvency practitioner appointed by the debtor prepares and proposes plans for the restructuring of the entrepreneur’s personal debts, affirms them through a Personal Insolvency Arrangement and is appointed by the Court to act as an Examiner and prepare a restructuring plan for the entrepreneur’s business’ debts. Both the Personal Insolvency Arrangement and the Examinership are run simultaneously in the Coordinated Scheme and proposals are disclosed to all creditors.

Micro-businesses have proved to be a crucial dependency factor for sustainable growth The contribution of Examinership and the Coordinated Scheme to reviving the economy As concerns the Coordinated Scheme, having the same insolvency practitioner managing both the entrepreneur’s Personal Insolvency Arrangement and Examinership of the entrepreneur’s microbusiness is more effective, both financially and operationally, as the amount and respective costs of the insolvency practitioner’s services and those of creditors’ meetings and appearances in Court may be reduced significantly. All of the entrepreneur’s creditors, personal and business, are known to the insolvency practitioner and are treated equally and this is effective for creditors too, since the same creditor may have financed the entrepreneur for his personal expenses and the running costs of the entrepreneur’s business.

In the near future, the revolutionary Coordinated Scheme and Examinership could ensure the survival of viable businesses and continuity of business and employment for thousands of people, since micro-companies – which include family businesses and start-ups – thrive in Cyprus and sometimes just need the expertise of an insolvency practitioner to move on. Micro-businesses have proved to be a crucial dependency factor for sustainable growth, lower rates of unemployment, encouragement of investment and reduction of non-performing loans. Providing this opportunity to restructure as a whole at an early stage, as opposed to entering bankruptcy or liquidation later on, has a positive impact on the economy and social cohesion. This is also supported by an extensive impact test carried out recently by the European Commission.

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DYING OF CAN INTERNATIONAL EFFORTS TO DEAL WITH FAMINE AND REDUCE POVERTY SUCCEED? B Tassos Anastasiades, By Economist, Editor Accountancy Cyprus E

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tephen O΄Brien, in charge of UN humanitarian aid, recently stated that the world is currently facing the worst humanitarian crisis since the organisation was set up in 1945, as 20 million people are having to deal with disastrous levels of food security in Yemen, South Sudan and North East Nigeria. Unfortunately, developed country governments are not responding to the UN’s request for help. Of the $4.9 billion in aid needed to deal with this crisis, only 39% has been donated so far. Donor fatigue and a lack of awareness are two major contributing factors, while the fact that the world has experienced much larger numbers of deaths from famine in the past may be another reason for its apathy. The disastrous policy of the former Chinese leader Mao Zedong during the period 1958-1962 resulted in 30 million people facing famine, while other comparable situations include Biafra (1969-70), Bangladesh (1974) Ethiopia (1983-85) and North Korea (1995-97).

It is estimated that, today, more than 100,000 people in South Sudan are facing famine, with the possibility of that number rising to 6 million or 50% of the population.

Until recently, the number of people dying from hunger had shown a dramatic fall. According to the World

Peace Foundation of Tufts University, in every decade of the period 18701970, famine was killing an average of 928,000 people a year. Since 1980, however, annual deaths from famine have been significantly reduced to 75,000, which is about 8% of the historical average. But now things are changing.

Saudi Arabia has cut off the Yemeni port city of Hodeidah, through which 70% of Yemen’s food enters the country, thus hindering the provision of food to seven million people. In Somalia, humanitarian aid is seriously hampered by the military operations of al-Shabaab which, in 2016, carried out

SINCE 1980, ANNUAL DEATHS FROM FAMINE HAVE BEEN SIGNIFICANTLY REDUCED 165 violent attacks against humanitarian efforts.

Alegra Baioce, in charge of the UN’s humanitarian aid programme in Western and Central Africa, has stated that to fight terrorism, what is needed is more money for aid, rather than military operations. The main reasons why

people decide to follow extremism need to be addressed. As experts on poverty state, it is generally accepted that unemployment and a lack of opportunities for quality education and healthcare are the main reasons for the existence of Islamic terrorists in Nigeria. Poor coun-

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HUNGER tries like Somalia and Mali also face the same problems.

The prospect of replacing social programmes with a basic income has been under consideration in various countries from the USA to Switzerland, France and Cyprus. In the Netherlands and

Finland, this programme has been introduced on an experimental basis.

In Cyprus the Guaranteed Minimum Income (GMl), introduced in 2014, at €480 per month, increases according to the size of the family. At the same time, subsidized services are provided

for those with special needs, families with children and the elderly who have a limited ability to take care of themselves.

To be eligible, however, they may not own bank deposits, including shares and bonds, worth more than €5,000 or immovable property worth more than €100,000.

In 2003, Brazil introduced the so-called Bolsa Familia programme, which managed to reduce poverty from 9.7% of the population to 4.3% in the space of a decade. The monthly amount provided to families that send their children to school and comply with various health checks is $30. In India, the government of Narendra Modi is considering the possibility of replacing a large number of grants and subsidies with a basic income, either to everyone or to certain groups.

The case of China is also worth mentioning, since it claims to have been very successful in dealing with poverty through a grant called dibao (meaning minimum livelihood guarantee).

The Chinese authorities say that they have eradicated poverty (according to their own definition) in towns and have reduced the number of poor people in rural areas (those with an annual income of less than 2300 yuan, (€290 at 2010 prices), from 775 million in 1980 to 43 million in 2016. The latest target is to ensure that no-one will have an annual income of less than 2300 yuan by 2020.

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BUILDING A FAIRER EUROPE AND STRENGTHENING ITS SOCIAL DIMENSION THE EUROPEAN COMMISSION’S PROPOSAL FOR THE CREATION OF A EUROPEAN PILLAR OF SOCIAL RIGHTS

By George Markopouliotis, Head, Representation of the EuropeaAn Commission in Cyprus

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he EU is home to the most advanced welfare systems in the world and to a wealth of best practices and social innovations but it still needs to confront and adapt to unprecedented societal challenges. This is why the European Commission recently presented a proposal for the creation of a European Pillar of Social Rights.

This Pillar has been conceived as a reference framework that will allow us to monitor and evaluate the employment and social performance of participating Member States. It will serve as a compass for the renewed process of convergence towards better working

and living conditions in Europe and it is primarily for the euro area but open to all EU Member States.

The European Pillar of Social Rights sets out 20 key principles to support fair and well-functioning labour markets and welfare systems. These are structured around three categories: equal opportunities and access to the labour market, fair working conditions and social protection and inclusion.

They place the focus on how to deliver on the promise of the Treaties of a highly competitive social market economy, aiming at full employment and social progress.

Making the European Pillar of Social Rights a reality for citizens is a joint responsibility. While most of the tools

to deliver on the Pillar are in the hands of Member States, as well as social partners and civil society, the European Union institutions – and the European Commission in particular – can help by setting the framework and giving the direction. In addition to proposing the European Pillar of Social Rights, the Commission is also putting forward a number of legislative and non-legislative initiatives related to work-life balance, information for workers, access to social protection and working time.

One of the key initiatives is the legislative proposal on work-life balance which sets a number of new or higher minimum standards for parental, paternity and carer’s leave. It includes the new right for fathers to take at least

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Today’s more flexible working arrangements provide new job opportunities, especially for the young, but can potentially give rise to new precariousness and inequalities

10 working days off around the birth of a child.

The proposal also envisages that the existing right to four months’ parental leave can be taken for children up to 12 years of age, compared to just a non-binding guideline on the age of 8 years today.

Parental leave also becomes an individual right for mothers and fathers. All of these family-related leave arrangements will be compensated at least at the level of sick pay.

The proposed measures are intended in particular to increase the possibilities for men to take up parental and caring responsibilities.

This will benefit children and help increase women’s participation in the labour market, thereby reducing the difference between men and women in employment which stood at 11.6% in 2015 and increases to 30% when families have young children under the age of six.

This is one of the elements leading to the gender pay

(16.3%) and pension gap (40%). Member States may entrust social partners with the implementation of this Directive, as long as the results sought under it are guaranteed.

In addition to this legislative proposal, the Commission has also launched two social partner consultations, reflecting the importance of the contribution of social partners in delivering on the European Pillar of Social Rights and in line with their role under the Treaties.

The first consultation of the social partners concerns modernising the rules on labour contracts.

The Written Statement Directive (91/533/EEC) gives employees starting a new job the right to be notified in writing of the essential aspects of their employment relationship.

This right remains highly relevant, but may have to be adjusted in the light of new realities and practices on the labour markets to ensure fair working conditions also in a changing world of work.

Therefore the Commission wishes to open a debate on minimum safeguards that every worker, including those working in nonstandard employment, deserves. The Commission intends to propose a revision of this directive by the end of the year.

The Commission also started a consultation of social partners on access to social protection, to define possible new rules in this area. Rights and obligations associated to social protection have been developed over time primarily for workers employed on standard contracts, whereas this has been insufficiently developed for people in self-employment and non-standard employment. Today’s more flexible working arrangements provide new job

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opportunities, especially for the young, but can potentially give rise to new precariousness and inequalities. The Commission wants to close the gaps and explore ways to ensure that everyone who works has access to social protection coverage and employment services on the basis of their contributions.

We will now enter into discussions with the European Parliament and the Council to work towards broad political support and high-level endorsement of the Pillar. This is necessary if we are to put to put social priorities at the heart of Europe’s work, where they belong.

One of the key initiatives is the legislative proposal on work-life balance

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AT WHAT COST?

THE COST OF LIVING ALLOWANCE (COLA) SHOULD BE A MUTUALLY BENEFICIAL SYSTEM FOR BOTH EMPLOYER AND EMPLOYEE, AND SHOULD NOT RISK COSTING THE ECONOMY WITHIN WHICH IT OPERATES. TO THIS END, MEANINGFUL REFORMS ARE NEEDED TO ENSURE THAT CYPRUS CONTINUES ON ITS ROAD TO RECOVERY.

By Lena Panayiotou, Director, Industrial Relations & Social Policy Department, Cyprus Employers & Industrialists Federation (OEB)

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The Cost of Living Allowance (COLA) is the practice whereby salaries are indexed to the Consumer Price Index (CPI) and readjusted automatically twice a year, in January and July. The purpose of COLA is to ensure that salaries retain their purchasing power against inflation.

The practice has been implemented and utilised for decades throughout the public and semi-government sectors, as well as in many parts of the private sector.

OUTDATED AND OBSOLETE The Cyprus Employers & Industrialists Federation (OEB) firmly believes that COLA is an outdated, obsolete and counterproductive practice that erodes business competitiveness and should therefore be abolished.

A working document from the European Commission published in April 2016 explains: “In the run-up to the economic crisis that hit Cyprus in 2011, the application of automatic wage indexation harmed price-competitiveness and allowed labour costs to inflate much faster than productivity”. It is no wonder that very few European countries still implement

COLA and those that do implement it in such a way so that it does not adversely affect business competitiveness.

The system’s biggest problem lies with the fact that it automatically raises labour costs for businesses, irrespective of whether they can afford it or not. Few things can be done to tame inflation in Cyprus, which is often imported, and the state lacks the ability to implement its own monetary policy (it was ceded to the European Central Bank) as a means of regulating it.

The recovery of the Cypriot economy rests on the ability of the private sector to rebound from the economic crisis.

Businesses still face serious challenges and we should be very cautious when implementing policies, which may undermine their competitiveness.

All employers respect the practice of protecting the purchasing power of salaries from inflation as being reasonable.

However, this should be achieved through agreements between employers and employees that will take into consideration each company’s financial ability and not through automatic adjustments of the payroll.

Due to inflation, COLA more often than not leads to wage increases. But at times of deflation, COLA automatically reduces wages. As a matter of fact, prior to the economic crisis and whenever there was deflation, salaries in both the public and private sectors were adjusted downwards due to COLA without any disagreement or opposition from trade unions. This is what COLA is and how it works: it can increase or decrease wages, and proponents of the practice should keep this in mind.

The recovery of the Cypriot economy rests on the ability of the private sector to rebound from the economic crisis

WORKING TOGETHER As part of its obligations towards our international lenders, the government ‘froze’ the percentage of COLA for civil servants at 27.99% in July 2011 (a freeze that lasted until the end of 2016). In the years that followed, the private sector followed suit, ‘locking’ COLA at various rates, in most cases higher than 30%.

Despite the fact that deflation reduced the COLA rate to 24.83% by January 2017, businesses did not adjust wages

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downwards, in an act of recognition of their employees’ contribution and support in containing labour costs during the crisis. The way employers and employees worked together during the economic crisis to prevent further deterioration and to safeguard jobs is something of which we can all be proud.

As of 2017, with the economy still licking its wounds, the Government will resume COLA, but this time it will be implemented differently due to an agreement reached with the Troika.

Compared to the pre-crisis period, half of COLA will be paid once a year and provided there was economic growth in the second and third quarter of the previous year. Although fully justified by the current CPI rate, to which COLA is indexed, in the public sector, there will be no downward adjustment of wages, which goes against the long-established practice.

In the absence of specific legislation, COLA arrangements in the private sector are a matter of agreement between employers and employees. How will COLA be implemented in the private sector in 2017? That is the question social partners need to answer at the negotiations currently taking place under

the auspices of the Minister of Labour, Welfare and Social Insurance.

NEW AND IMPROVED? While maintaining the position that COLA must be abolished, OEB approaches the issue realistically, considering the following facts: • Businesses are still suffering from the economic crisis, economic recovery remains fragile, and if we return to the bad practices of the past we do so at our peril. There is no doubt that the way COLA worked before the crisis was damaging to businesses and the economy and it must be reformed.

• The new COLA arrangements in the public sector set a precedent for the private sector. However, they entail both positive and negative components.

It must be noted that many Collective Agreements explicitly mention that the government COLA system is applied.

OEB cannot agree to an arrangement inferior to that in the public sector. Private sector COLA cannot be costlier than the public sector’s.

OEB believes in pursuing a new and

We can choose to reform or perish

reformed COLA agreement that will serve the needs of the economy for many years to come without undermining the competitiveness of our businesses and the prospects of our economy through automatic or unconditional increases in labour costs. We joined the negotiations in good faith, willing to compromise, and we will do everything in our power to avoid unnecessary confrontation with the trade unions and disturbance of industrial peace. Society expects a lot from us and we are fully conscious of our role as social partners. Thankfully, Cyprus has a very effective industrial relations system and if the trade unions exhibit the same cooperative spirit and willingness to compromise as the employers, we feel confident that an agreement can be reached.

As our economy slowly begins to recover, employers and trade unions must choose one of two paths to follow. They can choose to retreat to the damaging practices of the past or to proceed with meaningful reforms that will offer prospect and hope. We can choose to reform or perish. The business community is the force of progress upon which the prosperity of Cyprus relies.

Ours was an easy choice to make.

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Š 2017 Iron Mountain Incorporated. All rights reserved. Iron Mountain and the design of the mountain are registered trademarks of Iron Mountain Incorporated in the U.S. And other countries.

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CYPRUS:

A MODERN FUND JURISDICTION

By Christos Vasiliou, Deputy Managing Director & Head of Advisory Services, KPMG Ltd

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yprus is increasingly gaining recognition as an attractive fund domicile, particularly when it comes to the setting-up of real estate, private equity and hedge funds. Progressively, Cyprus is being considered as a complementary jurisdiction to other established EU fund domiciles, with a regulatory environment that promotes innovative and flexible solutions through a wide range of structures designed to satisfy the needs of fund managers and investors.

Benefiting from the strong support of the Government,

Cyprus is continuously striving to enhance its laws and regulations in order to provide a choice of products for investors and remain competitive.Among the country’s main comparative advantages are its access to the European market, low set-up and running costs and the experience of a versatile industry cluster, such as expert administrators, banks, auditors, experienced non-executive directors, fund lawyers and, to a lesser extent, custodians and depositaries.Another competitive advantage is the approachability and availability of the regulator, namely the Cyprus Securities and Exchange Commission (CySEC), especially in meeting prospective parties and discussing set-up solutions.

Cyprus was among the first wave signatories to

all the key international tax information exchange programmes such as FATCA and CRS. It is also party to numerous tax treaties and other bilateral agreements.

The island’s location makes it a convenient gateway not only to Europe but also for international firms targeting Africa and the Middle East.

Our legal and regulatory framework offers diverse regulatory product options, depending on the strategy and targeted investor among which are: – AIFMD (Alternative Investment Fund Managers Directive) compliant funds which benefit from the EU managing and marketing passports; – Well-informed and professional investors (up to 75 investors) which avail themselves of a lighter regime; – Retail funds which may

be set up as either AIFs or UCITS; It is also worth mentioning the regime for unauthorised funds, which will be introduced later this year, with the main advantage being quicker access to the market and putting the burden of compliance on the manager rather than the fund.

As regards the legal framework applicable to asset management, Cyprus was among the first EU Member States to implement the Alternative Investment Fund Managers Directive. Cyprus has aligned its national regime to reflect those created under the UCITS, AIFM and MiFID Directives. The European

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It is no surprise that more and more promoters, fund service providers and, in particular, small investment managers are establishing a presence in Cyprus passport offers fund managers opportunities for crossborder and global capital distribution, thus attracting businesses inside and outside the EU wishing to secure the seal of the compliance with EU principles as well as access to EU investors.

Moreover, the introduction of the authorization and supervision regime for the so-called sub-threshold AIFM or Mini Manager of Cyprus, expected at the end 2017, will offer an additional product and a simpler regime for small managers.

Another important factor in the development of Cyprus in this area is the country’s network of tax treaties, making it an attractive choice for investment funds around the world. Over the past two years, a large number of funds have been set up to invest in Asia, mainly in securities, equities and real estate. The tax framework offers interesting tax planning opportunities and key benefits for funds that follow investment strategies in emerging markets.

Having in mind all the above, it is no surprise that more and more promoters, fund service providers and, in particular, small investment managers, are establishing a presence in Cyprus.

Indeed, the numbers of operations and back-office staff of fund managers are increasing. Apart from the

quality of life, there are a number of benefits, from a personal tax perspective, for those living and working in Cyprus which have been implemented in order to attract highly qualified and skilled people. Further, there is the advantage relating to salary costs, professional fee charges, rental fees and licensing fees.

Finally, looking at developments at the EU level, Brexit presents a

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huge challenge for UKbased UCITS or AIFMs in accessing EU investors.

Cyprus is a reliable member of the EU and the eurozone but also a country with a broader outlook and can be a strategic partner for the UK. The platform solution provides investment managers with a fully compliant UCITS/AIFM entity and, consequently, the European passport to market their funds within

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the EU without the need to establish their own fund and/ or management company substance in an EU Member State. Managers benefit from the efficiencies provided by the pre-existing structure of the platform in terms of sharing of costs, the existing middle and back office operating model, tried and tested systems and a quick time to market. In this respect, Cyprus offers a growing number of platform providers.

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STEPS TOWARD A TRADE WAR AND MORE

TRUMP MP P

By Dr. Jim Leontiades, Academic Dean, Cyprus International Institute of Management

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onald Trump’s views on trade have sent alarm signals throughout the Western world. During his recent meeting with the German Chancellor, Angela Merkel, he made clear his belief that the USA has been treated “very very unfairly” in previous trade negotiations. Moreover, he has signalled his determination to change this. Angela Merkel and other national leaders have expressed alarm at this radical change in the American position.

What has happened to bring about such change? Much of the present international system of trade is influenced by trade theory which remains one of the most respected areas of economics. Many nations have subscribed to its major principle: a lowering of trade barriers which improve trade can benefit all parties. The USA has historically been one of the main supporters of such nego-

Donald Trump

tiations, e.g. the Kennedy trade negotiations which lowered trade barriers around the world. Why the reversal?

The term “trade war” has been mentioned more than once Let’s be clear: there is no such thing as “free trade”. All countries and trade groups (such as the EU) have some trade barriers. Periodically they meet to review and adjust these – hopefully downward.

Although economists tell us that removing protectionist barriers can benefit all countries, they do not say how such benefits will be distributed. The result of trade negotiations may benefit some countries more than others.

The USA has had a persistent and consistent trade deficit for some 40 years.

Germany is on the opposite side of the spectrum with major long-

term trade surpluses for the past 25 years.

In 2016, its exports to the USA came to $114 billion, imports were at $49 billion.

Such trade imbalances impact a country’s industries and the lives of those employed there. Manufacturing employment in the USA has dropped to 8% of the labour force. For Germany the figure is 20%.

Furthermore, trade theory does not tell us how the benefits of trade will be distributed within a country. Will such benefits fall mainly to lawyers, bankers, hedge fund managers, etc? Studies by the Economic Policy Institute show that, between 2007 and 2015, the top 1% of the American population has gained disproportionally, enjoying substantial income gains during this period. But the incomes of the lower 95% of the population were actually less than in 2007. Other studies show that incomes of the working class sector of the US population are now loww er than in the 1980s. Many of those most affected reside in the so-called American “rust belt”, those manufacturing areas which have been unable to compete against imports. These are the people that overwhelmingly voted for Trump and whom he has promised to help.

What has happened?

During his recent meeting with Angela Merkel, Trump referred to the exchange rate as contributing to the trade imbalance between Germany and the USA. Merkel pointed out correctly that, as a member of the eurozone, Germany’s exchange rate was the same as for other members of that currency. Germany has

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S.

MERKEL

no individual influence over the euro’s exchange rate. It nevertheless enjoys the trade benefit that this brings. Is this what “the Donald” refers to when he refers to fairness? Possibly. But fairness in trade issues is something very difficult to determine. Nor is it often the most relevant factor is such disputes. If a country feels disadvantaged, it is likely to try to do something about it What will Trump do? An American

It seems that the USA and Europe, led by Germany, are set on a collision course border tax is one option. Like European VAT, this places a tax on imports but not on exports. If successful, this would help Trump kill three birds with one stone.

Firstly, it would have a major impact on reducing imports. It would also enable Trump to reduce the present US tax on corporate profits, now at the relatively high level of 35% (for Cyprus and Ireland it is 12.5%) to something closer to 15%-20%. The reduced tax would spur investment by increasing profitability. It could also motivate American international companies that have been trying to avoid the present high corporate tax by not repatriating many billions in profits held abroad. A number of European governments have expressed unease at the prospect of such a tax. The term “trade

war” has been mentioned more than once.

The successful passage of a border tax through Congress is by no means assured. Some members of Congress are concerned that it could alienate consumers by raising the price of imports. There are also companies that would be hurt as the tax on imports would disrupt supply chains which bring vital parts from foreign-based operations. Despite such objections and given the President’s campaign promises, we may expect a real effort on his part for either a border tax or some other form of restriction on imports. Furthermore, in light of the recent defeat Trump suffered in his unsuccessful attempt to change the Obamacare health programme, we may also expect better preparation this time for its passage through Congress. It seems that the USA and Europe, led by Germany, are set on a collision course.

The split between Trump and Merkel extends beyond trade. Trump has repeatedly stated that NATO members should stick by their agreement to maintain defence expenditure at 2% of GDP. Only four European members have done so (Greece, Poland, Estonia and the UK). Germany’s Foreign Minister has indicated that Germany would increase defence expenditures but he

is also reported as saying that he knows of no German politician who considers the 2% target as either reachable or desirable.

Coming at a time when the UK is negotiating its exit from the EU and looking elsewhere for new trade ties, these issues threaten to initiate a historic divide that goes well beyond trade. International agreements supporting convertible exchange rates and defence as well as trade, which have been in place since World War II, are threatened and with them, so is the unity of the West.

Angela Merkel

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TERTIARY EDUCATION IN CYPRUS

By Michalis Antoniou, Director General, Cyprus Employers & Industrialists Federation (OEB)

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ypriots of my generation have witnessed first-hand and in real time the evolution of tertiary education in the country, initially as students and then as professionals and as parents of students. In the early 1980s, Greece was the obvious educational destination, preferred by the majority of students, followed by the United Kingdom and the USA. A smaller portion of students chose Eastern European countries and the former USSR. For about 30 years, we were an independent country with no tertiary education establishments apart from the Higher Technological Institute (built and equipped with a donation from the International Labour Organisation) and the Higher Hotel Institute. A new era for tertiary education began with the establishment of the

University of Cyprus, which, in the course of a few years, developed into an impressive institution.

The policy decisions taken in the 1990s were crucial for the growth and development of tertiary education.

The state supported public tertiary education, setting at the same time a very demanding framework for the establishment and operation of quality private universities. Looking at Greece, where private education is demonized to this day, the decision to allow the creation of private tertiary institutions in Cyprus was not an obvious choice at the time but proved to absolutely be the right one. A few years down the line, a network of model private universities and colleges, along with the countryâ&#x20AC;&#x2122;s three exceptional public universities (University of Cyprus, Cyprus University of Technology and the Open University) offer Cypriot and foreign students almost every conceivable

educational choice.

Recently, I had the privilege of meeting with private universities and touring their campuses and educational facilities. What I experienced introduced me to a fascinating world whose existence, I am ashamed to admit, I was unaware of. Their investments in infrastructure and, most importantly, in scientific and academic human capital, surpass the imagination.

Hundreds of millions of euros have been invested to create ultramodern research and learning environments that can satisfy the needs of the most demanding and discerning. Distinguished academics and researchers are planning the future of tertiary education, whereas partnerships and affiliations

with world-renowned universities create limitless options and possibilities for those who choose Cyprus for their studies.

Public and private tertiary education can quickly become Cyprusâ&#x20AC;&#x2122; heavy industry; it is estimated that tertiary education already contributes about half a billion euros to GDP. This contribution can grow threefold within a decade without any state support or cost to the taxpayer. This growth can be funded through private investment, EU grants, donations and other sources.

The Cyprus Employers & Industrialists Federation (OEB) believes adamantly in the prospects of tertiary education and, for this reason, we have set its development as one of our top priorities for the next five years.

Hundreds of millions of euros have been invested to create ultramodern research and learning environments

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ABUSIVE EXCESSIVE PRICING

By Dr. Panayiotis Agisilaou, Managing Director & Stephanie Theodotou, Associate, Trojan Economics Consultants

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n the context of a request to the Court of Justice of the European Union (CJEU) from the Supreme Court of Latvia (Augstàkà tiesa) for a preliminary ruling in case C-177/16, Advocate General Nils Wahl has delivered an opinion, which contains an interesting discussion and guidance regarding the methodology that national Competition Authorities across the EU should apply in order to prove excessive pricing.

In a nutshell, according to AG Wahl, the pricing of a dominant undertaking may be found as excessive according to Article 102(a) of the Treaty on the Functioning of the European Union (TFEU), if the following two conditions are satisfied: • The difference between the actual price charged by the dominant undertaking in the market and the benchmark price, i.e. the price that the undertaking would have – hypothetically – charged had there been effective competition in the market,

must be considerable, both in terms of its size and its persistence over time.

• The difference between the actual price and the benchmark price cannot be objectively justified (i.e. due to quality differences or disparities in demand and supply conditions).

The extent to which the difference between the actual price and the benchmark price justifies intervention by a Competition Authority must be assessed on a case-by-case basis, taking into consideration the product/ service in question and the distinctive characteristics of the particular market (both from the demand and the

supply sides). Contrariwise, the absence of an objective justification suggests that there is no reasonable alternative economic explanation for the misalignment between the actual price charged and the benchmark price, other than it is related to the abuse of dominance.

AG Wahl notes that there are several methodologies that may be followed to determine the benchmark price, each of which has its own inherent weaknesses.

In order to minimise the risk of errors, he has suggests that Competition Authorities should combine different methods. To the extent that the chosen methods are appropriate and sufficient for the case at hand and they are applied with rigour and objectivity, the convergence of results might lead to more reliable inferences.

The comparison of prices across different geographic markets may prove an appropriate method in determining the benchmark price, provided that the reference Member States are selected according to objective, appropriate and verifiable criteria.

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The extent to which the difference between the actual price and the benchmark price justifies intervention by a Competition Authority must be assessed on a caseby-case basis Advocate General Nils Wahl

AG Wahl has acknowledged two factors that should be taken into consideration in order to enhance the reliability of results deriving from geographic comparisons: first, the capacity and willingness of the customers of the dominant undertaking to pay for the product/service they receive; and second, the economic benefits that the said customers may derive from the use of the product/service. These two factors could potentially affect the economic value of the product/service in question.

Additionally, as pointed out by AG Wahl, in order to ensure that the geographic comparison of the prices applied to the same product/service across different countries is made on a homogenous basis, the Purchasing Power Parity (PPP) index based on the Gross Domestic Product (GDP) should also be taken into account.

Furthermore, all the necessary adjustments have to be made, in order to account for differences between the countries that may influence the final price of the product/service.

Amongst others, the following factors should be considered: differences in local economic conditions (e.g. GDP per capita) and consumption habits, direct and indirect production costs, the particular characteristics of each national labour market, commercial promotion and advertising costs, investments in R&D, cost of capital, general costs, local taxation, historical and cultural heritage. Moreover, differences owing to legitimate business practices, such as pricing with reduced profit margins to achieve market penetration, should also be factored into the analysis.

In relation to the need for the Competition Authorities to intervene in cases of alleged excessive pricing, the Advocate General has stated that this depends on the severity of the barriers to entry and/or expansion in the market, the existence of sectoral regulation, the countervailing purchasing power of buyers and the degree of necessity of the product/ service for customers of the dominant undertaking. Intervention by the

Competition Authorities is deemed more urgent, according to AG Wahl, when the difference between the actual price and the benchmark price is so high that there is almost no doubt that it is due to abuse of a dominant position in the market and the market cannot self-correct, as in cases where there are serious barriers to entry in the market. Under such circumstances, the loss in consumer welfare owing to excessive pricing is substantial and persistent. These observations by AG Wahl essentially point towards an effects-based approach with regard to excessive pricing (i.e. an approach that focuses more on the effects of the dominant undertakingâ&#x20AC;&#x2122;s behaviour).

If the non-binding opinion of AG Wahl is adopted by the CJEU, it is expected that this will be a significant step towards the clarification of the methodology in proving excessive pricing. It will subsequently enhance legal certainty, since dominant undertakings will be in a better position to self-assess the level of their prices, thus avoiding excessive pricing.

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THE MULTILATERAL CONVENTION TO IMPLEMENT TAX TREATY RELATED MEASURES TO PREVENT BASE EROSION AND PROFIT SHIFTING AND ITS APPLICATION IN CYPRUS

By Marissa Christodoulidou, Advocate and Philippos Aristotelous, Advocate/Partner, Elias Neocleous & Co LLC

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yprus was one of the first 68 countries to formally sign the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on 7 June this year. The adoption of the MLI is one of the actions set out in the BEPS Action Plan endorsed by the G20 finance ministers and leaders, and comprises measures to combat treaty abuse and “treaty shopping”, to improve dispute resolution, to neutralise the effects of hybrid mismatches and to prevent artificial avoidance of permanent establishment status.

Signatories may choose which of their existing Double Tax Treaties they wish to modify using the MLI. In the terminology of the MLI, these treaties are known as “covered treaties”. If both parties to a treaty have signed the MLI and included it in their list of covered treaties, then it is automatically amended to incorporate the provisions of the MLI that the countries have adopted. At the date of signing, a total of 2,363 treaties had been listed by all signatories, out of which 1,103 were “matched” in the sense that the contracting parties had both elected for the same optional provisions.

FLEXIBILITY To be accepted as a signatory to the MLI, jurisdictions must abide by minimum standards agreed as part of the BEPS Package in November 2015, namely the prevention of treaty abuse (BEPS Action 6) and the improvement of dispute resolution (BEPS Action 14). In addition, governments may choose whether to apply certain optional provisions. They can opt out of specified provisions through what is known as a “reservation” or opt in through what is referred to as a “notification”.

Cyprus has made reservations to align the implementation of the MLI provisions with its own tax policies. The specific provisions it has opted out of are: • Transparent entities (article 3); • Dual residence entities (article 4);

To be accepted as a signatory to the MLI, jurisdictions must abide by minimum standards agreed as part of the BEPS Package in November 2015

• Application of methods for elimination of double taxation (article 5); • Dividend transfer transactions (article 8); • Capital gains from alienation of shares or interests of entities deriving their value principally from immovable property (article 9); • Anti-abuse rule for permanent establishments situated in third jurisdictions (article 10); • Application of tax agreements to restrict a party’s right to tax its own residents (article 11); • Artificial avoidance of permanent establishment status through commissionaire arrangements and similar strategies (article 12); • Artificial avoidance of permanent establishment status through specific activity exemptions (article 13); • Splitting-up of contracts (article 14); and • Definition of a person closely related to an enterprise (article 15).

It has also adopted a modified form of article 35, governing entry into force.

Signatories have the right to “opt-in” at a later stage if they choose, so in future Cyprus may elect for any of the excluded provisions to be incorporated in its existing tax treaty network, if the other contracting state is also a signatory to the MLI

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and has not made a reservation regarding the provision.

KEY CHANGES FOR CYPRUS The main impact on Cyprus-resident companies will result from the application of Articles 6 and 7 of the MLI, relating to treaty abuse.

Purpose of a Covered Tax Agreement Article 6 provides for the amendment of the preamble of tax treaties to include the purpose of a covered tax agreement.

Cyprus has notified the contents of the preamble in all 61 of its covered tax treaties. If the other contracting state is also a signatory to the MLI and has not made a reservation, the preamble will automatically be amended to expressly state that the purpose of the covered tax agreement in question is to eliminate double taxation without creating opportunities for nontaxation or reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. Cyprus’s most recently-signed Double Tax Treaty, with Luxembourg, includes this modified preamble.

Principal Purpose Test (PPT) Article 7 contains a general anti-abuse rule based on the principal purpose of transactions or arrangements. Tax benefits will be denied if one of the principal purposes of a transaction or an arrangement is to directly or indirectly obtain a tax benefit, unless

the granting of that benefit in the circumstances would be in accordance with the object and purpose of the relevant treaty provisions. Cyprus has chosen to apply Article 7(4) of the MLI, which allows for the benefits to be granted on application by the taxpayer if the tax authority determines that the benefits would have been available in the absence of the transaction or arrangement.

Signatories to the MLI may opt to supplement the PPT with a simplified limitationon-benefits (LOB) provision. Alternatively, countries can negotiate bilateral detailed LOB provisions. Cyprus has not made any notification to adopt a LOB provision.

Improving Dispute Resolution The MLI introduces minimum standards to improve the effectiveness of the mutual agreement procedure (MAP). Covered bilateral tax agreements between two signatories to the MLI will automatically be amended to allow a taxpayer to present a case to the competent authority of either contracting state within three years from the first notification of the action resulting in taxation which was imposed in contravention of the provisions of the covered tax agreement, if they did not already contain such provisions on dispute resolution.

The MAP requires parties to endeavour to resolve the dispute, but it does not provide any means of ensuring that a resolution will be reached. This is a perceived shortfall of the MAP which is addressed by Part VI of the MLI, which allows governments to

commit to mandatory binding arbitration.

If countries have opted for mandatory binding arbitration, unresolved MAP cases are submitted to an independent arbitrator for resolution. The arbitrator’s decision is binding. Twenty-five signatories initially committed themselves to the mandatory binding arbitration provisions provided in the MLI, including Greece, Malta, Liechtenstein, Luxembourg and the United Kingdom. Cyprus has yet to do so, but may make the appropriate notifications later.

CONCLUSION The first modifications to covered treaties are expected to take effect in 2018 as the timing is linked to completion of the ratification procedures in the signatory countries. Signatories can modify their MLI positions (notifications and reservations) at any time until ratification, and Cyprus may opt for additional provisions to apply.

In any case, jurisdictions can subsequently amend their MLI positions which will become effective on notification.

The signing of the MLI by Cyprus, together with its increasing focus on substance and its alignment with global initiatives aiming at preventing “treaty shopping” as well as combating tax evasion and unlawful tax avoidance practices, underlines the island’s commitment to conforming with the highest international standards and consolidating its position as a reliable international business centre.

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Cyprus Shipping:

Interview with Dieter Rohdenburg The CEO of Intership Navigation Co Ltd, is confident that the local industry will continue to flourish.

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yprus has a long history as a maritime nation. What does the shipping industry in Cyprus have to offer that other countries such as Greece don’t?

Indeed, as an island, Cyprus has a long maritime tradition but it was only through the foresight of the Cypriot government in the early 1970s that Cyprus gradually became a ‘maritime powerhouse’. The establishment of the offshore legislation, combined with a generally attractive business environment and a functioning ship registry, good infrastructure and a large number of highly skilled and qualified staff have made Cyprus what it is today – the largest shipmanagement centre in the world and the

third largest flag in Europe. The growth of the shipping industry in Cyprus was greatly assisted by the support of consecutive governments which understood the importance of the sector.

Cyprus’ shipping companies today offer top-level services and many of them are amongst the leading companies in the world.

Internationally, the Cyprus shipping sector is viewed extremely positively but do you believe that it enjoys the recognition it deserves here in Cyprus?

The Cyprus shipping sector certainly receives the recognition it deserves by local politicians, the Government and administration – the recent establishment of a Deputy Ministry of Shipping is a great example of this.

But it is the ‘fate’ of shipping that it is not very ‘visible’ with the general public and only comes to the fore when the media report on an oil spill, a collision or a fire onboard a cruise ship. Shipping is a very exciting industry and the local shipping community is working hard to promote it in Cyprus, through visits to schools, through the ‘Adopt-a-Ship’ campaign, charity events and much more. Many shipping companies offer job opportunities, both onboard and ashore and the recent establishment of the Cyprus Maritime Academy and courses at other academic institutions offer a great start to a shipping career.

What challenges do ship owners and ship management companies in Cyprus face and

CYPRUS IS OUR HOME AND IT WILL STAY OUR HOME

how can they be resolved?

The major challenge faced by the Cypriot shipping community is the Turkish ban on Cyprus-flagged and Cyprus-managed vessels. The ban seriously restricts growth opportunities, particularly for the ship management sector; why would a foreign owner restrict the trading of his ship by having his ship managed from Cyprus? Of course there is no quick fix but the shipping community has supported the efforts of consecutive governments to resolve the issue, and d will continue to do so in the future. Other challenges, which ch Cypriot owners and managers rs share with others around the world, are the continuing chalallenging market environment in many shipping segments and d the deteriorating quality of the he seafarers – something which many Cypriot owners and managers are addressing headdon by maintaining their own maritime training centres.

What, in your view, is needed ded if the Cyprus shipping in-

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dustry is to reach its full potential?

The Cypriot resident shipping sector has been growing for the last five decades but there are still certain functions which are not represented or are underrepresented, for example, ship financing (even though two local banks have recently decided to venture into this market), commercial operations, chartering brokers. There has been encouraging growth in the shipping cluster over recent years, for example, the establishment of academic institutions, but there is room for further growth. In my personal view, we need to promote the Cyprus shipping cluster better – not just the flag.

What is your opinion of the way the local maritime administration operates?

The Department of Merchant Shipping (DMS) has been evolving over the years and has been offering good service to shipowners and managers.

However, digitalization requires the modernization of the DMS and its structure. With the establishment of the Deputy Ministry of Shipping, I hope that the DMS will also be upgraded so that it will be able to not only compete, but to surpass the service level provided by other registries.

How do you u see the future of the Cyprus shipping industry?

Cyprus provides a great business

Dieter Rohdenburg

environment for shipping and I am confident that the industry will continue to flourish in Cyprus. There are very few countries where shipping enjoys the same support from the government as Cyprus and the partnership between the industry with the Government plays a major part in this success. If the Turkish ban is lifted, the opportunities are even greater!

How is the global shipping industry faring these days?

Different market segments develop differently but, overall, it must be said that after the global financial crisis in 2008, the shipping markets fell dramatically and have not recovered since then. Overcapacity of tonnage, in other words oversupply of ships combined with sluggishly increasing demand is not helped by the fact that desperate shipyards offer rock-bottom prices for newbuildings.

Shipping companies need to reduce the supply of tonnage (by scrapping) and refrain from building new ships. But with a market which is as highly fragmented as shipping, this is a difficult task to accomplish.

Having said that, we have seen encouraging market improvement in the dry bulk sector this year, and tankers have also improved from their all-time lows.

The only segment which is still very weak is the container segShi ment. Shipping has always been cy a highly cyclical industry and it contin to be so. will continue Intership Navigation has been present in Cyprus since 1988.

What has been the key to the company success? company’s w founded as a shipIntership was co owning company but, over the h also evolved into a years, it has ma ship manager for third-party tonnag Our focus has altonnage. b to own and operways been hi ate high-quality vessels and es to establish long-term rela-

tions with our customers. Over the last (nearly) 30 years, we have built more than 120 vessels and successfully operated them.

Whilst we were always striving to grow the fleet, we have always invested conservatively into assets for which we had the technical and commercial expertise. Being able to arrange employment for our vessels has always been central to our operation and our in-house commercial operators are the key to our long-term relations. The right mix of ships, as well as the right employment strategy, formed the basis of Intership’s growth but it is our dedicated and highly motivated staff that has ultimately made this development possible, which is why we were chosen as ‘Employer of

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import steel, furniture, electrical appliances, etc. In many cases, we had to help out. There was a time when we discussed our future in Cyprus but we very quickly decided: Cyprus is our home and it will stay our home.

We have never actively looked at relocating and I would also rule this out for the future.

What are the company’s plans for the next 3-5 years? Do you have any plans to expand your operations in Cyprus or elsewhere?

Intership will continue to focus on its core business of owning and operating bulk carriers and tankers. We will invest in new tonnage and dispose of older tonnage to maintain (and eventually grow) our fleet. But

CYPRUS’ SHIPPING COMPANIES TODAY OFFER TOP-LEVEL SERVICES AND MANY OF THEM ARE AMONGST THE LEADING COMPANIES IN THE WORLD the Year 2017’. Today we own and manage almost 100 vessels, including 20 tankers, 50 bulkers and 20 general cargo vessels.

And we are actively working on new projects.

Have you ever considered pulling out of Cyprus?

During the banking crisis in 2013, our new headquarters were under construction – we had started in September 2012.

The contractor and many of our subcontractors lost all their money from the ‘haircut’, it was a difficult time for many of them when all of a sudden they couldn’t make payments to

we will also look to expand into areas where we can add value for our existing and new customers beyond the transportation from A to B, such as adding parts of the supply chain, offering entire transport solutions, storage/transshipment, stockpile management or even terminal operation. I am convinced that the future of shipping will see long-term relationships between ship owners and their industrial partners. This is what we seek to establish and this is what we are good at.

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INNOVATION AND

By Margarita Liasi, Principal, KPMG Ltd

I

n the aftermath of the financial crisis, there has been a trend away from traditional investments in financial products to new industries. There is now a greater need than ever to foster entrepreneurship, expand the labour market and create new sectors of the economy.

On this basis, increased interest has been shown in innovative ideas, new business lines and the development of new products and services through start-ups.

The creation of a robust climate for new, innovative businesses, especially in the case of start-ups, requires the necessary support, either through the provision of appropriate infrastructure or funds and/ or by reducing the financial obligations of these businesses so as to reduce liquidity constraints. Providing tax incentives is an effective way of enhancing both business liquidity and investment desirability.

In an effort to keep up with the spirit of the current situation, and in recognition of the need to promote entrepreneurship, Cyprus has further strengthened its tax framework in order to provide the necessary incentives to both investors and innovative businesses.

A deduction from an individual’s taxable income is granted in respect of an investment carried out in an innovative small and medium-sized enterprise (SME).

The deduction may not exceed the lower of (i) 50% of the individual’s taxable income or (ii) the amount of €150,000.

The incentive is provided in respect of

risk finance investments which include equity and quasi-equity investments, loans including leases, guarantees or a mix thereof, to eligible undertakings for the purposes of making new investments and includes follow-on investments. Such investments can be carried out either through the acquisition of shares or the provision of a loan. The investment can be made either directly, through an investment fund, or through an alternative trading platform.

Any surplus over and above the allowable deduction may be carried forward for a period of five years, subject to certain limitations.

In order to benefit from the incentive, the individual must be an independent private investor. The individual cannot be an existing shareholder of the innovative SME in which s/he invests.

In the case of a new company, private investors, including the founders, are considered to be independent from the company.

An innovative SME is defined as an SME: a. That carries out a business activity in Cyprus and b. At the time of the investment, constituted an unlisted SME that had drawn up a business plan for risk finance investment and additionally fulfills at least one of the following conditions: (i) It has not been operating in any market; or (ii) It has not been operating in any market for less than 7 years following their first commercial sale; or

(iii) It requires an initial risk finance investment which, based on a business plan prepared with a view to entering a new product or geographical market, is higher than 50% of its average annual turnover in the preceding 5 years.

The 7-year restriction provided in paragraph (ii) above does not apply in the case of financing of follow-on investments when (i) the total amount of risk finance does not exceed €15 million and (ii) the financing of follow-on investments was included in the initial business plan submitted for approval to the Ministry of Finance (MoF) as outlined below.

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TAX INCENTIVES

The innovative SME should prepare a business plan evidencing the above and should also be approved as an innovative SME upon the submission of an application to the Ministry of Finance.

The application should be accompanied by the business plan as well as certification from an external auditor, according to which the research and development costs (that may also include capitalized

A business will automatically cease to be considered an innovative SME if, at any time, the total amount of risk finance exceeds

€15 million

costs) represent at least 10% of its total operating costs in at least one of the three years preceding the granting of the aid or, in the case of a start-up enterprise without any financial history, in the audit of its current fiscal period.

With regard to start-ups, MoF approval may be provided on the basis of a business plan. A business will automatically cease to be considered an innovative SME if, at any time, the total amount of risk finance exceeds €15 million.

Anti-abuse provisions in place prevent actions aimed at granting the deduction concerned by circumventing any limits set in the law. However, recently introduced incentives for investing in SMEs seem to be restricted to investments carried out by individuals. There is no possibility of large organizations investing in small and medium-sized enterprises, which limits the availability of significant funds for the development of innovative SMEs. Alternative routes should be considered to attract larger funds to Cypriot innovative SMEs and to further strengthen the sector.

What’s more, the incentive is provided to the investor, not the innovative SME itself which should also be supported. Though Cyprus’ favourable tax framework contributes significantly to the support of the business climate, this applies to businesses in general without specifically supporting research and innovation.

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GOING GREEN

IMPLEMENTING ENVIRONMENTALLY FRIENDLY PRACTICES IN THE HOTEL INDUSTRY IS NO LONGER A LUXURY: IT’S A NECESSITY.

By Michael Karasavvas,

Honorary Consul of St. Vincent and the Grenadines

T

he continuous increase in energy consumption and the irrational use and abuse of environmental ‘goods’ – including air, sea, water and exhaustible energy resources – must be taken more seriously. More than ever, there is an urgent need to respect and protect the environment.

With travel being notorious for negatively impacting the environment, it is very fortunate that hotel guests are becoming more eco-friendly and increasingly sensitive to the needs of the environment, placing pressure accordingly on hotel entities to respond and act.

‘Green’ signifies the colour of life, of renewable energy, and is associated with development and progress. So-called ‘green hotels’ are establishments that implement environmentally friendly practices and assimilate ecological elements into their make-up. Combining excellent design with sustainability, green hotels are better equipped than ever to be able to achieve their main goal: to minimise their impact on their surroundings, save natural resources, and – above all – protect the environment.

Following this trend, modern hotel units in Cyprus should heed the advantages of the ‘green’ concept and formulate their strate-

gies accordingly.

Environmentally responsible hotels – those that make global issues and customers’ concerns a priority – can implement inexpensive rules of sustainable development and environmental management. Investing in the environment need not be burdensome in a monetary sense.

Some activities that may be employed include recycling in all departments, saving and reducing power consumption with the use of sensors and timers, and installing LED lighting in rooms and public areas.

Other practices include the reduction of paper consumption, the use of insulation for improved air-conditioner performance, the use of natural lighting where possible and the creation of public areas with ‘green islands’ that serve to increase natural oxygen. In guestrooms, the reuse of linen and towels can be encouraged, while sensors may be installed in taps to save water.

In addition, the proper management of chemicals and the use of eco-friendly products for the environment, the treatment of waste for reuse, the avoidance of actions causing pollution, food waste recycling, the use of treated recycled water for horticultural purposes, the conversion of organic waste into compost for gardening, the use of solar thermal systems for hot water and more are all means that may be imple-

mented to environmentally friendly ends.

Overall, green technologies enable hotels to become energy-efficient and healthier.

Indeed, being a green hotel offers a wide range of benefits. Not only does it save money through the application of ecological practices, leading to a reduction in operating costs (in fact, many hotels now cover 85% of their needs with solar energy, minimising both their environmental footprint and their budget), it also promotes environmental awareness among visitors and fosters sustainable development through the conservation of natural resources.

Given the current global economic conditions, no business should ignore today’s environmental reality. Switching to environmentally friendly hotel practices has actually become an absolute necessity.

Tourism relates to and interacts with the economic, social, cultural and environmental elements of each country. It affects people’s lives and the environment. Therefore, policies should be implemented at a governmental level to address the trend towards ‘green’ practices in a manner that is organised, systematic and comprehensive.

To this end, strategic planning for tourism in Cyprus should be anchored in the context of sustainable development, so as to create a balance between economic, social and environmental elements at all levels.

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ENCOURAGING ENTREPRENEURSHIP IN THE TOURISM INDUSTRY

By Dr Sotiroula Liasidou, Lecturer, Cyprus University of Technology Faculty of Management & Economics – Department of Hotel & Tourism Management

E

ntrepreneurship in the business environment has started to receive notable attention lately, especially given the proliferation of young entrepreneurs and the large number of new start-ups. Tourism businesses are making continuous efforts to update and change their strategies in order to become more adaptable to new technologies and consumer preferences.

Current trends necessitate the development of more experience-based products as the core element of tourism activity.

Each of the interconnected sectors of the industry – accommodation, transport, attractions/sights, travel organisers – as well as the Government, is struggling to fulfil the needs of consumers and to promote a socially responsible image.

The main pursuit of a successful entrepreneur is to be innovative and to create value in the business environment. Innovation is the creation of something new that will both stimulate the interest of the customer and provide a new insight into the business process. Value is what makes business worthy in terms of the quality and usefulness of the product and the way that consumers perceive it. In congruence with this, entrepreneurship refers to three main pillars: the creation of innovation, the inauguration of new business models and the discovery of new opportunities.

The main qualification and skill of a good entrepreneur is to stay one step ahead, able to foresee future trends. Services and products should be unconventional and have something unique that can add value to the visitors and, at the same time, provide value to society. In other words, the aim is to provide something creative, albeit useful, to people in society.

Moreover, other characteristics of a good entrepreneur involve being a critical and a creative thinker, a goal-oriented decision maker, a problem solver with a high level of human relations and communication. All these attributes help enable the introduction of a new product or service, develop and exploit new and existing technologies and identify new markets.

However, a good entrepreneur needs encouragement from both the internal and external environments in order to achieve these goals. The internal environment, among others, includes co-workers and the external includes the Government. The laws and regulations of the country should be supportive and create opportunities for the financing of innovative business ideas or processes that aim to contribute

positively to society. A positive contribution means promoting cultural characteristics, protecting the environment, creating opportunities for the local people and contributing to national revenues. In recent years, EU member states have received subsidies for women and young entrepreneurs. The notion of start-ups arose with the aim of providing something smart and useful in the business environment.

In tourism, the aim is to enhance the tourist experience through the development of products that provide educational and cultural elements, justify environmental protection, improve standards of living and provide feelings of self-worth to both employees and customers. Interesting examples in Cyprus tourism are special interest products and small to medium firms (SMEs) becoming proponents of innovation by incorporating the exclusive characteristics of the country into its tourism activities. The success of family-owned wineries, of example, comes down to what was originally a novel business initiative for Cyprus, which presented wine culture and quality local wine. Other examples are start-ups that promote Cyprus tourism online and have a major impact on both local and international audiences.

Additionally, successful entrepreneurship involves being able to develop or create the skills required to fulfil the needs of the tourism industry, something that is a prerequisite for customer satisfaction. Other interesting examples concern the provision of being ecofriendly, environmentally aware and accessible to people in need of products that don’t harm human health. In other words, an entrepreneur is an ethical business person. In the particular case of tourism, entrepreneurship is all about the production of ethical and/or sustainable tourism products that are compatible with social, environmental and economical values.

The main qualification and skill of a good entrepreneur is to stay one step ahead, able to foresee future trends

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F>>M MA> <?H

Eleni Vickers

ALTHOUGH THE CHIEF EXECUTIVE OFFICER (CEO) OF A COMPANY OR ORGANISATION IS THE PERSON WITH ULTIMATE RESPONSIBILITY FOR ENSURING THAT IT FUNCTIONS PROPERLY AND IMPLEMENTS THE STRATEGY SET OUT BY THE BOARD, THE CHIEF FINANCIAL OFFICER (CFO) IS BECOMING INCREASINGLY IMPORTANT AND POWERFUL. WE SPOKE TO ELENI VICKERS, CHIEF FINANCIAL OFFICER AT PLUS500CY. There have been numerous reports over the last 2-3 years which suggest that the role of a company’s Chief Financial Officer (CFO) is changing rapidly. Is this your experience?

Yes, I couldn’t agree more with this statement. The role of the CFO has been progressively evolving from being a mostly reactive one to being a massively proactive one. Traditionally, CFOs were more involved with tasks such as closing the books, generating reports with historic data, interpreting the numbers and translating the bottom line for the management, analyzing results and comparing information between previous months, quarters and years. I find that, lately, more than ever, the role of the CFO is

shapeshifting into a more forward thinking role – to plan, predict, prepare and strategize on behalf of the company for what could possibly happen, what is more likely to materialize and to analyze any scenario that could impact upon the company financially.

The CFO is the one who needs to be aware of what is changing as regards the law, tax regulation, EU legislation, local markets, the global economy and any political repercussions. Analyzing past results and performance is important for a company to learn from its history; however, one thing is for sure: in a rapidly changing economic environment such as the present, the successful CFO is the one who will

foresee, prepare and adapt to change as smoothly and efficiently as possible.

The CFO is a completely different person today than he/she was 20 or 30 years ago It has been suggested that the CFO is perhaps the one person in an organisation who sees the ‘big picture’.

This suggests that the roles of CEO and CFO are growing closer. Would you agree?

I agree that this is the way the relationship between CEO and CFO should be. The CEO and CFO need each other; it’s a Batman and Robin/ Holmes and Watson kind of relationship. The CEO is the tone at the top, the face, the inspiration, the leader, the head who is, after all, the executive decision maker and the liability holder. The suggestion that a CEO should be an expert in law, finance, technology, compliance, marketing, sales, etc., is completely unrealistic. The CEO is the one who manages the experts, who listens to the experts and who has the experience to take the right decisions. Considering that the majority of corporations are nowadays finance- or

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tax-driven, the most likely expert to be advising the CEO is the CFO. This is where the capabilities of the CFO come into play but, most importantly, it is where the chemistry of the CFO and the CEO comes into play. To give a simple example, the CFO is expected to use more of his left-brain analytical and technical skills whereas the CEO is expected to use more of his right-brain relationship-building and people management skills.

Together they form ‘one big complete picture’.

Have you had to develop certain new skills for your position in today’s changing corporate world?

I feel that I haven’t stopped evolving, developing myself and adapting to the ever-

changing corporate world from the very first day that I started working! It’s a continuous process; you learn and change and develop skills and abilities and characteristics through your various positions,

carry on’ as the popular saying goes. Another very important skill that I had to learn as I evolved into a CFO concerned dealing with people. There is no manual, no training and no university degree that tells you how to manage and deal with people, employees, team members, subordinates, peers and superiors. Your people skills can make you or break you.

A CFO needs his team, he needs the CEO, he needs to get his people skills right and human relations are much more complicated than any Balance Sheet or Cash Flow statement!

The successful CFO is the one who will foresee, prepare and adapt to change as smoothly and efficiently as possible

Technology is changing business in many ways. Has it had a direct impact on your work as CFO? I thank whoever brainstormed Excel spreadsheets every single day! Automation, Automation, Automation.

I cannot stress enough how important technology is in today’s corporate world. It is the biggest ally of a company and, at the same time, its biggest weakness and risk. As a CFO, I can safely say that I would need a team 10 times the size of my current team to carry out the main functions of the department if technology and automation were not as integrated into the finance cycle as they are today. Technology has pushed Accounting, Finance, Treasury, Management and Business Analysis into a new

jobs and experiences. The number one survival skill for a CFO is stamina and self-control. To manage your body and manage your emotions requires years of practice and self-evolution.

Discipline of the mind is key to dealing with the workload, the responsibility, the liability, the long meetings, the important issues, the crises and the demanding stakeholders.

You have to ‘keep calm and

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stratosphere of existence; information is available immediately, calculations are performed accurately and at any level of complexity, reports are generated at a click of a button, facilitating fast and accurate decisionmaking in zero reaction time.

Information is exchanged instantly, calculations and forecasts are generated without cost or delay, millions of transactions are processed easily, hundreds of non-value added processes have been eliminated, the likelihood of human error has been nullified. The CFO is a completely different person today than he/she was 20 or 30 years ago. It is essentially a completely different job, thanks to technology.

How much pressure is placed on the CFO these days due to stricter regulation and compliance requirements?

Continuous changes in local and overseas regulation, stricter compliance requirements from multiple levels of regulators locally and globally, the introduction of information exchange mechanisms among nations, the increase in corporate accountability and the need for financial and operational transparency are reasons enough to create pressure on the CFO to be continuously changing processes and adapting to new methods and realities. Re-invention and adaptability is key. Yes, one can argue that overcompliance is a business killer and excessive regulation is operational suffocation; on the

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other hand, it can be likened to ‘leveling the ground’ and ridding the garden of weeds.

A CFO’s role is crucial in navigating the business financially through compliance and regulatory impediments.

Essentially, he/she is the key to helping the company find new ways and methods of operating in times of everchanging regulation.

In your personal role at Plus500CY, are there aspects of the work that are very specific to the company and the sector or is a CFO doing pretty much the same thing in any company or organisation?

In principle, the skills and the role of the CFO should be the same in any organisational spectrum and sector but in reality they are not. The type of sector, the level of regulation, the nature of the business, the financial environment and the overall risk appetite of a company are definitive in shaping the role of each CFO. Being part of a group listed on the London Stock Exchange, being part of a CySEC

regulated company, being a member of the management team of a company operating in highly volatile sector such as the CFDs market, working in an EU country and being a team leader of some of the best professionals are just a few reasons that have shaped a very specific CFO role for me. My role is to lead one of the most important teams in the organisation to effectively support the company to achieve its operational goals, which is what makes the business great at the end of the day. The Accounting and Finance function is the backbone of any business; it’s the glue that keeps all the pieces together. I need to make sure that this glue is strong but also flexible.

My role is to study the regulatory, financial and political changes that are happening, to predict and quantify a possible financial impact, to always be vigilant and adaptable. Finally, zooming out of the clearcut CFO role for a second, I strongly believe in passing on the torch of knowledge.

The number one survival skill for a CFO is stamina and self-control CFOs need to be teachers towards their team members, knowledge should be passed on. I like to believe that I run a ‘teaching’ department, a principle I have been taught by other CFOs that I have had the luck to work under in the past.

As a female CFO of a major international company, you are in a minority. Is this because, for some reason, women don’t aspire to undertake the huge responsibilities involved or is it simply because they are not given the opportunity to reach such a position?

I believe there are equal and fair opportunities in Cyprus for men and women to reach the position that I have. I have been lucky so far not to have witnessed any level of

discrimination, I have always been treated fairly and promoted based on my merits and capabilities. However, this does not mean that discrimination does not exist; it does and it’s unacceptable. Any organisation that does not choose a CFO based on the right criteria is essentially sabotaging itself. I do recognize that there are more men CFOs than women but I choose to attribute this mainly to the fact that it’s much tougher on women to have a family and, at the same time, to wholeheartedly devote themselves to being great CFOs. Motherhood is a full-time job in itself and being a dedicated CFO means making a large number of sacrifices, often at the expense of your family life. But I am proof that it can be done! I love what I do and going to work every day gives me such a level of happiness that makes me an even better mother, a better team leader, a better teacher and a better CFO.

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TIME FOR A CHANGE THE TIME HAS COME TO PROMOTE UNIFORM BUDGETING AND ACCOUNTING STANDARDS FOR GOVERNMENTS ACROSS THE EU.

By Panayiotis Peleties, Board Member, KPMG Ltd

T

he International Public Sector Accounting Standards Board (IPSASB) has highlighted that the financial and sovereign debt crises have brought to light, as never before, the need for better financial reporting by governments worldwide, and the need for improvements in the management of public sector resources. Strong and transparent financial reporting has the potential to improve public sector decision-making and to make governments more accountable to their constituents.

Governments that report on a cash basis do not account for significant liabilities, such as pensions and infrastructure development. As a result, the IPSASB encourages public sector entities to adopt the accrual basis of accounting, which will likely improve financial management and increase transparency, resulting in a more complete and accurate view of a governmentâ&#x20AC;&#x2122;s financial position. By using the accrual basis of accounting, transactions are recognised as they occur rather than when payment is made or received. It is within this framework that the IPSASB is developing International Accounting Public Sector Standards (IPSAS) under the accrual basis of accounting for public sector entities. Accrual accounting improves the quality of general purpose reporting by public sector entities, and can lead to

better informed assessments of the resource allocation decisions made by governments, thereby helping in the increase of transparency and accountability.

Many governments, jurisdictions, and international institutions have already adopted IPSAS, including New Zealand, Switzerland, Austria, The Netherlands, France, NATO and the United Nations.

Many more are on the road to implementing the standards.

The current public financial crisis in Europe reveals the necessity for reformed and harmonised public sector budgeting and accounting systems in the European Union (EU). At times when EU Member States act as a guarantor for other Member Statesâ&#x20AC;&#x2122; public debt, the non-transparent and highly heterogeneous (cash-based) accounting systems applied by many Member States are no longer suitable.

In order to prevent future crises, the financial management of EU governments has to be improved significantly. The time has come to promote uniform budgeting and accounting standards for governments across the EU. Harmonized and under the accrual basis accounting standards will help significantly and currently there is an ongoing discussion within the EU about the development of European Public Sector Accounting Standards (EPSAS) to suit this purpose. A suitable starting point for EPSAS are IPSAS but they mainly focus on past events accounting, while it is also

In order to prevent future crises, the financial management of EU governments has to be improved significantly very important to develop appropriate standards for the preparation of accrual basis budgets.

Some EU Member States (i.e. local governments in Germany or the federal government in Austria) have already implemented, to some extent, the preparation of budgets on the accrual basis. However, the systems and methods used present major inconsistencies and, as a result, comparisons are hard or even impossible.

In Cyprus, the government is at the initial stages of its effort to convert from cash accounting to the accrual basis of accounting in the preparation of its financial statements. This conversion will most probably take place in line with the relevant IPSAS provisions, as the process within the EU for the issuance of the EPSAS is expected to take time. The aim is to complete the conversion at central government level within the next three years, while broader government and other public sector entities are expected to follow.

Beyond the above mentioned benefits, the future implementation of IPSAS by central and wider government, and hence the uniform accounting policies, will allow the preparation of consolidated financial statements, something that will also facilitate capital raising in the public sector.

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COMBATING MONEY LAUNDERING, TAX AVOIDANCE AND TAX EVASION THE WORK OF THE EUROPEAN PARLIAMENT’S COMMITTEE OF INQUIRY (PANA)

By Andreas Kettis Head, European Parliament Information Office in Cyprus

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n April 3, 2016, the International Consortium for Investigative Journalism (ICIJ) released 11.5 million leaked documents from the Panama-based law firm Mossack Fonseca. These documents revealed a global network of shell companies and hidden bank accounts set up for illegal purposes, including fraud, tax evasion, bribery, arms deals, financial fraud and drug trafficking.

The documents provide information on more than 214,000 offshore companies connected to people in more than 200

countries, involving heads of state, ministers, politicians, officials of Forbes 500 listed companies, criminals and other clients of Mossack Fonseca, a firm offering anonymity and low-tax solutions.

An anonymous source alerted the German newspaper Suddeutsche Zeitung to the leak, and it then shared the information with the ICIJ. Tax scandals like the “Lux Leaks” in 2014, Swiss Leaks in 2015, the “Panama Papers” in 2016 and the “Malta Files” in 2017 reveal how systematic tax avoidance and money laundering are common illegal practices on a global scale

and they need to be tackled.

Following the “Panama Papers” leak, the European Parliament decided on June 8, 2016 to establish a special Committee of Inquiry to fight tax avoidance, tax evasion and money laundering (PANA). A statement declared: “In times when the EU is still coping with the consequences of the crisis from the end 2000s, European Institutions have a duty to ensure that the fight against tax fraud, avoidance and illegal activities is given priority and has the best legislative framework possible”.

From its inception, the Committee of Inquiry, chaired by German MEP Werner Langen (EPP), has been investigating if EU law has been infringed and what legislative changes are necessary to tackle the problem. During its 18-month mandate (June 2016-December 2017), the 65 Committee members have been examining whether there has been any breach or maladministration cases of EU law, especially the Anti-Money Laundering Directive (2015/849), the Administrative Cooperation Directive (2011/16/EU), the Accounting Directive (2013/34/EU) and the Treaty of Principle of Sincere Cooperation (Art. 4 (3) TEU).

They have been doing so by organising hearings with ICIJ journalists, representatives of the United Nations, Commissioners, representatives of Europol, Eurojust, Member States’ Financial Intelligence Units and government officials, and by inviting witnesses and scrutinizing confidential information.

Some of the highlights of the PANA Committee in the past year have been the

Jean-Claude Juncker was criticised by MEPs who argued that Luxembourg had blocked EU laws for preventing tax evasion

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hearings held with high-ranking government officials, including the Prime Minister of Malta, who faced allegations that a Panamanian offshore company belonged to his wife. It should be noted that having an offshore company is not illegal; however, some offshore entities have been associated with money laundering schemes.

In addition, the President of the European Commission was also subject to a hearing, with MEPs demanding answers as to what role he played in the Grand Duchy’s development into one of the world’s biggest tax havens during his time as Finance Minister and Prime Minister of Luxembourg. JeanClaude Juncker was criticised by MEPs who argued that Luxembourg had blocked EU laws for preventing tax evasion, costing EU countries approximately €300 million in tax revenues from 2003 onwards, according to the Greens/EFA Group’s report on Luxembourg’s tax practices.

Apart from hearings, the Committee has also conducted fact-finding missions to various countries, including, the UK, Malta, Portugal, the USA, Cyprus and Luxembourg. During the Committee’s visit

to Cyprus on July 6-9, 2017, members had the opportunity to meet a host of Cypriot government representatives, including the Minister of Finance, Harris Georgiades, the Minister of Energy, Commerce, Industry & Tourism, Yiorgos Lakkotrypis, the Minister of Foreign Affairs, Ioannis Kasoulides and the Tax Commissioner, Yiannis Tsangaris. PANA Members also met with representatives of the Association of Cyprus Banks, the Cyprus Unit for Combating Money Laundering, the Association of International Banks and the Cyprus Bar Association.

The fact-finding mission to Cyprus ran smoothly and the Committee definitely left the country with a clearer understanding of the situation. Three Cypriot MEPs – Lefteris Christoforou (EPP), Costas Mavrides (S&D) and Takis Hadjigeorgiou (GUE) participated in the PANA mission to Cyprus and, in statements to the press, expressed the view that the Committee would be leaving the country with a positive outlook, following very informative, thorough and documented meetings with Cypriot government officials.

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Given its political importance, publication of the PANA report is highly anticipated The PANA Committee members still have a number of outstanding missions and hearings and it is expected that by the end of the Committee’s mandate in December 2017, a detailed report will be submitted to the plenary of the European Parliament containing all the information gathered.

Given its political importance, publication of the PANA report is highly anticipated.

Tax fraud and tax evasion represent a huge problem that affects each and every EU citizen. The European Parliament, representing the EU’s 500 million citizens, takes its role as a guardian of liberties, human rights and democracy very seriously and is fighting to end this problem. Hence, the issues of tax evasion and tax avoidance remain high on the Parliament’s political agenda.

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UNDER THE MICROSCOPE

PUTTING EXAMINERSHIP UNDER THE MICROSCOPE HIGHLIGHTS HOW THIS NEW TOOL HAS THE POTENTIAL TO MAKE A DISTINCT DIFFERENCE IN RESUSCITATING CYPRUS’ BUSINESS ENVIRONMENT, FOLLOWING THE NEGATIVE EFFECTS OF THE ISLAND’S ECONOMIC TURNDOWN.

By Andreas Panayiotou and Christos Papaxanthos, Consulting & Business Advisory Services, Baker Tilly South East Europe

T

he Companies Law, Cap. 113 (Cyprus) – as amended by the 89(I)/2015, 63(I)/2015, and 62(I)/2015 – has introduced the socalled Examinership procedure to be utilised to the benefit of Cyprus-based companies, their employees, and the country’s overall level of employment.

The process derives from Irish law, whereby an Examiner is appointed (with the permission of the court) to restructure a viable company, in order to save it from closure, thereby saving the jobs of the employees. A further feature is to settle all unpaid debt of the business. A company will be placed into Examinership when there is reasonable prospect of survival of the whole or part of the business as a going concern.

Indeed, since the recession began in Ireland in 2008, the process has been responsible for the maintenance of many thousands of jobs. In 2016 alone, 2,132 Irish jobs were protected by companies engaged in the process of Examinership, including the high-

profile Debenhams case. Overall, it has assisted the Irish economy in reducing unemployment from 15.2% in February of 2012 to 7.1% in February 2017.

How does Examinership work?

The Court-appointed Examiner – a licensed insolvency practitioner – has a four-month period (with the prospect for a further two-month extension) during which to take on a monitoring role over the company in question, with the aim of rescuing it and ensuring that it continues to trade normally.

By resolution of its directors, a company can normally place itself into Examinership; it is also possible by petition of a creditor or a prospective creditor, or indeed by members of

the company holding not less than the one tenth of the paid-up capital of the company having voting rights.

The petition must be on the grounds that the company is unable to pay its debts as they fall due. Therefore, it is a procedure reserved for insolvent companies.

In order for the petition to go forward, certain criteria must be satisfied, such as: • The company must be unable to pay its debts or likely to be unable to do so; • No resolution has been passed for the voluntary winding-up of the company; • And no receiver has been or should be appointed for more than 30 days.

Since the recession began in Ireland in 2008, the process has been responsible for the maintenance of many thousands of jobs

An independent expert’s report must accompany the petition. The expert may be the auditor of the company or an insolvency practitioner.

The report will be provided to

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More often than not, the most difficult part of the process is the securing of an investor or other refinancing package in order to fund a scheme of arrangement the court as evidence to support the overall viability of the business, in order to assist the judge in approving the company going into Examinership.

Once the appointment is granted by the court, the Examiner has three days to notify the creditors of his appointment and explain the process. Each creditor will be asked to submit details of their claim from the company. Towards the end of the process, meetings should be held with each class of creditors if necessary to discuss the ‘scheme of arrangement’.

Important tasks that will decide the fate of the Examinership include the cash flow projections, which the company will have to prepare on a weekly basis in order for the Examiner to review and compare them with the projections of the independent expert’s report, and investigate any differences.

More often than not, the most difficult part of the process is the securing of an investor or other refinancing package in order to fund a scheme of arrangement, which will go towards the repayment of creditors. The latter are split into different classes: preferential, secured, and unsecured.

If interested parties are found, a Non-

Disclosure Agreement (NDA) is usually issued to all interested parties. Once they sign the NDA, the Examiner provides them with the Information Memorandum (IM), which sets out the timeline for the investment process.

If the examiner has multiple offers, he or she will work with the directors in choosing the most suitable candidate, who then usually carries out further due diligence before entering an investment agreement.

Once the investment agreement is signed, the funds are transferred to the Examiners’ lawyers, and then a creditors meeting is convened. The Examiner holds a separate meeting for each class of creditor, during which they receive a copy of the scheme of arrangement and explanatory memorandum setting out the level of dividend for each class.

After the meetings, the Examiner returns to court and presents his or her final report, making known the outcome of the meetings held, and why he or she believes the company will survive in the future. Critically, the Examiner will set out how jobs will be saved

by implementation of the scheme and how the creditors as a whole will fare better than they would on liquidation or receivership.

The judge will then approve the scheme of arrangement and the Examiner will be discharged.

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2. WHICH OTHER REGULATIONS MUST TO BE CONSIDERED SIMULTANEOUSLY?

READY OR NOT, HERE COMES MiFID II!

“You would have had to be living in a very remote, dark cave to have missed the spectre of MiFID II (to give it its full name: the second Markets in Financial Instruments Directive (“MiFID II”)) over the past 12 months.”

N.Thompsell and T. Price, 2015

By George Giannoulakis (InvestCor Corporate Ltd, regulated ASP) and Marina Joannou (Director at CySEC regulated firm)

WHAT IS MiFID II? Briefly, MiFID II is the overhaul of EU legislation that regulates investment firms and intermediaries providing services related to ‘financial instruments’ (typically shares, bonds and derivatives), and the venues where the said instruments are traded.

1. WHAT ARE THE KEY PARTS OF THIS OVERHAUL? MiFID II can be broken down into a handful of key themes: Transparency & Reporting MiFID II has significantly expanded reporting and disclosure requirements.

Transparency requirements (pre- and posttrade) are extended to include non-equity instruments. There is also an expansion in the scope of the reporting data required.

Rules have also been established to make data available through the establishment of a consolidated tape mechanism for posttrade data (accompanied by the establishment of approved reporting mechanism (ARM)).

Market Structure/Coverage MiFID I only covered equity markets.

MiFID II extends coverage for virtually all financial instruments. MiFID II also introduces the organised trading facility (OTF) which expands the scope of a trading platform concept for non-equity instruments to encompass smaller

B2B networks. This seeks to complement existing facilities such as MTFs. Trading Regime Trading controls for algorithmic and High Frequency Trading (HFT) are introduced. There will be a stricter commodity regime via the inclusion of commodity instruments. Position limits are being introduced to prevent market abuse and improve transparency.

Investor Protection MiFID II introduces a more restrictive regime for inducements with a ban on inducements for independent advisers. It introduces new obligations with regards to suitability, appropriateness, best execution; post-sale reporting; information on charges and costs.

Internal Controls/Compliance and Governance MiFID II is more prescriptive in relation to corporate governance within firms to which it applies. Corporate governance amendments ensure new recording obligations for telephone conversations and electronic communications are met. Stricter monitoring of sales and remuneration is imposed.

Conflicts are to be actively prevented by firms, with the action criteria now being stated as “appropriate steps”, as opposed to “reasonable steps”.

MiFID II is aligned to other European regulations such as EMIR, MAR, REMIT and SFTR. In addition, NIS and the EU GDPR is going to have a material impact across the EU, especially towards regulated entities.

3. STATE OF THE INDUSTRY According to media reports, few financial institutions are ready to meet the requirements of transaction reporting under MiFID II. Even the large firms are struggling. This was conveyed in an article in the Financial Times on 3 August 2017 which provides results on a poll for MiFID II readiness: “According to a poll of 562 asset managers

by RSRCHXchange, a research provider, in June 2017, 36% of fund houses had not decided how to pay for research... At least 12 of the world’s biggest fund houses, including BlackRock and JPMorgan Asset Management, are yet to make a decision on how they will pay for investment research despite a looming deadline to comply with new European rules” A webinar in March 2017 by DataManagementReview had an early audience poll which showed 3% of organisations completely ready to meet the requirements of MiFID II transaction reporting, 29% somewhat ready, 36% at the planning stage, 25% starting implementation and 7% having yet to start. A second poll identified key date management challenges as understanding the regulatory requirement, sourcing required data, integrating standard data codes and working across data silos.

4. THE BIGGEST CHALLENGES Time and money. Costs are incurred by IT & data skills, strategic & key implementers, and costs increase as the deadline looms.

However, it should be considered as a health check of the industry which is aimed to have long-term financial health benefits for the industry as a whole.

5. WHAT SHOULD WE DO? MiFID II affects the whole industry and firms should work with peers and regulators to agree data strategy & protocols, fill gaps and get transaction reporting right as soon as possible. Working together may bring about some comprehensive, yet cost-efficient solutions that are not possible otherwise.

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A ‘SWEET’

BEGINNING

THE EVOLUTION OF HUMAN RESOURCES MANAGEMENT

By Demetris Ergatoudes, Retired (2006) Senior Manager, Cyprus Popular Bank Ltd, and Fellow of the Chartered Institute of Bankers, London

Y

ou may be surprised by the above title and yet the precursor of the Personnel Manager and the Human Resources Manager, was the “Welfare Employee” (Welfare Worker) or the “Corporate Secretary” (Social Secretary), who was appointed in the Rowntree chocolate factory in the United Kingdom in 1896.

Meanwhile, its competitor, Cadbury, did not remain idle. In 1909, it arranged a conference of those interested in factory welfare work and in 1913, at a similar conference organised by Rowntree, the Welfare Workers Association was formed. In 1946, this body eventually became known as the Institute of Personnel Management. Later, in 1994, the Institute was renamed the Institute of Personnel and Development and in 2000 it was again renamed, this time as the Chartered Institute of Personnel and Development.

The personnel department was to become an indispensable department in all major organizations

What intervened to compel employers to think about their human resources, in addition to their profits? I will attempt a periodic review of the history of HR, dividing it into five periods: • Before1914 • World War I • Between the Wars • World War II • Since 1945

BEFORE 1914 In the 19th century, with the industrial revolution, workers began to face various social problems while employers developed a form of social conscience to address these problems. Traditionally, in the feudal, agricultural society, relations between employers and employees had been based, at least in theory, on the concept of noblesse oblige: the employee had an obligation to work and to serve, and the employer to provide a living for, and to protect, the employee.

The Industrial Revolution overturned this relationship, as the economists of the time argued that the only obligation of the employer was to himself and to his business.

This was based on the idea that workers’ salaries depended solely on the success of the business. The employer’s obligation was to provide workers with the minimum necessary to live, thus reducing their costs

and increasing their profits. Naturally, the workers objected to this behaviour and they organized themselves into trade unions in order to protect their interests.

Some employers heard the messages of the times and, in 1896, the pioneering Rowntree company introduced the concept of the “Welfare Worker”.

WORLD WAR I The need for war materials during World War I led to the employment of many women and young people. Employers, invoking patriotism and taking advantage of their workers’ tolerance, forced them to work longer hours in order to increase production. Soon, however, the employers and the state realized that this pressure was having the opposite results, and that led to a greater role for the “Welfare Officers” who became known as “Labour Officers”.

Committees were formed and specific laws, regulating working conditions, were introduced, with special reference to women and young people.

BETWEEN THE WARS With the end of World War I, women returned home, but the role of “Welfare Workers” and the “Labour Officers” was maintained, although it was neither successful nor popular with the workers. The eco-

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nomic crisis that followed led many workers into unemployment, causing those who were fortunate enough to keep their jobs to be seriously exploited by their employers.

The latter began to pay more attention to their processes than to the welfare of their employees. Around 1920, in the USA the title of “Personnel Officer” or “Personnel Manager” was used for the first time. In England, the title was used with a delay of almost twenty years, in 1939.

although this time the latter were more prepre pared to cope, so were the employers. The state was forced to intervene by adopting laws regarding work, working conditions, dismissals, etc. In many factories, “Joint Production Committees” were set up, an initiative which until then had been considered pure Bolshevism. All these changes led employers to pay particular attention to the personnel department, which was to become an indispensable department in all major organizations.

WORLD WAR II The situation that had prevailed in the early years of World War I returned during the Second World War. Employers again invoked the patriotism of their workers and

CYPRUS Unconfirmed sources indicate that at least one large mining company had a Personnel Manager in the 1940s. What is certain is that in the early 1950s, large companies (e.g.

Coca-Cola) had a Personnel Manager. The position and title became more common in the 1960s (e.g. Bank of Cyprus) and, even more common, in the 1970s (e.g. Laiki Bank and Cyta). Since 1980 onwards, almost all major companies and organizations have had a Personnel Manager.

SINCE 1945 The eventful years since 1945 have been quite different from those which followed Word War I. Overfull employment (until 1970) meant that industrial power shifted to the shop-floor; the workers could call thee tune in large part. Employers increasingly felt the need to use labour economically, especially in the late 1960s when the labourr costs increased.

Trade unions and their representatives gained immense power, although in some countries they faced a relentless war from their governments. A classic example is the UK where, in the 1980s, the “Iron Lady” Margaret Thatcher succeeded in completelyy weakening the once mighty unions, particularly those of the miners. These events led to the upgrading of the role of Personnel Departments and their managers, since

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good industrial relations and the avoidance of labour disputes and strikes were dependent on the way they handled their employees. The result of all these changes was the renaming of the Personnel Manager (or “Personnel Officer”) as Director of Human Resources (1990s) with increased duties and responsibilities but also with an increased salary and more benefits. Today, such posts are occupied by managers with strong academic qualifications and long experience, both of which are necessary to face the current difficult conditions, following the financial crisis of 2008, which nobody knows how long will last.

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PREPARING YOUR HOME

FOR SALE

THE TIME IS NOW RIPE FOR AN INITIAL EXAMINATION REGARDING THE CREATION OF REAL ESTATE FUNDS IN CYPRUS.

By Antonis Loizou, FRICS, Antonis Loizou & Associates Ltd, Real Estate Valuers & Estate Agents

W

hile buying a property in Cyprus can be easy, due to an abundance of supply, selling your own property may be more difficult, since you will be competing against well-organised developers and agents. For this reason, the selling process may take up to six months and even more (depending on how marketable your property is). Consequently, if you are already thinking of reselling the property when buying, you should bear in mind the general market needs and not your own. The more marketable your property is and the wider its financial appeal, the less time required to sell it

and the greater the possible gains will be.

When selling your property, you should try on-the-spot advertising first. Placing a “For Sale” sign on your land/ house/flat is the best form of advertising, although some people feel embarrassed to do this and others do not want the hassle of having people knocking on their door at all hours.

The appointment of estate agents (avoid exclusivity) is recommended. The commission payable is normally 3% (Nicosia) and 5% (seaside towns on the sale price, although there are agents, mainly in the Paphos district, who charge 8% (note that when dealing with foreign agents, this may exceed 10%). For this reason, you should agree on the agent’s commission beforehand. Do not accept a deal whereby you fix the price and the

agent gets the commission plus what he can obtain in excess of the fixed price (greedy agents may overprice your property and, consequently, render it unmarketable).

We suggest that you also appoint a qualified valuer (contact the Cyprus Association of Surveyors for a recommendation), who will ascertain the value of your property and its sales terms.

You may find that you are undervaluing or overvaluing your property, with negative results on your sale, price and period of sale.

You should appoint several (2-3) selling agents but check who they are (your Bank Manager and the Association of Surveyors may recommend reputable ones). If on-thespot advertising/agents do not achieve a sale, try to advertise in the local press or online yourself.

Bear in mind the payable taxation (if any), the exchange rate, the export of the sales amount, etc., prior to commitment. The sale/transfer of a property’s ownership is a straightforward and simple procedure. You simply present yourself at the Lands Office counter, together with the purchaser and you sign a sales form. Provided that there are no registered impediments and there is a clean title, the deal is concluded within the hour. Remember that, prior

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Placing a “For Sale” sign on your land/house/flat is the best form of advertising to the transfer, you must have paid all outstanding property taxes on your holding and obtained a certificate of tax release from the Tax Department. In addition, make sure that municipal taxes, garbage, water and other services as well as any outstanding common expenses are covered prior to sale/transfer.

When you sell your property, you are liable to Capital Gains Tax (given various exceptions and tax relief, this will be minimal if it is your

main residence). Do not take for granted that you will pay only Capital Gains Tax, however. If you buy and sell often, you will find that you are liable for a higher income tax rate.

If you are not the registered owner and you sell “your” property, you need the cooperation of the original owner to cancel/assign the sales agreement or you can opt for an assignment of the original sales contacts.

In order to sell the property

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Notwithstanding the situation of the Cypriot economy, the real estate market is improving with clear signs for a positive future to a non-EU national, you need to have Council of Ministers approval when transferring ownership.

Whatever you do when you buy/sell your property, we suggest that you employ a reputable legal firm (preferably one not connected with a developer or having his own property for sale). Agree on the fee beforehand. Be prepared to answer the buyer’s questions regarding the title, financiers release, town planning and building permits, a

certificate of final approval, etc. (these items refer to nontitle properties).

Finally, prepare yourselves psychologically since, when the moment arrives, some owners have second thoughts about the sale. We recently experienced the case of a seller who insisted on leaving her cat in the house (with a written agreement binding the buyer to look after it) and, on another occasion, the sound of children crying during the buyer’s visit put him off!

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B<M

SOFTWARE AS A SERVICE:

CHANGING BUSINESS IN CYPRUS GEORGE MALEKKOS, CEO & SOFTWARE INNOVATION ARCHITECT AT POWERSOFT COMPUTER SOLUTIONS LTD, EXPLAINS HOW A NEW SERVICE ENABLES COMPANIES TO TAKE ADVANTAGE OF THE LATEST TECHNOLOGY WITHOUT HAVING TO BUY IT OUTRIGHT.

P

owersoft is one of the largest business software development companies in Cyprus. What is the key to its success?

The key to our success is the strong relationship that we have with our clients. We listen to their requests and problems and we develop in-

novative solutions for them.

What services does the company offer to its clients and how do they benefit from these services?

We offer them Software as a Service (SaaS) so that they can have really strong and powerful software for a very low monthly fee. Our services also include training and consultancy, based on

our new software business intelligence systems.

Innovation is one of the things that sets Powersoft apart from its competition.

How important is it for the company and its clients to invest in new and innovative technologies?

Powersoftâ&#x20AC;&#x2122;s DNA profile includes innovation based on the clientâ&#x20AC;&#x2122;s needs and future technologies. Some 45% of our income is spent on research and development but this is the key to being unique.

This is also very important for our clients because it means that they are one step ahead of their competitors and this is a must these days.

Are companies in Cyprus more or less reluctant

to invest or implement new technologies in their business, compared to their counterparts elsewhere in Europe? If so, why?

Companies in Cyprus are less reluctant to invest or implement new technologies than elsewhere in Europe and the reason is that, usually, the cost of brand new technologies is higher and, since we are a very small country, the Return on Investment may not be what is expected. At Powersoft, we offer innovative solutions at a very competitive price for a very small monthly fee (SaaS, as noted above), and as a result, our customers are more open to the idea of embracing new technologies.

We give them the option to try everything that is new for

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free and, in this way, they can evaluate in real time whether something is worth investing in. This is a win-win situation for both the Powersoft team and our clients.

What are the challenges and opportunities facing businesses that decide to adopt new technological solutions and applications?

How can Powersoft assist them in this transition?

Businesses sometimes think that one solution fits all but this is not the case. When you decide to embrace new technology, customization is a must. At Powersoft, we don’t have the same solution for everyone. We developing unique and tailormade innovative software for our clients and we assist them with their transition.

What are the new trends in the area of IT that businesses should be looking out for?

The new trend in the area of IT is ‘mobile first’, which means that everything can be done on your mobile device (sales, payments, receipts, stock, etc.) Whether you are a clerk, a manager or a loyal customer, you will be able to do everything from your mobile device.

What are Powersoft’s plans for the next 3-5 years?

Our new business plan actually covers the next six years and includes two new innovative services in the retail sector.

Also, the next generation of Powersoft365, which is called Powersoft365 VNEXT is currently under development with an expected rollout date in 18 months’ time.

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When you decide to embrace new technology, customization is a must

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B<M

TIPS

TO PREVENT INFECTION WITH RANSOMWARE

By George Agathangelou Professional Services Director, IBSCY Ltd

R

ansomware is an ever-increasing trend affecting PC users worldwide. According to threat reports by McAfee labs, the first quarter of 2015 saw a 165% increase in new ransomware.

For an idea of what this means, Cybersecurity Ventures reports that ransomware has cost companies $18 million over the past 15 months. In an article on the Top10 Cybersecurity Predictions, Matthew Rosenquist predicts more growth in ransomware and a shift in attacks to become more personal.

Wikipedia defines Ransomware as “a type of malware that restricts access to a computer system that it infects in some way, and demands that the user pay a ransom to the operators of the malware to remove the restriction. Some forms of ransomware systematically encrypt files on the system’s hard drive using a large key that may be technologically infeasible to breach without paying the ransom, while some may simply lock the system and display messages intended to coax the user into paying.” A very good example of aransomware in Cyprus was the “Police Virus”, which blocked the user’s screen and displayed a fake message from the Cyprus Police, stating that the computer was blocked due to its being used for the distribution of pornographic material, SPAM and copyrighted content, and asking the user to pay €100 to unblock the PC. This malware was quite easily removed.

Here are a few tips on how to protect yourself from ransomware; 1. Use reputable antivirus software

and a firewall.

Maintaining a strong firewall and keeping your security software up to date is critical.

It is important to use antivirus software from a reputable company because of all the fake software out there.

2. Back up often.

If you back up files, either to an external hard drive or to an online backup service, you will diminish the threat.

DO NOT BE TEMPTED TO GIVE IN AND PAY THE RANSOM 3. Enable your popup blocker.

Popups are a prime tactic used by the bad guys so you should simply avoid even accidentally clicking on an infected popup.

If a popup appears, click on the X in the right-hand corner. The buttons within a popup might have been reprogrammed by criminals, so do not click on them.

4. Exercise caution.

Don’t click on links inside e-mails and avoid suspicious websites. If your

PC does come under attack, use another computer to research details about the type of attack. But be aware that the bad guys are devious enough to create fake sites, perhaps advertising their own fake antivirus software or de-encryption programme.

5. Disconnect from the Internet.

If you receive a ransomware demand, disconnect from the Internet so that your personal data isn’t transmitted back to the criminals. If you cannot fix it yourself, take your computer to a reputable repair shop.

6. Alert the authorities.

Ransomware is a serious form of extortion.

With approximately 30,000 infections per day around the globe, according to Candid Wueest of Symantec, we must be careful to avoid this malware, especially now that criminals have started targeting both android and iOS mobile devices. Ransomware can prevent you from accessing your PC or mobile device, encrypt files so that you can’t use them, stop certain apps from running (such as your web browser) and the people behind it will demand that you do something to access your PC/mobile or files, such as like paying money or replying to surveys. There is no guarantee that paying the money or doing what the ransomware tells you will gain you access to your PC/mobile or files.

Do not be tempted to give in and pay the ransom. The chances are that, if you pay once, the criminals behind it will ask for more. Your best bet against ransomware is to take precautions to protect your information.

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HNM H? H??B<>

AXE, SAX... & TAX All ICPAC members naturally have a life beyond accountancy and, in each issue of the magazine, we take a look at how one of them spends his free time. Marios Andreou, in charge of Tax Advisory, Head of International Markets, Member of the Management Board at PwC Cyprus, also happens to be lead singer and rhythm guitarist with the band LST.

How and when did your fascination with music begin?

When I was 9 or10, my mother gave me a classical guitar as a Christmas present and a few days later, I started classical guitar lessons.

A couple of years later, the cover of the popular ‘80s music weekly Smash Hits had a photo of Martin Fry, the singer with ABC, holding an alto saxophone and I fell in love with the instrument. My grandmother planned to buy me a saxophone for Christmas but I ended up with a clarinet, which I later played in a wind band. Later still, during my national service, I played in the army band and started singing. Encouraged once again by my mother, I took vocal lessons and I was introduced to the wonderful voices of people like Luciano Pavarotti, Jose Carreras and Placido Domingo. As a result, I really love singing operatic arias and Neapolitan songs.

Tell us about the band.

When we formed the band, it consisted of three lawyers and an accountant (me).

We wanted a name that would reflect our background, so we decided on LST, which stands for Law, Sex and Tax! We each come from a different musical background and, as a result, we cover a wide range of styles. I am the lead singer and rhythm guitarist and I occasionally play sax.

Do you play gigs? How often and where?

The purpose of the band is for us to have fun whilst benefiting a good cause so we do play in public but it is always for charity.

Given our hectic work schedules, we only

manage to perform once or twice a year and we’d like to be doing it a lot more.

Do you play any original songs or is your repertoire made up of cover versions?

Even though some of us have written songs, we have only played cover versions for now. Hopefully we will perform our own songs at some stage.

What is your favourite song on your current setlist and why?

We play so many beautiful songs so it really depends on my mood and the dynamics within the band at the time but some of my favourites are Take It On The Run by REO Speedwagon, Bed of Roses and This Ain’t a Love Song by Bon Jovi, Cat People (Putting Out Fire) by David Bowie, Still Got the Blues by Gary Moore, Bad Love by Eric Clapton, and Go Your Own Way by Fleetwood Mac. These are the sounds I was listening to as a teenager and later as a student in London and we perform them to a very decent standard.

Why do you enjoy being a band?

Playing in a band is so much fun. It’s a great way to relax after work and it has a therapeutic effect. We enjoy ourselves immensely and music is a very strong bond that makes our friendship even stronger. I also lovee the thrill of performing live and the fact that we are raising money for a good cause while enjoying ourselves so much.

Do you never dream about how things might have been if you’d become a rock star instead of an accountant?

I used to but not anymore! To be honest, if I was going to be a professional musician, my real preference would be to be a successful tenor and sing in the world’s great opera houses.

What do your family, friends and colleagues think of your music?

My parents and grandparents were very supportive from the very first minute I showed an interest in music and I am so thankful to them. My wife Christiana appreciates what music means to me and shows great understanding, which allows me the time to study and rehearse with the band. She showed even greater understanding when some of my PwC partners and friends gave “us” a Gibson Les Paul electric guitar as a wedding present! Friends and colleagues appreciate the music we play and I would like to thank them for always supporting us and contributing to the charity we’ve chosen. Even my seven-month-old son seems to have enjoyed listening to my singing from the day he was born but this may be wishful thinking on my part. I’ll have to wait until he can speak and express his opinion before I can be sure!

Marios Andreou

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