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Cyprus Banks'​ On-boarding Dilemma
2 years ago by Antoun Massaad

Cyprus Banks'​ On-boarding Dilemma

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As we near the middle of summer and the temperature starts to soar, the financial instability and current crisis continues to rock the Lebanese economy. It has been lately and over the course of a year quite apparent that the Lebanese government has lost the trust of the nation who demonstrated for months against malpractices, embezzlement and overspending of public funds. Most recently and over the course of the last few months the Lebanese Lira depreciated by around 9 or 10 times its pegged and official value against the US dollar.

This has resulted in more and more Lebanese businesses once more seeking the safe shores of its neighbouring Mediterranean island, Cyprus. This is ‘deja-vu’ for many, who have seen Lebanese businesses and families relocate to Cyprus in the 1970’s and through to the 1980’s; then due to the civil war of Lebanon with a smaller number in 2006. When the Lebanese arrived on the Cyprus shores in the past, they brought with them businesses ranging from shipping to insurance and hotel ownership and management as well as money, lots of it, and in many cases in cash.

Today, as the dire situation in Lebanon pushes its wealthy and business people to seek the safe shores of Cyprus, what is different however, is that Cyprus has since joined the European Union (EU).

Lebanese and other third country (non-EU member states) nationals establishing a business presence in Cyprus are required to deposit a certain amount of working capital in local bank accounts. This does not only pose difficulties onto the Lebanese; seeking to relocate in terms of visa and work permits requirements, but also places a burden on their Cypriot counterparts; mainly the local banks who will have to adhere to the regulatory requirements of the Cyprus central bank and authorities.

Regulatory requirements today call for conducting a thorough KYC - Know Your Client due diligence process. This involves identifying the source of funds and source of wealth of investors, as well as compliance checks; ensuring non-association to adverse and derogatory issues such as money laundering, financing of terrorism, being a sanctioned entity or being associated with crimes or criminal activities.

Over the past few years, especially since the financial crisis of 2013, Cyprus has not only become quite restrictive in terms of bank account opening and intra-bank transfers but also very slow in terms of client on-boarding - a process which could take anything between 30 and 120 days to complete. The slow and time consuming process is attributed mainly to the manual and outdated processes undertaken by the local banks. Industry specialists estimate such long processes to costs anywhere between €500 and €3,000+ per client. Whether through a lack of training, or general inexperience, we have also witnessed banks’ often quite junior compliance staff seemingly putting barriers in the way of on-boarding new clients, for fear of making an error or overlooking a genuine red flag. This can be very frustrating for legitimate, honest and open potential customers who have nothing to hide.

Over the past month of July 2020, I have personally known at least 4 different Lebanese business people who are seriously looking into moving their businesses to Cyprus and have started the process. However, in my opinion, if Cyprus wants to continue to grow and encourage or benefit from inward foreign direct investment, whether from their neighbours in the Levant region or further afield, much more needs to be done by the Cypriot banks in terms of client on-boarding. In particular, Cyprus needs to embrace new technological advantages currently offered by various well established service providers which assist banks and financial institutions in streamlining, speeding up, reducing the cost of the client on-boarding process and clients’ on-going monitoring, whilst maintaining and adhering to regulatory requirements. Embracing new technology-driven on-boarding processes backed by thorough research where needed, will enhance the clients’ experience too and enable new relationships to flourish based on mutual trust, security and amicable first impressions on both sides.

  • #lebanon #cyprus #banks #kyc #kyb #onboarding #compliance #aml #highnetworth