In the famous Cypriot folk tale, “Spanos and the Forty Dragons,” a young man sets out to prove his bravery to the people of his village by killing forty dragons that cut off the village’s water supply. Using little more than his wits, he deceives the Spanos (who, according to the tale, is “the one who can grow neither a beard nor a mustache”) into believing that he is stronger than they are, a better hunter, and even protected by a magical ointment. Wanting to become like him, the dragons allow Spanos to pour boiling hot resin on them, killing them instantly. Subsequently, Spanos turns the current to his village, and triumphantly returns to his home.
This kind of anecdote, of course, is not unique to the world’s cultural landscape. Many cultures have similar stories of people “beating above their weight,” from the biblical David and Goliath to Julia Donaldson’s modern-day “The Gruffalo.” The reason that came to my mind was a discussion I had several days ago with a colleague, prior to my participation in the iFX EXPO in Cyprus next week. My colleague, who was busy preparing for the trip to the Mediterranean island by himself, wondered aloud what it would take for Cyprus to become, as he put it, “Mediterranean Singapore.”
Our conversation on the matter, busy with calls and emails, was short and did not include any citation of Cypriot folklore. But several days later, as I anticipate replaying the conversation in my mind in the middle of the night (which, for some
Reason, he enjoys tying the loose ends of long discussions), I heard him say, “Be like Spanos.” That is, if the small island nation wanted to kill much larger money dragons and in great numbers, it would have to take an approach similar to that taken by Spanos, and behave as if they were bigger and stronger than they are, turning them into tiny ones. Size from disadvantage to advantage. It all comes back, of course, to the client’s setup. I will explain.
The competitive regulator and the dilemma of financial institutions
Bigger is better. Bigger means more customers, more opportunities, and therefore more profits. Before the existence of the European Union, the German license was much more desirable than the Cypriot one, as it gave financial institutions access to a larger and richer market.
However, in the European Union, it no longer really matters whether the financial institution is licensed in Germany or Cyprus, because licensing in any member state actually opens the door to the entire European market. Or in other words, the European Union has leveled the playing field for small member states, and they can now compete with the dragons of the continent, head-on.
This is a good example that the European market is not content with dropping the national borders between the member states, turning them into one large economic bloc; But also the European market turns itself into a market – countries, including their national agencies, compete with each other, as any country does in any market.
This competition, of course, can create an incentive to facilitate regulation in order to attract financial institutions to a particular jurisdiction, creating a conflict of interest between the role of regulators as protector of investors, and the desire to attract more business (what I am now) calling a conflict of interest between the immediate future And the distant future, as the very rapid rise of financial institutions in an unregulated market can lead, in the long run, to a loss of investor confidence in the market, and always. harm to all participants).
If this inherent conflict sounds familiar, it is because it is known to any financial institution. Traditionally, a financial intermediary can either deal with the client quickly, easily and with a pleasant client experience; or Maintaining a high level of compliance, at the cost of setup speed and customer experience.
Finalto is the official global sponsor of iFX EXPO International 2021 Go to article >>
During the past years, many financial institutions have solved this dilemma in one way or another. Some chose to gamble on the compliance side, dropping many setup requirements, hoping for the best. Others are very selective in the jurisdictions they join, limiting their target audience in order to ensure high levels of compliance even when they have an EU passport that they can freely join in some jurisdictions.
Only recently, with the advent of artificial intelligence and other technological developments, has another solution emerged, one that improves customer experience and compliance level. I’m of course talking about my company’s system, which has completed the entire onboarding process, from automated client profiling and fit and proper determinations to every type of KYC/AML verification imaginable, all while maintaining full compliance in every jurisdiction.
Size feature (small)
And here we return to Spanos. We have seen that the European Union has made the playing field a level playing field between small and large. Technology is tipping the scales in favor of smaller regulators. why? For this, we have to go back again to our platform (Muinmos’) dedicated to client setup, and to an important lesson we’ve learned over the past years, which is – the smaller the FI, the faster it can be adopted and the faster the platform is integrated. Thus, the smaller the financial institution, the better it is at improving their customer preparation and compliance (which does not mean that larger institutions are not successfully adopting our product – they just usually do so in their own time).
The reasons for this are many: from the tendency of large banks to take slower decision-making processes, to the greater number of users requiring training, to the fact that smaller financial institutions usually do not have outdated systems that prevent change.
And I think the same reasoning applies to regulators as well. For example, CySEC, according to Wikipedia, has 103 employees (2017 data). BaFIN, on the contrary, according to the same source, has 2,535 (as of December 2014). So, if CySEC wanted to change the way it operates, integrate a new software solution or digitize its databases, it could potentially do so much faster than the larger 25 times BaFIN.
This is the leaked An advantage in a world where technology is key in making operations faster and more compatible; Not only can it give small market regulators like CySEC a competitive advantage in the short-term race to select financial institutions for jurisdiction, but also keep the market well-regulated and healthy in the long-term.
A few more words
On a final note I will add, I was happy to read the words of the new CySEC President, Dr. George Thucharides, upon his recent appointment two weeks ago, that his goal is to ensure that CySEC continues to serve as a hedge for investors, as it leads the way for healthy growth for the sector. Financial technologies are evolving at a rapid pace and I will work to maintain the high standards that CySEC has set over previous years, while ensuring that they can be resilient and effective in meeting the challenges that lie ahead. I believe these three components – investor protection, healthy growth and technology go hand in hand, and I wish the new president all the best in successfully transforming CySEC into one of the continent’s dragons.
Remonda Kirketerp-Moller, Founder and CEO of Muinmos