In the first part of an exclusive interview with CySEC Chairman Dr. George Theocharides, Financial Giants and CySEC discussed various aspects of the financial industry and the role of CySEC in protecting investors.。

Dr Theocharides highlights CySEC's mission to protect Cypriot and overseas investors。He highlighted the growth and scrutiny of the investment firm industry, noting that while some firms joined the industry, others withdrew because of challenges in meeting regulatory requirements.。Consolidation in the industry is seen as a positive development, allowing large businesses with stronger compliance cultures to thrive.。

Financial literacy is an important aspect, and Theocharides emphasizes that investors have a responsibility to educate themselves and make informed decisions.。

On compliance enforcement, regulators highlight shifts in CySEC policies and actions over the past decade。CySEC conducts site visits and investigations to ensure compliance with regulations。Acquisition of a specialized system enables CySEC to monitor the company's online marketing activities and detect potential violations。

Looking ahead, Dr Theocharides expects consolidation in the industry to intensify as a result of stronger regulatory requirements.。Firms with strong compliance cultures may survive, while others may move to alternative industries。

In the second part of the interview, we focus on the application of artificial intelligence in the investment field, the near-term prospects of cryptocurrencies under MiCA, and the development of the fintech industry in Cyprus。

"Take it, but be careful."

BBC documentary The Billion Dollar Scam, published in April, launched a year-long investigation into online investment scams。The documentary says Ukrainian investment firm Milton Group defrauded more than one billion dollars without its knowledge。

After the documentary aired, there were concerns that national authorities would not be able to deal with fraud in real time, and industry insiders pointed to a problem: compliance teams need to check unlimited data, but due to the large amount of material submitted, there is insufficient capacity to screen or detect unusual or suspicious transactions.。Regulators are hesitant to use artificial intelligence technology that could alleviate the situation.。

We asked Dr. Theocharides for his opinion, and he commented:

"To be honest, I haven't seen the documentary, but I believe in technology.。We have invested significant resources in technology, human resources and technical tools to play a regulatory role.。AI brings opportunities and choices to regulators, but we do need to be careful.。"

How careful？

"As regulators, we need to understand the challenges of digitalization - be vigilant against emerging risks and use new technologies and innovations to protect investors."。

All available resources and technology solutions we have must be leveraged to ensure regulated entities comply with increasingly data-intensive regulatory requirements and investor protection processes。"

To what extent should the industry adopt AI?？

"It's too early for mass adoption, we need to do it step by step."。I chair the ESMA Standing Committee on Risk, which looks at the risks associated with retail investors, as well as those related to financial stability across Europe.。

We are looking at AI and AI capabilities, and the challenge for every regulator globally is to stay proactive and stay ahead of financial market developments and technological expansion, no matter how fast the pace.。So, do adopt these technologies, but be careful and do it step by step。"

What are the disadvantages of technology in the financial sector?？

Financial fraud is an effect or after-effect of these technologies, and regulators need to be highly vigilant and vigilant about such new technologies, new assets。They pose many risks related to business practices, cybersecurity, fraud, money laundering and terrorist financing.。

Aggressive moves by the SEC

The adoption process of artificial intelligence reminds Theocharides of the first steps of blockchain:

"As the first Chairman of the Board of Directors of Cyprus Blockchain Technology Limited, my idea was to study how the technology could be useful not only for the banking or financial services industry, but for all other industries.。

In 2016, digital assets are using artificial intelligence, but other than that, they have not been adopted on a large scale. It has the potential to completely change many industries and eliminate middlemen.。"

Blockchain brings us to cryptocurrency, what do you think of the first steps to the entry into force of MiCA？

"This is Europe's landmark crypto licensing law and represents an important step forward in protecting investors in financial markets."。But it is worth noting that MiCA will not cover all crypto assets, such as NFTs, which is still beyond its scope.。

In addition, the issuance of stablecoins will be regulated by the central bank, while trading and service providers will be regulated by ESMA and national authorities.。MiCA is a commendable first step, but further development of the framework is needed to fully regulate the industry.。"

What do you think of the SEC's recent actions against Binance and Coinbase？

"The industry has been operating in an unregulated way for years, and we've seen crypto conglomerates or big companies get into trouble around the world, whereas in the past those troubled companies got bailed out by FTX and then FTX just collapsed."。

S. Securities and Exchange Commission is now trying to be proactive in setting up some structure for the industry and doing some form of regulation, so the U.。

FTX EU is a good example of a regulator protecting investors, can you tell us about the behind-the-scenes process？

FTX has a regulated entity in Cyprus and was licensed in September 2022.。This is a MiFID license similar to that of other companies for trading derivatives, but not for cryptocurrency trading.。On November 9, we immediately communicated with the local unit after learning of the incident via Twitter。

As the company has properly segregated client funds as well as the board and governance structure, we asked the FTX representatives in Cyprus to immediately suspend operations, which they did on the day of the crisis.。So, this is a lesson worth learning - act quickly when problems arise.。"

And then what happened？

"Then FTX goes to Chapter 11 of the Insolvency Act, including FTX EU, where managers want to preserve the value of the company."。We are not against this, working with them to make them remember that their clients "funds must be protected and returned to their owners.。

Obviously, it takes a lot of time after the company enters the management stage, especially in this case, this is a group dealing with crypto assets, the situation is much more complicated。They've spent more time building the entire system from scratch and starting to return customer funds, and it's nice to be able to do so.。

The second very important lesson is that with proper regulation, the risks of crypto assets will only be mitigated, not eliminated altogether。"

CySEC opened the Fintech Center in 2018, how do you see the development of the industry？

"We see a lot of movement towards fintech companies.。We established the Centre to guide fintech, regulatory technology and sub-technology concepts in the regulatory environment。It acts as a dialogue platform with future and existing regulated entities。

Currently, with funding from the EU RRF, we are transforming the centre into a regulatory sandbox for controlled testing of new technologies.。"