• ICPAC expresses serious reservations about the bill establishing the Cyprus Business Development Agency, identifying weaknesses that require immediate intervention.

• Due to the agency's broad financial activities, the establishment of a stronger governance, control, and risk management framework is required.

• The absence of clear financial exposure limits is highlighted, as well as the risk of market distortion through the crowding out of private funders.

• The proposed framework fails to effectively target micro-companies and startups, which face the actual financing gap.

• A targeted revision of the bill is proposed to enhance transparency, oversight, and meaningful support for vulnerable businesses.

Serious reservations regarding the proposed regulation currently before the House of Representatives for the establishment and operation of the Cyprus Business Development Agency (KOAE) are expressed by the Institute of Certified Public Accountants of Cyprus (ICPAC).

In a memorandum forwarded to the Parliamentary Committee on Financial and Budgetary Affairs, the General Manager of ICPAC, Andreas Papadatos, in the context of today's extraordinary session for the article-by-article discussion of the relevant legislation, stresses that it presents weaknesses that must be addressed immediately.

Initially, Mr. Papadatos notes in his memorandum that ICPAC fully supports the objective of improving access to finance for micro, small, medium-sized, and startup enterprises in Cyprus.

"We recognize that a specialized development agency can contribute to addressing existing market weaknesses, mobilizing resources, and promoting innovation, competitiveness, as well as the green and digital transition," he points out.

However, he highlights that KOAE is not intended to function merely as an administrative body, but is proposed to undertake activities such as providing loans, issuing guarantees, granting subsidies, making investments, participating in investment funds, managing portfolios, borrowing, and potentially operating through subsidiaries.

Anxiety over Financial Risks

"Such a broad range of activities entails significant credit, investment, operational, and fiscal risks," he underlines, noting that ICPAC's position is that the legislation under formulation must include a stronger governance and control framework, reflecting its nature as an organization that undertakes financial risks.

Specifically, he explains that it should establish the core principles and safety nets regarding governance, risk management, prudential supervision, conflicts of interest, transparency, compliance with state aid rules, anti-money laundering (AML) prevention, independent auditing, and public accountability.

He clarifies that detailed procedures could be determined through regulations or other secondary measures.

Absence of Clear Financial Exposure Limits

He states that from ICPAC's perspective, the absence of clear aggregate financial exposure limits, including guarantees, lending, investments, and subsidiaries, is also of particular significance.

Furthermore, there is the risk of market distortion through the crowding out of private funders, uncertainty regarding the applicable accounting framework (e.g., IPSAS or IFRS Accounting Standards), including consolidation requirements and mandatory audit arrangements, as well as the need for full transparency and effective oversight of subsidiaries.

Micro-companies and Startups Kept in a "Grey Zone"

Another critical issue, according to ICPAC, concerns the SME Test. He explains that in the way the proposed bill is currently structured, it covers approximately 98% of businesses in Cyprus.

He notes at the same time that the real market weakness is primarily identified in micro-companies and startups located in the so-called "valley of death," where the financing gap is particularly intense, access to bank financing is limited, and raising private capital is exceptionally difficult.

He adds that there is a risk that the bill, in its current form, will fail to effectively target these specific businesses, which face the greatest difficulty in accessing finance, and will function primarily as a vehicle for absorbing resources from the Recovery and Resilience Facility.

He suggests strengthening the bill to reflect KOAE's nature as an organization that undertakes significant financial risks, by providing a comprehensive framework of governance, oversight, transparency, and accountability.

Concurrently, he suggests that the targeting of the SME Test should be re-examined so that it responds more effectively to actual market weaknesses.

Source: ink.com