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Cyprus’ growing “shadow banking” sector is entering a period of major change as stricter European rules force credit servicing companies to tighten controls, cut risky partnerships, and rethink how they handle technology and security.
The sector, which largely deals with managing bad loans and debt portfolios outside the traditional banking system, is now facing mounting pressure from regulators, especially over anti-money laundering compliance and digital security standards.
The shift comes after Trident Trust earlier this year reached a €70,000 settlement over anti-money laundering shortcomings, putting renewed attention on how companies in the sector operate and who they work with.
Industry sources say regulators are now focusing closely on “sub-outsourcing” arrangements, the often complex chains of outside contractors and third-party providers used by companies handling debt management and loan servicing.
At the center of the changes is the EU’s new Digital Operational Resilience Act, known as DORA, which introduces tougher technology, cybersecurity, and operational standards across the financial sector.
Under the rules, credit servicing firms are increasingly being treated with the same level of technological scrutiny as major commercial banks, despite operating in a very different part of the financial system.
That shift is already reshaping hiring trends across the industry.
Companies are reportedly cutting ties with higher-risk vendors and reassessing older outsourcing contracts in an effort to avoid compliance problems and potential penalties.
At the same time, many firms are moving away from general IT staff and are instead hiring specialized compliance and cybersecurity professionals with DORA-related expertise.
The result has been what industry insiders describe as a “firing and rehiring” cycle, as companies race to adapt before stricter enforcement measures fully take effect.
The changes reflect the growing importance regulators are placing on digital resilience and data security, especially in sectors handling sensitive financial information and large volumes of distressed debt.
For Cyprus, where the management of non-performing loans became a major industry after the banking crisis of the past decade, the tighter rules could mark a turning point for how the so-called secondary banking market operates in the years ahead.
