Ever closer to the EU
23 Jul 2025
For Cyprus, opportunities over the next year or so come from harmonisation of regulations with EU norms. Andrew Hutchings takes a look at the key changes facing asset servicing in the country
Image: Black Knight Media
Cyprus is a small open economy that is a part of the European Union (EU) and the euro area, but geographically in Asia Minor. Accordingly, Cyprus would, at first glance, be vulnerable to an end of the post-1945 system of free trade and multilateral institutions. Maria Panayiotou, president of the Cyprus Investment Funds Association (CIFA) highlights risks from interventions by governments in cross-border investment flows: “This can result in increased market volatility, particularly in fixed income markets and weakened emerging markets currencies.”
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However, she sees opportunities for the funds industry — in part because of greater demand for enhanced income. “It is precisely at times like this that particular financial centres can boost activity levels. Protagonists here in Cyprus are positioning the country as one of the leading investment fund centres in the EU — with a stable regulatory environment and tax incentives for particular types of funds.”
The regulator is also upbeat about the prospects for the financial centre. Dr George Theocharides, chairman of the Cyprus Securities and Exchange Commission (CySEC) emphasises the importance of international cooperation. “Financial regulators and other authorities can and will do more to ensure that we follow consistent rules in relation to consumer protection, anti-money laundering (AML) precautions, cybersecurity and engagement with digital platforms,” he notes.
Changing the rules
A good example of close and positive collaboration between the authorities in Cyprus and the EU is the enactment of the new Investment Funds Administrators Law (101(1)/2025), which was enacted in May 2025. It embraces UCITS, AIR, RAIF and AIFLNP funds. Panayiotou notes: “This new law brings Cyprus into line with EU regulatory standards and significantly enhances transparency and investor protection in the funds administration sector.”
Further changes will come in the coming year. As Theocharides observes: “By April 2026, all EU member states — including Cyprus — will have implemented AIFMD II. This reform addresses key regulatory challenges that have been identified since the original AIFMD came into force, such as issues arising from delegation, liquidity management and data reporting. AIFMD II aims to enhance market stability, improve investor protection and to ensure greater regulatory convergence across the EU.”
In addition, AIFMD II introduces the possibility for an AIF to appoint a depositary that is established in another EU member state.
Panayiotou adds that ESMA’s Guidelines on Liquidity Management Tools (LMTs) are being incorporated into Cyprus’ regulatory framework. “These Guidelines aim to enhance fund liquidity management, especially during times of stress in financial markets.”
CySEC has also been issuing circulars in relation to the implementation of the EU’s Digital Operational Resilience Act (DORA), which came into effect at the beginning of 2025. DORA requires that firms establish frameworks for digital resilience, incident reporting and ICT risk management.
CySEC is also involved with new anti-money laundering (AML) and Counter Financing of Terrorism (CFT) measures. Theocharides says: “The EU’s Sixth Anti-Money Laundering Directive and the new Anti-Money Laundering Regulation, as well as the Anti-Money Laundering Authority Regulation are the key measures. AMLD6 focuses on improving cooperation between Financial Intelligence Units, setting clear rules on data sharing and joint analysis. AMLD6 therefore strengthens the role of FIUs in cross-border cases and ensures access to relevant information, such as tax data and real estate ownership. The AMLAR centralises and harmonises rules on customer due diligence, beneficial ownership and high-risk areas such as crypto-asset service providers.”
MiCA comes to Cyprus
CySEC stopped accepting registrations for CASPs under national rules in October 2024. Firms now need to obtain authorisation under the EU’s Markets in Crypto Assets (MiCA) regulation by 1 July 2026. Panayiotou notes: “This comprehensive EU regulation will create a harmonised framework for crypto-assets, with specific requirements for authorisation, governance, consumer protection and market integrity.”
“For funds investing in digital assets, secure and regulated custody is paramount. Cypriot asset servicers are adapting to this need by developing specialised custody solutions, meeting MiCA custody requirements, and observing the entrance of traditional custodians into this space. Fund administrators in Cyprus are also enhancing their capabilities to handle complex valuation of digital assets, streamline reporting, and integrate compliance for these new asset classes.”
“While nascent, the Cypriot fund industry is also looking at the potential of tokenisation, which involves issuing fund units as digital tokens on a blockchain. This could lead to increased efficiency, enhanced liquidity, and new product development.”
Adds CySEC’s Theocharides: “MiCA is clearly a game changer for crypto exchanges, brokers and custodians. It brings new rules, risks and opportunities. However, such is the pace of digitalisation in the market that MiCA should only be considered a starting point.”
The impact of AI and other technologies
AI will have a major — and probably a positive — impact on Cyprus’ funds industry.
Panayiotou observes: “Key opportunities include improved investment decisions, as AI can analyse vast datasets to uncover market insights, predict trends, and optimise portfolio construction, potentially boosting fund performance.”
“Operational automation is another major benefit. AI can significantly streamline and automate repetitive tasks in fund administration, custody, and transfer agency, such as data reconciliation, reporting, and compliance checks: this, in turn, leads to cost reductions and faster processing. AI tools should also offer stronger risk management and compliance by providing real-time monitoring for risks, enhancing AML and Know Your Customer (KYC) procedures, and helping funds adapt to evolving regulatory requirements more effectively. Finally, AI-powered chatbots and personalised insights can improve client service by enhancing interactions and tailoring services for investors.”
CySEC’s Theocharides has been watching the adoption of AI-based tools in the financial sector in his capacity as chairman of the ESMA Risk Standing Committee. “The reality is that while AI can transform the securities market by improving efficiency, increasing accuracy and reducing costs, it is still in its relative infancy. We are only starting to scratch the surface of how AI can enhance our capacity to innovate and interact with the market. That’s why building trust is going to be an essential element to its broad adoption.”
“CySEC expects firms including fintech-driven investment firms and CASPs to integrate ICT and operational risks into their governance, risk management, and internal control frameworks. Governance must keep pace with innovation, ensuring clear ownership of digital risks, effective challenge at board level, and strategic alignment between innovation and risk appetite.”
“Another way that CySEC is gaining a better understanding of new technologies is through the creation of a Regulatory Sandbox. This allows firms to conduct controlled testing of new innovations, services and products, while CySEC can consider potential risks and how to protect future investors.”
No human resources constraints for now
At the end of 2024, assets under management (AUM) of Cyprus’ investment funds industry amounted to €10.1 billion, or 18 per cent more than one year previously. Availability of suitable personnel has not been a constraint on the industry’s development. Observes CIFA’s Panayiotou: “Cyprus is actively working to cultivate a skilled workforce in financial services. Government initiatives, such as the Business Facilitation Unit, allow eligible companies, including fund managers and asset management firms, to hire and relocate highly skilled non-EU personnel, thereby enhancing the talent pool for asset servicing.”
CySEC’s Theocharides concurs: “Cyprus has developed a strong talent base in the financial services sector and related professional fields, such as legal, accounting, and compliance. In recent years, there has been an increasing number of specialised professionals relocating to the island, attracted by its strategic location, quality of life, and business-friendly environment. This blend of local and international expertise creates solid foundations for the continued growth and development of the sector in Cyprus.”
The bottom line
As of mid-2025, Cyprus’ prospects as an international finance centre in general — and funds administration centre in particular — are favourable. Activity has been growing rapidly from a low base.
There are no obvious human resource constraints. Regulations are being brought in line with EU norms. The main challenge would appear to be competition from other international financial centres, both within the EU and further afield.
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However, she sees opportunities for the funds industry — in part because of greater demand for enhanced income. “It is precisely at times like this that particular financial centres can boost activity levels. Protagonists here in Cyprus are positioning the country as one of the leading investment fund centres in the EU — with a stable regulatory environment and tax incentives for particular types of funds.”
The regulator is also upbeat about the prospects for the financial centre. Dr George Theocharides, chairman of the Cyprus Securities and Exchange Commission (CySEC) emphasises the importance of international cooperation. “Financial regulators and other authorities can and will do more to ensure that we follow consistent rules in relation to consumer protection, anti-money laundering (AML) precautions, cybersecurity and engagement with digital platforms,” he notes.
Changing the rules
A good example of close and positive collaboration between the authorities in Cyprus and the EU is the enactment of the new Investment Funds Administrators Law (101(1)/2025), which was enacted in May 2025. It embraces UCITS, AIR, RAIF and AIFLNP funds. Panayiotou notes: “This new law brings Cyprus into line with EU regulatory standards and significantly enhances transparency and investor protection in the funds administration sector.”
Further changes will come in the coming year. As Theocharides observes: “By April 2026, all EU member states — including Cyprus — will have implemented AIFMD II. This reform addresses key regulatory challenges that have been identified since the original AIFMD came into force, such as issues arising from delegation, liquidity management and data reporting. AIFMD II aims to enhance market stability, improve investor protection and to ensure greater regulatory convergence across the EU.”
In addition, AIFMD II introduces the possibility for an AIF to appoint a depositary that is established in another EU member state.
Panayiotou adds that ESMA’s Guidelines on Liquidity Management Tools (LMTs) are being incorporated into Cyprus’ regulatory framework. “These Guidelines aim to enhance fund liquidity management, especially during times of stress in financial markets.”
CySEC has also been issuing circulars in relation to the implementation of the EU’s Digital Operational Resilience Act (DORA), which came into effect at the beginning of 2025. DORA requires that firms establish frameworks for digital resilience, incident reporting and ICT risk management.
CySEC is also involved with new anti-money laundering (AML) and Counter Financing of Terrorism (CFT) measures. Theocharides says: “The EU’s Sixth Anti-Money Laundering Directive and the new Anti-Money Laundering Regulation, as well as the Anti-Money Laundering Authority Regulation are the key measures. AMLD6 focuses on improving cooperation between Financial Intelligence Units, setting clear rules on data sharing and joint analysis. AMLD6 therefore strengthens the role of FIUs in cross-border cases and ensures access to relevant information, such as tax data and real estate ownership. The AMLAR centralises and harmonises rules on customer due diligence, beneficial ownership and high-risk areas such as crypto-asset service providers.”
MiCA comes to Cyprus
CySEC stopped accepting registrations for CASPs under national rules in October 2024. Firms now need to obtain authorisation under the EU’s Markets in Crypto Assets (MiCA) regulation by 1 July 2026. Panayiotou notes: “This comprehensive EU regulation will create a harmonised framework for crypto-assets, with specific requirements for authorisation, governance, consumer protection and market integrity.”
“For funds investing in digital assets, secure and regulated custody is paramount. Cypriot asset servicers are adapting to this need by developing specialised custody solutions, meeting MiCA custody requirements, and observing the entrance of traditional custodians into this space. Fund administrators in Cyprus are also enhancing their capabilities to handle complex valuation of digital assets, streamline reporting, and integrate compliance for these new asset classes.”
“While nascent, the Cypriot fund industry is also looking at the potential of tokenisation, which involves issuing fund units as digital tokens on a blockchain. This could lead to increased efficiency, enhanced liquidity, and new product development.”
Adds CySEC’s Theocharides: “MiCA is clearly a game changer for crypto exchanges, brokers and custodians. It brings new rules, risks and opportunities. However, such is the pace of digitalisation in the market that MiCA should only be considered a starting point.”
The impact of AI and other technologies
AI will have a major — and probably a positive — impact on Cyprus’ funds industry.
Panayiotou observes: “Key opportunities include improved investment decisions, as AI can analyse vast datasets to uncover market insights, predict trends, and optimise portfolio construction, potentially boosting fund performance.”
“Operational automation is another major benefit. AI can significantly streamline and automate repetitive tasks in fund administration, custody, and transfer agency, such as data reconciliation, reporting, and compliance checks: this, in turn, leads to cost reductions and faster processing. AI tools should also offer stronger risk management and compliance by providing real-time monitoring for risks, enhancing AML and Know Your Customer (KYC) procedures, and helping funds adapt to evolving regulatory requirements more effectively. Finally, AI-powered chatbots and personalised insights can improve client service by enhancing interactions and tailoring services for investors.”
CySEC’s Theocharides has been watching the adoption of AI-based tools in the financial sector in his capacity as chairman of the ESMA Risk Standing Committee. “The reality is that while AI can transform the securities market by improving efficiency, increasing accuracy and reducing costs, it is still in its relative infancy. We are only starting to scratch the surface of how AI can enhance our capacity to innovate and interact with the market. That’s why building trust is going to be an essential element to its broad adoption.”
“CySEC expects firms including fintech-driven investment firms and CASPs to integrate ICT and operational risks into their governance, risk management, and internal control frameworks. Governance must keep pace with innovation, ensuring clear ownership of digital risks, effective challenge at board level, and strategic alignment between innovation and risk appetite.”
“Another way that CySEC is gaining a better understanding of new technologies is through the creation of a Regulatory Sandbox. This allows firms to conduct controlled testing of new innovations, services and products, while CySEC can consider potential risks and how to protect future investors.”
No human resources constraints for now
At the end of 2024, assets under management (AUM) of Cyprus’ investment funds industry amounted to €10.1 billion, or 18 per cent more than one year previously. Availability of suitable personnel has not been a constraint on the industry’s development. Observes CIFA’s Panayiotou: “Cyprus is actively working to cultivate a skilled workforce in financial services. Government initiatives, such as the Business Facilitation Unit, allow eligible companies, including fund managers and asset management firms, to hire and relocate highly skilled non-EU personnel, thereby enhancing the talent pool for asset servicing.”
CySEC’s Theocharides concurs: “Cyprus has developed a strong talent base in the financial services sector and related professional fields, such as legal, accounting, and compliance. In recent years, there has been an increasing number of specialised professionals relocating to the island, attracted by its strategic location, quality of life, and business-friendly environment. This blend of local and international expertise creates solid foundations for the continued growth and development of the sector in Cyprus.”
The bottom line
As of mid-2025, Cyprus’ prospects as an international finance centre in general — and funds administration centre in particular — are favourable. Activity has been growing rapidly from a low base.
There are no obvious human resource constraints. Regulations are being brought in line with EU norms. The main challenge would appear to be competition from other international financial centres, both within the EU and further afield.
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