Regulatory Alert: CySEC Circular C736 – Key Observations on the Prudential Framework for CIFs

On 24 October 2025, CySEC issued on 24.10.2025 a Circular  C736 – Key Observations on the Prudential Framework for CIFs, addressed to Cyprus Investment Firms (CIFs), highlighting a series of supervisory observations and recommendations regarding the implementation of the prudential framework under Law 165(I)/2021 (Investment Firms) and Regulation (EU) 2019/2033 (IFR).

Why it matters

The Circular underscores that CySEC has identified recurring issues in how CIFs apply key prudential rules. These findings reflect both reporting and governance weaknesses, and signal that supervisory scrutiny will increase. Failure to adjust may lead to remedial measures or sanctions.

Main Observations

In brief:

• Timely Submission of Prudential ReportingCySEC observed delays in the submission of required prudential reports via the XBRL portal, and the use of outdated templates. Firms are reminded to submit all required reports within deadlines and to check the CySEC and EBA websites for the latest templates.

  
  

• Ongoing Compliance with Prudential RequirementsSome CIFs are found to be failing to meet prudential obligations under Articles 9, 11 and 43 of the IFR, and to notify CySEC when they identify deficiencies. CySEC emphasises a proactive approach: monitoring requirements continuously and implementing corrective measures without delay. c

  
  

• Data Consistency Across Reporting SourcesSignificant inconsistencies were identified between the data reported via XBRL and other sources such as audited financial statements, QST-CIF forms and management accounts. Issues relate to profit/loss figures, retained earnings, own funds, liquid assets and fixed overheads. For example, the figure for “Annual fixed overheads of the previous year after distribution of profits” in the templates must align with audited statements and remain unchanged until the next audit.

  
  

• Remuneration Policies (Class 2 CIFs)The circular finds that some Class 2 CIFs did not comply with requirements such as: at least 50% of variable remuneration being in instruments; at least 40% deferred over a three-to-five-year period; and alignment with Law 165(I)/2021 and the EBA’s guidance.

  
  

• Establishment of Risk & Remuneration CommitteesCySEC identified CIFs that did not establish required committees (per sections 22 and 27 of Law 165(I)/2021), had committees composed solely of executive directors, single-person committees or lacked gender balance in remuneration committees.

  
  

• Internal Governance and Conflicts of InterestThe circular highlights cases where Class 2 CIFs failed to implement conflicts-of-interest policies in loans or other transactions with members of the management body or their related parties, contrary to Law 165(I)/2021 and EBA internal governance guidelines.

  
  

• Liquidity Requirements (Article 43 IFR)CIFs have misclassified certain items as “unencumbered short-term deposits at a credit institution” which do not meet the definition of liquid assets under Article 43(1) IFR. Examples: funds held with Electronic Money Institutions (EMIs), Payment Service Providers (PSPs), client-fund buffers, or contributions to the Investors Compensation Fund.

  
  

• Prudential ConsolidationSupervisory findings include failures in assessing group structures for the purposes of prudential consolidation under the IFR and the new Regulation (EU) 2024/1771. Key issues relate to wrongly identifying whether an entity is a financial institution, union parent investment firm, or correctly applying consolidation requirements after structural changes.

  
  

• Completion of Form 165-03 (Section C)CySEC found that some CIFs did not disclose modified audit opinions or include links to their Pillar III disclosures in Section C of Form 165-03.

Next Steps & Supervisory Warning

CySEC advises CIFs to undertake a comprehensive review of their practices across reporting, governance and prudential frameworks to ensure full compliance with Law 165(I)/2021, the IFR, applicable delegated regulations and the EBA’s guidelines. CySEC also states that it will continue its monitoring and will apply appropriate measures, including administrative sanctions or other supervisory actions, in cases of non-compliance.

Implications for CIFs

For CIFs operating in Cyprus, Circular C736 signals that the regulatory focus is sharpening on prudential discipline and governance. Some practical implications to consider:

• Reviewing internal processes for timely and accurate XBRL/prudential reporting.

• Ensuring full alignment and documentation across audited accounts, management accounts and reporting templates.

• Verifying governance structures, committee operations and remuneration frameworks for compliance.

• Re-classifying assets/liabilities appropriately under IFR definitions (especially liquid assets).

• Assessing group structure and consolidation requirements whenever there are changes.

• Strengthening disclosure practices for audit opinions and Pillar III disclosures.

CySEC’s Circular C736 sends a clear supervisory message: accuracy, governance alignment and prudential discipline are now under closer regulatory scrutiny. CIFs are expected to address identified weaknesses promptly and ensure full and ongoing compliance with IFR requirements.