Cyprus Investment Firms (CIFs) must ensure compliance with EU-wide regulations, according to the Cypriot regulator’s recent notice. The Cyprus Securities and Exchange Commission (CySEC) has outlined several regulatory obligations of CIFs. These rules reportedly align with the European Green Deal and require firms to integrate sustainability considerations into their operations.

From transparency in investment strategies to enhanced risk management, CIFs must now ensure compliance with EU-wide regulations aimed at promoting a greener financial sector.

Sustainability-Related Obligations

CySEC’s circular highlights several legislative acts that CIFs must adhere to, ensuring they incorporate sustainability risks and factors into their financial services. These obligations are in light of major EU regulations, including the Sustainability-Related Disclosures Regulation (SFDR), the EU Taxonomy, and updates to MiFID II.

Under SFDR, CIFs offering portfolio management and investment advice must reportedly provide transparent sustainability-related disclosures. These requirements include:

CIFs must publish policies detailing how they integrate sustainability risks into their investment decisions and remuneration policies. Additionally, the firms must inform clients about sustainability risks in pre-contractual documents, websites, and periodic reports.

Firms promoting environmental or social characteristics must meet additional disclosure obligations. The EU Taxonomy Regulation complements SFDR by providing a classification system for environmentally sustainable activities. This framework aims to combat greenwashing and help investors make informed choices.

MiFID II and Sustainability Integration

MiFID II has also been updated to incorporate sustainability considerations into investment services. CIFs must also integrate sustainability risks into organizational processes, risk management frameworks, and conflict-of-interest policies.

These changes took effect on August 2, 2022, reinforcing the need for firms to embed sustainability into their advisory and portfolio management services. CIFs that manufacture or distribute financial instruments must incorporate sustainability objectives into their product design and distribution strategies.

The European Securities and Markets Authority provides additional clarification on regulatory expectations, which CIFs should actively engage with.