Cyprus capital market poised for growth despite tougher oversight

Cyprus and European capital markets are entering a new phase in 2026, shaped by sweeping regulatory changes and heightened supervisory expectations, according to Cyprus Securities and Exchange Commission (CySEC) chairman George Theocharides.

In an article first published by the Cypriot daily Phileleftheros, Theocharides said the revisions of MiFID II and MiFIR, AIFMD II and UCITS, alongside the MiCA and DORA regulations, are reshaping the market landscape with greater transparency, stronger investor protection and enhanced digital resilience.

“2026 marks a new phase for capital markets in Europe and Cyprus,” he said.

He said the European Union has moved beyond a long period of intensive rulemaking into a phase focused on implementation and real-world evaluation during 2025 and 2026, signalling a more mature regulatory environment.

“The revision of the MiFID II and MiFIR framework aims to reduce complexity, improve investor information and limit practices that create conflicts of interest,” he said.

He explained that, in practice, this means greater transparency on investment costs and clearer obligations for those providing investment advice.

Turning to the domestic market, Theocharides said the investment services sector in Cyprus continued to undergo restructuring while recording growth in 2025.

“Based on available data for November, the number of investment firms reached 253, while around 30 additional applications of various types are currently under licensing review,” he said.

He added that CySEC will intensify supervisory inspections in 2026, with a strong focus on the conduct of investment firms towards their clients.

“As CySEC, we will strengthen our supervisory controls and focus on the behaviour of investment firms towards their clients,” he said.

Referring to collective investments, Theocharides said the revised AIFMD II framework and targeted amendments aligning UCITS with AIFMD II introduce stricter requirements for liquidity management and for handling periods of market stress.

“These changes reflect the need for investors to feel that their funds are protected even in conditions of uncertainty,” he said.

He said the Cyprus collective investment sector continued to record stable and sustainable growth in 2025, despite a decline in the number of management companies and investment vehicles.

“Based on statistics for the second quarter of 2025, CySEC supervises a total of 319 management companies and collective investment undertakings, with total assets under management amounting to €10.6 billion,” he said.

He added that although the number of entities has fallen, assets under management continue to increase, showing that capital is being consolidated in a more stable and structured way.

“The new European rules can attract additional serious fund managers to the island, contributing to the further development of the sector,” he said.

On digital finance, Theocharides said 2025 marked the full implementation of the MiCA regulation, which for the first time introduced a unified EU framework for crypto-asset services.

“In 2026 it will become clearer whether the transition to a single supervised framework can strengthen trust without limiting innovation,” he said.

He confirmed that the first providers have already been licensed under MiCA in Cyprus, marking an important milestone for the local market.

Closely linked to this, he said, is the DORA regulation, which introduced uniform requirements for the digital operational resilience of financial entities in 2025.

“In an era where technological risks are as serious as financial risks, effective implementation of DORA is a key indicator of supervisory maturity,” he said.

He added that CySEC is already assessing how well new applicants for licensing align with DORA provisions.

Theocharides also referred to the establishment of the European Anti-Money Laundering Authority, which assumed a coordination and support role for national supervisors on July 1, 2025.

“From 2028, AMLA will have direct supervisory powers over high-risk entities, including sanctioning authority and the ability to shape common European supervisory standards,” he said.

He said CySEC actively participates in the European dialogue and works closely with AMLA, aiming for full harmonisation and the use of modern technological solutions such as real-time verification of beneficial owners and automated transaction monitoring.

Like other European supervisors, he said, CySEC is required to operate within a stricter European framework while maintaining flexibility and proximity to the market.

Looking ahead, Theocharides said the privatisation of the Cyprus Stock Exchange will come to the forefront in 2026.

“The relevant bill is already before the House of Representatives for consultation and approval, with the aim of selecting a strategic investor to operate the exchange,” he said.

He added that CySEC believes this move is in the right direction and expects it to strengthen the exchange’s role as an alternative source of corporate financing.

“We expect the role of the stock exchange to be enhanced as a platform for financing companies’ operations,” he said.

In conclusion, Theocharides said the combined application of the new European rules, stronger transparency and investor protection, together with CySEC’s enhanced supervisory role, are shaping a stable and secure environment.

“Within this framework, the Cypriot capital market has all the prerequisites to grow further in 2026, strengthening the economy,” he said.