January 2026 Regulatory Roundup

Digital Operational Resilience Act (DORA)

ESAs advise against extending DORA to statutory auditors and audit firms

On 17 December 2025, the European Supervisory Authorities (the ESAs being the European Banking Authority, European Insurance and Occupational Pensions Authority and European Securities and Markets Authority) published a joint report (dated 4 December) responding to the European Commission’s request under Article 58(3) of DORA.

The report assesses whether statutory auditors and audit firms should be subject to strengthened digital operational resilience requirements by means of inclusion in the scope of DORA or by means of amendments to the Statutory Audit Directive. While acknowledging the critical role that auditors play in financial stability and the fact that confidentiality, integrity and availability of information accessed during audits is critical, the report clarifies that audit activities do not form part of the operational value chain of the auditee and therefore do not directly affect the continuity of financial or other services.

The ESAs conclude that the identified negative implications of the application of DORA to statutory auditors and audit firms such as increased fixed costs, limiting audit choice, increased audit fees and significant re-skilling of national audit oversight authorities, appear to outweigh the potential benefits. Therefore, including statutory auditors and audit firms within DORA’s scope is not warranted at this stage.

UCITS and AIFMD

ESMA report on amended guidelines on Liquidity Management Tools of UCITS and open-ended AIFs

On 18 December 2025, ESMA published a report with amended guidelines on liquidity management tools (LMTs) of Undertakings for UCITS and open-ended Alternative Investment Funds (AIFs).

The amendments aim to align with the regulatory technical standards (RTS) adopted by the European Commission on 17 November [see MAP S.Platis December 2025 Regulatory Roundup]. To ensure consistency between the guidelines and the RTS, ESMA has made some targeted amendments to the guidelines in two areas:

• the inclusion of investor-level redemption gates to mitigate first-mover advantage, and
• the calculation of implicit transaction costs for anti-dilution LMTs, which should only be considered where appropriate to the fund’s investment strategy and estimated on a best-effort basis.

The guidelines will be translated into all official EU languages and published on ESMA’s website. National competent authorities will have two months to notify ESMA on whether they comply or intend to comply with the guidelines. The updated guidelines will apply from the RTS application date (which is specified as 16 April 2026), with a 12-month transitional period for existing funds.

ESMA updates its Q&As

On 19 December 2025, ESMA published that updated the following Q&As:

• AIFMD: Exclusion related to UNGC/OECD Guidelines(2734)
• UCITS Directive: Exclusion related to UNGC/OECD Guidelines (2733)

Omnibus package

European Parliament approves provisional agreement on Omnibus I simplification package

On 16 December 2025, the European Parliament announced it had approved a provisional agreement between MEPs and EU governments on updated sustainability reporting and due diligence rules for companies.

The revamped rules will apply to fewer companies and reduce some obligations for firms. This proposes targeted amendments to, amongst other things, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), aimed at reducing administrative burdens for businesses. The EU has already published Directive (EU) 2025/794 which implemented the “stop-the-clock” proposal, postponing the application date of certain requirements of the CSRD and CS3D.

In relation to CS3D, key areas of agreement include:

• reducing the scope of due diligence on adverse impacts requirements by increasing the thresholds to 5000 employees and EUR1.5 billion net turnover;
• broader and more flexible provisions around identification and assessment of adverse impacts;
• removal of the obligation for companies to adopt a climate transition plan;
• a maximum penalty cap of 3% of the company’s net worldwide turnover, with guidance to be provided by the European Commission and member states; and
• postponement of the transposition deadline to 26 July 2028 (meaning companies will have to comply with the new measures by July 2029).

The final text will have to be formally approved by Council, too. The directive will enter into force twenty days after its publication in the Official Journal.

Sustainable Finance

ESMA reviews impact of Guidelines on ESG or sustainability related terms in fund names

On 17 December 2025, released research assessing the impact of its fund naming guidelines on ESG and sustainability-related terms.

The study found that ESMA’s Guidelines have:

• Improved consistency in the use of ESG terms by increasing alignment of fund names and their actual investment strategies.
• Enhanced investor protection by reducing greenwashing risks.

Drawing on nearly 1,000 shareholder notifications in reaction to the guidelines from the 25 largest EU asset managers with EUR 7.5 trillion in assets under management, the study found that:

• 64% of the funds mentioned in shareholder notifications changed their name, in most cases to avoid the use of ESG related terminology.
• 56% updated their investment policies to strengthen their sustainability focus.

The study then focuses on the impact of the fossil-fuel related exclusions on 4,000 EU funds using ESG terminology in their names, with EUR 2 trillion in assets under management. The analysis shows that:

• Funds with higher fossil fuel exposures were more likely to remove ESG terms from their names, underscoring how portfolio composition influences compliance choices.
• Since the publication of the guidelines, funds retaining ESG terms in their names have reduced their portfolio share of fossil fuel holdings more than all other funds, suggesting efforts to green their portfolios.

A webinar to present the findings will take place on 20 January at 10.00. Please register by 19 January at 12:00.

ESMA remains committed to monitoring fund naming trends and tracking how the market evolves in response to its Guidelines, while engaging with the European Commission to support evidence-based policymaking on ESG and sustainable finance regulation.

ESG Ratings Activities Regulation

ESMA updates its Q&As

On 19 December 2025, ESMA published that updated the following Q&As:

Environmental, Social and Governance (ESG) rating activities Regulation

• Group-affiliated small ESG rating providers(2737)
• ESMA assessment of temporary regime notification(2738)
• Content of temporary regime notification(2739)
• Small ESG rating provider no longer meeting temporary regime size requirements(2740)

Taxonomy

European Commission issues draft guidance on simplified EU taxonomy reporting rules

On 17 December 2025, the European Commission published draft guidance to assist with preparing for the simplified EU Taxonomy disclosure rules, under the EU Taxonomy for sustainable economic activities,  which apply from January 2026.

These rules, introduced through the Omnibus Taxonomy Delegated Act adopted in July, aim to significantly reduce reporting burdens for EU businesses. Key changes include the removal of requirements for companies to assess non-material activities, streamlined reporting templates with up to 89% fewer data points for financial undertakings and 66% fewer for non-financial undertakings, and simplified key performance indicators for financial institutions.

The guidance, presented as FAQs, provides early interpretation and practical advice ahead of firms preparing their first annual Taxonomy reports under the new framework, due in 2026 for the 2025 financial year.

Formal adoption of the FAQs in all EU languages is expected in Q1 2026, following the publication of the Omnibus Taxonomy Delegated Act in the Official Journal of the European Union.

Retail investment strategy package

The Council and the European Parliament agree on an updated retail investment framework

On 18 December 2025, the Council of the EU and the European Parliament reached a provisional political agreement on an updated retail investment strategy package to empower and protect consumers and increase competitiveness in the EU’s financial markets.

The package takes the form of a directive containing targeted amendments to a number of other EU directives in the area of financial services such as the markets in financial instruments directive (MIFID), the Solvency II directive, the directive for undertakings for collective investment in transferable securities (UCITS) and the alternative investment and managers directive (AIFMD), and a regulation amending the packaged retail and insurance-based investment products (PRIIPs Regulation).

The Council of the EU and European Parliament confirm that agreement has been reached in the following areas:

• Value for money – firms must identify and quantify all costs borne by investors related to the investment products they advise. Products failing to offer value for money should not be released onto the market and sold to retail customers, and who should be able to compare investment products’ costs, charges, performance and non-financial benefits.
• Inducements – a new test will be introduced to ensure firms act in the clients’ best interests, enabling them to distinguish inducements from other fees.
• Investment advice – advisers must ensure that products and services are suitable for clients’ needs by assessing factors such as knowledge, experience, financial situation, risk tolerance, and investment objectives.
• Client journey – advisers providing recommendations to consumers related to diversified, non-complex, cost-efficient instruments, will no longer need to assess clients’ knowledge and experience as part of the suitability assessment. More retail investors will be permitted to be treated as professional clients, provided they satisfy criteria concerning their investment experience.
• Financial literacy and financial influencers – member states must promote the financial literacy and education of customers on the responsible purchase of investment and insurance product tailored to specific groups, including younger investors. Firms using financial influencers to market products, or contracts, must have written agreements with them, their contact details and have control over their activities.

The provisional agreement now needs to be approved by both the European Parliament and Council before the new rules can enter into force. Technical work will continue to finalise the legal texts early in 2026. Member states will have to transpose the new rules 24 months following their publication in the Official Journal of the European Union. They will start applying 30 months following their publication, except for the new rules under PRIIPs which would start applying 18 months following publication.

Circular C738: European Commission’s request for Feedback by the public regarding the Draft Implementing Regulation on formats for submitting beneficial ownership information to the central registers of beneficial owners referred to in Article 10 of the Directive (EU) 2024/1640

On 1 December 2025, the Cyprus Securities and Exchange Commission (CySEC) issued Circular C738, to inform the Regulated Entities of the following:

The European Commission requested Feedback from the public regarding the Draft Implementing Regulation on formats for submitting beneficial ownership information referred to in Article 62 of Regulation (EU) 2024/1624 to the central registers of beneficial owners established under Article 10 of the Directive (EU) 2024/1640. This Draft Implementing Regulation was open for feedback for 4 weeks (Feedback period: 26 November 2025 – 24 December 2025) and was taken into account when finalising this initiative. In order to contribute, stakeholders needed to register or login using their existing social media account by clicking here. All contributions received were published here following the end of the feedback period.

The European Commission’s Draft Implementing Regulation on formats for submitting beneficial ownership information and its Annexes were attached in Annex A and B of this Circular, respectively. CySEC encouraged the Regulated Entities to submit their feedback on the Draft Implementing Regulation.

Circular C740 & Circular C747: Data collection for onboarding of financial and non-financial counterparties subject to the obligation to apply for authorisation and validation for their initial margin models in accordance with Article 11(3) of Regulation (EU) No 648/2012 on OTC derivatives, central counterparties and trade repositories (‘EMIR’)

On 12 December 2025, CySEC issued Circular C740 along with the clarifying Circular C747, to inform Regulated Entities that the European Banking Authority (EBA) launched a formal data-collection exercise through competent authorities to identify all EU counterparties required to apply for validation of their ISDA Standard Initial Margin Models (“ISDA SIMM”). This circular relates to EMIR 3 amendments.

To recap, Financial Counterparties and specific Non-Financial Counterparties above the clearing thresholds (collectively the “Entities”), after EMIR 3 came into effect (24 Dec. 2024) need to seek authorisation from their Competent Authorities prior to making any changes to their proprietary initial margin models or prior to applying new models. Moreover, Entities that apply a pro-forma initial margin model (such as the ISDA-SIMM) need to validate the said model with the EBA.

With the issuance of Circular C740, CySEC is requesting from Cyprus based Entities to submit the requisite data for validating their pro-forma models with the EBA. Entities that do not apply pro-forma models do not need to take any actions, but as already mentioned need to seek authorisation from CySEC if they have implemented a new IM model or changed an existing IM model after the 24^th of December 2024.  

Reporting

Entities that either:

1. implemented a new IM model or changed an existing IM model after the 24^th of December 2024 must apply for authorisation from CySEC under the no-action regime introduced by the no-action letter.
2. deploy the ISDA SIMM must apply to CySEC for authorisation of their model. Without CySEC authorisation, entities will not be eligible to seek EBA validation of their ISDA SIMM models in 2026.

Entities that do not fall a) or b) above are not required to take actions.

Therefore, by 16 January 2026, Regulated Entities must submit:

• The data set out in the Annex to the EBA opinion on the application of EMIR with respect to initial margin models with subject “EMIR IMM application for authorisation_LEI of Regulated Entity”, and
• The data set out in the template which can be found here with the file name “EMIR IMM validation_LEI of Regulated Entity.xlsx”. It is noted that the above file name must be repeated in the email subject line.

The above information should be provided to CySEC through the email address emir@cysec.gov.cy.The validation data will be forwarded to the EBA for onboarding onto its ISDA SIMM Validation System and processed under the EBA’s confidentiality regime.

Next Steps

CySEC urges Entities to take the necessary action in order to ensure compliance with their EMIR obligations at all times. Entities that do not submit the information requested under will not be allowed to onboard onto the EBA’s ISDA SIMM Validation System. Non-onboarded entities will not be in the position to apply to the EBA for validation of their ISDA-SIMM based internal margin models thereby failing to comply with their obligations under EMIR.

EBA’s no-action letter in relation to the processing of applications for IM model authorisation remains otherwise in force.

Circular C741: Shortening of the standard securities settlement cycle in the European Union (T+1)

On 12 December 2025, CySEC issued Circular C741, following Circular C702 in relation to the shortening of the standard securities settlement cycle in the European Union (‘EU’). Through this Circular, CySEC draws the attention of Regulated Entities to recent developments on the matter.

Regulation (EU) 2025/2075 amending Regulation (EU) No 909/2014 introduces a shorter settlement cycle in the European Union, a T+1 settlement cycle for transactions in transferable securities executed on trading venues, aligning the EU with other major global markets and aiming to enhance settlement efficiency, reduce counterparty risk and improve capital market competitiveness. The Regulation will apply from 11 October 2027.

Certain transactions fall outside the scope of the T+1 requirement, including:

• Privately negotiated trades executed on a trading venue.
• Bilateral trades reported to a trading venue.
• The first transaction where the securities are subject to initial recording in book-entry form under Article 3(2) of CSDR.
• Certain securities financing transactions (SFTs) — such as securities lending and borrowing — only if they are documented as single transactions composed of two linked operations

Additionally:

• Margin lending transactions are outside the scope of the T+1 settlement cycle requirement because they are not transactions in transferable securities.

CySEC urges regulated entities to begin assessing the operational, technological or procedural challenges of the transition and strongly encourages participation in the first readiness survey, which will be open on homepage of the EU T+1 Industry Committee website until 19 December 2025, to support a smooth and coordinated market transition.

Circular C743: Application of the requirement of Directive (EU) 2024/927 concerning Liquidity Management Tools – Amendment of regulations or statutory documents and partnership agreements

On 19 December 2025, CySEC issued Circular C743, to inform regulated entities of the requirements introduced by Directive (EU) 2024/927 (the ‘Directive’).

Directive (EU) 2024/927 amends:

• Directive 2011/61/EU on Alternative Investment Fund Managers (AIFM Directive – ‘AIFMD’), which has been transposed into national law by the Alternative Investment Fund Managers Law (Law 56(I)/2013); and
• Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS Directive – ‘UCITSD’)

The Directive introduces, in Annex V to the AIFMD and Annex IIA to the UCITSD respectively, a harmonised list of the following nine (9) Liquidity Management Tools (LMTs):

1. Suspension of subscriptions, repurchases, and redemptions
2. Redemption gate
3. Extension of notice periods
4. Redemption fee
5. Swing pricing
6. Dual pricing
7. Anti-dilution levy
8. Redemption in kind
9. Side-pockets

Under the amended rules, AIFMs managing open-ended AIFs and UCITS Management Companies (as well as self-managed UCITS and AIFs) must select and incorporate at least two suitable LMTs from options (2) – (8) and include them into each fund’s rules or instruments of incorporation (for more detailed information kindly refer to the Circular). Please note that an AIFM/UCITS Management Companies cannot select tools 5 and 6 only. Moreover, for any AIF/UCITS which is a money market fund pursuant to regulation 2017/1131 can selected only tool from the points 2-8 above.

In view of the above, CySEC urges the relevant stakeholders to take the necessary steps to amend the rules, incorporation documents, or partnership agreements of open-ended AIFs and UCITS so that, as of 16 April 2026, they are in compliance with the obligations set out in Articles 1(8) and 2(6) of Directive (EU) 2024/927, which will be transposed into national law.

Specifically, by 27 February 2026, the following actions are required:

1. AIFMs, for each open-ended AIF they manage that is established as an investment company, common fund, or limited partnership, must submit the relevant application to CySEC, pursuant to Articles 51(4)(a), 60(1)(a), or 70(1)(a) of the Alternative Investment Funds Law of 2018;
2. Internally managed open-ended AIFs must submit a relevant notification to CySEC, pursuant to Article 10(1) of Law 56(I)/2013;
3. UCITS Management Companies, for each UCITS they manage established as a Variable Capital Investment Company (VCIC), must submit a relevant notification to CySEC, pursuant to Article 37(1) of Law 78(I)/2012;
4. UCITS established as VCICs that have not appointed a management company must submit a relevant notification to CySEC, pursuant to Article 37(1) of Law 78(I)/2012;
5. UCITS Management Companies, for each UCITS they manage established as a common fund, must jointly with the Depositary of the UCITS submit a relevant notification to CySEC, pursuant to Article 26(3) of Law 78(I)/2012;

In all the above cases, the notification or application must be submitted in order to amend the rules, incorporation documents or partnership agreement of the relevant open-ended AIF or UCITS, to include at least two (2) appropriate liquidity management tools (LMTs) selected from those listed in points (2) to (8) above (see Annex II for AIFs and Annex IV for UCITS to Directive (EU) 2024/927).

The applications/notifications must be accompanied by:

1. A relevant confirmation issued by the AIFM / the UCITS Management Company / the Investment Company with Variable Capital (if no Management Company has been appointed), stating that the appropriateness of the selected liquidity management tools (LMTs) has been assessed in relation to the intended investment strategy, the liquidity profile, and the redemption policy of the open-ended AIF/UCITS, to confirm compliance with their respective obligations; and
2. The applicable fee, as specified in:
   1. the Directive on the Payable Fees and Annual Contributions of UCITS, AIFs and Management Companies of 2012 to 2023, or
   2. the Directive on the Payable Fees and Annual Contributions of AIFs and their Managers.

CySEC Consultation Paper on a new Directive for the submission of prudential supervisory information by Crypto-Asset Service Providers

On 19 December 2025, CySEC issued a Consultation Paper proposing a new Directive on the submission of prudential information by Crypto-Asset Service Providers (CASPs), in the context of Article 67 of Regulation (EU) 2023/1114 (MiCAR).

The proposed Directive introduces periodic reporting requirements to CySEC, including the submission of prudential information under MiCAR, financial reports (trial balance, balance sheet, and profit and loss statement), and audited annual financial statements. The framework aims to support CySEC’s supervisory oversight and verify CASPs’ compliance with MiCAR prudential requirements.

The proposed reporting regime aligns with the prudential reporting framework applicable to Investment Firms and follows submission deadlines consistent with existing EU implementing regulations, ensuring streamlined and timely supervisory reporting.

The consultation applies to CASPs authorised by CySEC under Article 63 of MiCA. It does not apply to central securities depositories, CIFs, market operators, management companies, or AIFMs providing crypto-asset services under notification, as these entities are exempt from the relevant prudential supervision requirements.

Circular C746: Suspension of redemption of UCITS and AIF units on 24 December 2025

On 22 December 2025, the Cyprus Securities and Exchange Commission (CySEC) issued Circular C746, to inform Regulated Entities that the redemption of UCITS and AIF units is suspended on 24 December 2025. It is provided that the suspension refers to UCITS and AIFs that hold assets in transferable securities listed on regulated markets and whose net asset value is calculated on a daily basis.

CySEC reached the above decision after taking into consideration the below:

1. Article 20(1) of the Open-ended Undertakings for Collective Investment Law,
2. Article 43(3) of the Alternative Investment Funds Law,
3. The fact that 24 December 2025 is a public holiday (Christmas Eve) in most international stock markets, and
4. The need to safeguard the interests of unit-holders of UCITS and AIFs and the proper functioning of the market.

It is noted that the obligations under article 20(2) of the UCI Law and article 43 of the AIF Law continue to apply.

CySEC Press Release on MiCA licence applications due by 27 February 2026

On 23 December 2025, CySEC issued a Press Release to remind Crypto-Asset Service Providers (CASPs) operating in the Republic that the deadline for applying for authorisation under the Markets in Crypto-Assets Regulation (MiCA) is 27 February 2026.

Following CySEC’s announcement dated 17 October 2024 and Circular C674, it is clarified that CASPs currently providing services under the national framework may continue their activities until their application is approved or rejected or, in any event, until the end of the transitional period on 1 July 2026, whichever occurs first.

CASPs that do not apply for authorisation by the above deadline are required to submit a wind down plan, as the provision of crypto-asset services will no longer be permitted after the end of the transitional period. Any continuation of activities beyond 1 July 2026 is conditional upon obtaining the relevant MiCA authorisation. At the same time, it is recalled that the cross-border provision of services to another EU Member State is permitted only where this is allowed under the national legislation of the host Member State and to the extent that the grandfathering regime has been adopted, in line with relevant ESMA guidance.

CASPs that remain registered in the relevant Register continue to be subject to all obligations arising both from the national rules and from Regulation (EU) 2023/1113, as previously announced by CySEC.

CySEC emphasises that a smooth transition to the MiCA framework is a key prerequisite for enhancing confidence, transparency and security in the crypto-asset market.

CySEC Press Release for Public Consultation on amendments to the Financial Conglomerates Directive

On 23 December 2025, CySEC has published a Consultation Paper proposing amendments to the CySEC Financial Conglomerates Directive (DI 87-12) to align national legislation with EU requirements on the European Single Access Point (ESAP).

The proposed changes transpose Directive (EU) 2023/2864 and aim to ensure that certain information disclosed by Investment Firms, Asset Management Companies and AIFMs of the Republic that are part of a financial conglomerate is made available on ESAP, the EU’s centralised digital access point for financial and sustainability information.