Δημόσια διαβούλευση σχετικά με την άσκηση των διακριτικών ευχερειών των Κρατών-Μελών που προβλέπονται στην οδηγία (ΕΕ) 2024/927 του Ευρωπαϊκού Κοινοβουλίου και του Συμβουλίου της 13ης Μαρτίου 2024 για την τροποποίηση των οδηγιών 2011/61/ΕΕ και 2009/65/ΕΚ όσον αφορά τις ρυθμίσεις ανάθεσης καθηκόντων, τη διαχείριση κινδύνου ρευστότητας, την υποβολή εποπτικών αναφορών, την παροχή υπηρεσιών θεματοφύλακα και φύλαξης και τη δανειοδότηση από οργανισμούς εναλλακτικών επενδύσεων

Further to the Ministry of Finance’s consultation dated 18 June 2025, we welcome the opportunity to provide feedback on the Ministry’s preliminary positions regarding the exercise of Member State discretions under the Amending Directive to the AIFMD and UCITS frameworks. Our responses below reflect both practical considerations relevant to the Cyprus fund market and, where relevant, comparative insights from other EU jurisdictions.

1. Deviation from the AIF Depositary localisation requirement
We support the Ministry’s intention to exercise the discretion granted under the new Article 21(5a) of the AIFMD, allowing AIFMs to appoint depositaries established in other Member States for Cyprus-domiciled AIFs, subject to a reasoned request. This flexibility addresses the limited number of depositaries available in the domestic depositary market rather that any concerns regarding the capacity, expertise or know how of domestic depositaries. This measure aims to ensure sufficient choice and competition for fund managers without implying any shortcoming in the quality and professionalism of existing domestic providers and it aligns with Cyprus’s strategic objective of enhancing its appeal as a fund domicile.

To ensure a streamlined and proportionate process, the “reasoned request” should be simple, concise, and transparent. It should clearly justify the appointment of a non-Cypriot depositary and include the following:
• A brief description of the fund’s investment strategy and geographical asset distribution.
• A succinct explanation of why local depositary options are unsuitable (e.g. capacity constraints, lack of relevant expertise, cost-effectiveness, or investor expectations).
• A signed declaration from the proposed foreign depositary, submitted via a standardised template, confirming that it:
1. Complies with all AIFMD requirements.
2. Holds the appropriate EU credit institution authorisation.
3. Is subject to ongoing supervision by its home Member State authority.
4. Commits to full cooperation with CySEC for supervisory purposes.
• Domestic Regulator’s approval

Finally, we recommend establishing a transparent and prompt review mechanism for these requests. This is especially important for Registered AIFs (RAIFs), which depend on a streamlined registration framework to facilitate rapid market entry. The review process should support this objective and avoid delays that could compromise the RAIF model’s effectiveness.

2. Extension of top-up services for AIFMs and UCITS ManCos
We welcome the Ministry’s proposal to fully exercise its discretion under Article 6(4) of the AIFMD and Article 6(3) of the UCITS Directive, allowing fund managers to offer additional non-core services.
Authorising AIFMs to administer benchmarks and engage in credit-servicing activities, alongside enabling UCITS ManCos to receive and transmit orders in financial instruments and also administer benchmarks, marks a significant step forward for Cyprus’s fund management sector. This alignment with leading EU regimes will position Cyprus-based management companies as more flexible and commercially competitive platforms.
The Amending Directive’s clarification that AIFMs and UCITS ManCos may extend services currently provided to their own funds to those managed by third parties opens up substantial commercial opportunities. This will allow Cyprus-based managers to diversify revenue streams and expand service offerings within a robust regulatory framework – enhancing the jurisdiction’s appeal to international fund sponsors.
Finally, we support the requirement that credit-servicing activities comply with the Credit Servicers Directive and incorporate appropriate compliance mechanisms. This alignment will protect consumers and investors while enabling managers to participate safely and effectively in this growing market segment.

3. Loan Origination and Loan-Originating AIFs
We support the Ministry’s proposal to permit AIFs to grant consumer loans in Cyprus under the enhanced AIFMD II framework, if it is subject to robust regulation/oversight and prudent limitations that safeguard the investors, the stability of the broader financial system and protect the consumers. It is essential that appropriate restrictions are in place to prevent excessive exposure, conflicted lending including restrictions to purchasing or participating in existing loans where the fund had not role in original creation or structuring of the loan. While some Member States have adopted more conservative positions, this forward-looking approach can broaden credit access, diversify financing channels, and support economic growth.

The Amending Directive introduces comprehensive safeguards for loan-originating AIFs, establishing a strong foundation for responsible lending. Key protections include:
• Risk retention requirements
• Prohibition of originate-to-distribute models
• Enhanced credit risk, liquidity, and governance standards
These measures create a robust framework that mitigates systemic risks while enabling innovative financing solutions. Importantly, any consumer lending conducted within Cyprus – regardless of the AIF’s home state authorisation – must fully comply with national consumer credit rules, offering an additional layer of protection.

To safeguard less sophisticated investors, we recommend that consumer-lending AIFs be managed exclusively by fully authorised AIFMs and restricted to Professional or Well-Informed investors. This ensures that participants possess the necessary expertise and risk appetite for direct loan exposure. Furthermore, such AIFs should be subject to full authorisation – rather than registration – so that the national competent authority retains discretion to impose additional requirements based on the scale, complexity, or risk profile of the fund’s lending activities. This approach supports proportionate and adaptive regulatory oversight.

However, the market reach of Cyprus-based AIFs may be constrained by restrictions in other Member States. For example:
• Ireland[1] has fully exercised its discretion by prohibiting all AIFs (Irish or non-Irish domiciled) from granting loans to Irish consumers, while still permitting business lending. This approach aims to protect retail borrowers and address reputational concerns.
• Other major jurisdictions such as Germany[2], France[3], the Netherlands[4] and Italy have not yet formalised their positions but generally maintain cautious, bank-centric regulatory traditions that limit consumer lending by AIFs.

By permitting consumer loan origination within a rigorous AIFMD II framework, Cyprus positions itself as an innovative and competitive fund hub. This balanced policy can attract forward-thinking fund managers, foster market diversification, and uphold high standards of consumer protection and financial stability – reinforcing Cyprus’s reputation as a credible, growth-oriented jurisdiction.

4. Liquidity Management Tools (LMTs)
We acknowledge that the list of Liquidity Management Tools (LMTs) in the Amending Directive is non-exhaustive and that managers retain discretion to employ additional tools, consistent with the flexibility contemplated in ESMA’s draft Regulatory Technical Standards (RTS) (Recital 25, published 15 April 2025). However, any such “other” tools should not count toward the requirement under Article 16(2)(b) of AIFMD to select at least two LMTs from the core list (Annex V of AIFMD and Annex IIA of the UCITS Directive).

In line with recent IOSCO[5] guidance and ESMA’s draft RTS, we recommend the following tools be recognised as valid supplementary LMTs:
• Soft closures: Endorsed in ESMA RTS (Recital 25, p.47), this tool allows the suspension of either subscriptions or redemptions – without discontinuing all dealing activity – offering more targeted liquidity control than full suspension. It is particularly useful for managing inflows into funds with limited capacity or liquidity, especially post-marketing periods.
• Extension of settlement periods: Enables managers to extend settlement timelines during periods of market stress, facilitating orderly asset sales in response to large or illiquid redemptions.
• Deferral of redemptions: This tool, similar in effect to extending notice periods, allows redemptions to be postponed to a later NAV calculation date. It is particularly suitable for illiquid strategies – such as real estate – where immediate asset sales could lead to value erosion or force disposals at undervalued prices.

Other complementary measures could include:
• In-kind redemptions for well-informed investors: This tool is particularly essential in the Cypriot context, where most funds are composed of well-informed investors and typically have a relatively small number of participants. In certain cases – such as private equity funds – redeeming in cash may not be feasible due to illiquidity or market timing constraints. In such scenarios, allowing redemptions through the transfer of shares in investee companies provides a practical alternative, avoiding forced asset sales and preserving value for remaining investors. This approach enhances flexibility while maintaining alignment with investor sophistication and fund strategy.
• Gate activation thresholds at Fund and Investor Level: In addition to fund-level thresholds (as per ESMA RTS Recital 3), we support the Ministry’s proposal to consider investor-level thresholds to trigger LMTs, allowing more granular liquidity control.

Legal amendments to support an expanded LMT framework
To fully implement the expanded LMT toolkit under AIFMD II, certain amendments to the AIF Law are necessary and/or advisable – particularly in relation to pricing mechanisms. In addition to the sections addressing redemption in kind (as referenced in the Ministry’s consultation paper), section 58(4) of the AIF Law, which governs Investment Companies, should be revised to accommodate the broader LMT framework. The current provision states:
“Νοείται ότι, η τιμή διάθεσης, εξαγοράς ή εξόφλησης μεριδίων εταιρείας επενδύσεων συνιστά το αποτέλεσμα της διαίρεσης της καθαρής αξίας του ενεργητικού της διά του αριθμού των μετοχών που έχουν εκδοθεί, πλέον των προμηθειών διάθεσης ή αφαιρουμένων των προμηθειών εξαγοράς ή εξόφλησης, κατά περίπτωση.”

This language limits pricing adjustments to subscription or redemption commissions/fees, which may not be sufficient to support the implementation of anti-dilution mechanisms such as swing pricing, dual pricing, or anti-dilution levies. We therefore recommend amending Section 58(4) to provide adequate legal basis for:
• Incorporating non-commission-based adjustments, such as swing factors or anti-dilution levies (e.g. be able to adjust the subscription price by adding an anti-dilution levy to cover dealing costs and to preserve the value of the underlying assets of the AIF).
• Applying different NAVs for subscriptions vs. redemptions (i.e. dual pricing)
• Adjusting NAV dynamically based on market liquidity and transaction costs (i.e. swing pricing).

A revised provision could allow NAV-based pricing “as adjusted in accordance with the fund’s rules or instruments of incorporation,” aligning with sections 36(2) (subscription pricing) and section 42(1) (redemption pricing) of the AIF Law.
Similarly, Section 71(1) of the AIF Law (Limited Partnerships) and Section 32(4) of the UCITS Law contain comparable language and, in line with the rationale outlined above, may also require amendment.

Conclusion
We are supportive of the Ministry’s proposals to fully exercise the available national discretions under the Amending Directive. The approach taken demonstrates a balanced commitment to market development, investor protection, and regulatory alignment with EU standards.
In particular, the proposed measures – allowing non-domestic depositaries, broadening the scope of top-up services, enabling consumer loan origination by AIFs, and expanding liquidity management tools—will enhance the flexibility and competitiveness of the Cyprus fund sector, while maintaining appropriate safeguards.
We encourage the Ministry and CySEC to issue interpretative and procedural guidance as part of the implementation process, and to maintain open engagement with industry stakeholders. We remain available to provide any further input or technical support that may be required.

[1] Public Consultation Feedback Statement issued on April 2025 by the Irish Department of Finance.
[2] Germany’s AIF law (KAGB) already forbids consumer lending by AIFs. The draft implementing law (FoMaStG-E) maintains this prohibition on loan origination and servicing to consumers in Germany, while allowing loans to consumers abroad. The FoMaStG is still under legislative review and not yet enacted. YPOG | Briefing | AIFMD 2.0 and the Fund Market Strengthening Act: What will change for venture capital and private equity funds in Germany?
[3] “AIFs de facto are not authorised to grant loans in France (except in specific cases that constitute exemptions to the French banking monopoly” as per Comparisons | Global Practice Guides | Chambers and Partners
[4] Dutch law requires a credit license to lend to consumers, and in practice, the Financial Markets Authority (AFM) does not permit AIFMs to make consumer loans. A briefing from a leading law firm ( Examining AIFMD II) notes that AIFMs “may grant loans to parties that do not qualify as ‘consumers’ under Dutch law,” and explicitly states that “the Dutch AFM… does not allow AIFMs to grant loans to consumers because this is considered by the AFM a non-permissible activity.
[5] Iosco Final Report (recommendation 6) on Revised Recommendations for Liquidity Risk Management for Collective Investment Schemes (“CIS”), and its Implementation Guidance (section V) published on 26 May 2025.