1 Regulatory Framework

1.1 What legislation governs the establishment and operation of Alternative Investment Funds?

The establishment and operation of Alternative Investment Funds ("AIFs") is governed by the Alternative Investment Funds Law 124(I)/2018 ("AIF Law") as well as any secondary legislation issued in the form of derivatives/circulars by the Cyprus Securities and Exchange Commission ("CySEC"). In addition, and depending on whether an AIF is internally and/or externally managed, the Alternative Investment Fund Managers Law of 2013 ("AIFM Law") and Directive 2011/61/EU ("AIFMD") provide further regulation in relation to this sector.

1.2 Are managers or advisers to Alternative Investment Funds required to be licensed, authorised or regulated by a regulatory body?

Yes, external managers of AIFs are required to be licensed, authorised and regulated by CySEC. The following entities can take the role of an external manager of an AIF:

  1. an Alternative Investment Fund Manager ("AIFM") in accordance with the AIFM Law;
  2. a UCITS management company authorised in accordance with the Open-Ended Undertakings for Collective Investments Law (UCI) Law of 2012;
  3. a Mini Fund Manager, authorised by Law No. 81(I)/2020 for the management of AIF investments whose assets under management do not exceed the limits laid down by article 4(2) of the AIFM Law or article 3(2) of Directive 2011/61/EU ("AIFMD Directive");
  4. an AIFM authorised in another Member State that is subject to prudential rules under the relevant legislation of its Member State of origin; or
  5. a Cyprus Investment Firm authorised by the Investment Services and Activities and Regulated Markets Law ("MiFID II Law").

1.3 Are Alternative Investment Funds themselves required to be licensed, authorised or regulated by a regulatory body?

Yes, CySEC is the regulatory body responsible for the licensing, authorisation and regulatory compliance of AIFs. The Registered Alternative Investment Fund ("RAIF") does not need to receive authorisation by CySEC; it merely needs to be registered with CySEC.

1.4 Does the regulatory regime distinguish between open-ended and closed-ended Alternative Investment Funds (or otherwise differentiate between different types of funds or strategies (e.g. private equity vs hedge)) and, if so, how?

Yes, the regulatory regime distinguishes between open-ended and closed-ended AIFs. An AIF may be of the open-ended type if its shares or units are, at the request of any of its shareholders or unitholders, repurchased or redeemed prior to the commencement of its liquidation phase or winding up, directly or indirectly, out of the assets of the AIF and in accordance with the procedures and frequency set out in its fund rules or instruments of incorporation, prospectus or offering document of the AIF. In all other cases they are of a closed-ended type. An AIF is classified as having a particular strategy if it invests more than 60% of its assets in a single category.

1.5 What does the authorisation process involve for managers and, if applicable, Alternative Investment Funds, and how long does the process typically take?

The authorisation process involves submission to CySEC of the following information, depending on the fund type.

Common Fund

  1. the name and the data identifying and certifying the appropriateness of the AIF's external manager, as well as the identity of the persons responsible for the risk management and portfolio management functions;
  2. a statement by the external manager confirming that it agrees to perform the investment management functions for the AIF;
  3. a statement by the depositary confirming that it agrees to perform the depositary functions;
  4. the identity of the person or persons appointed by the depositary as responsible for monitoring the activity of the AIF;
  5. a draft of the AIF's fund rules, signed by the AIF's external manager;
  6. a draft of the AIF's offering document;
  7. a draft of the AIF's key investor information document; and
  8. any other information as provided in article 30(1) of the AIFM Law.

Investment Company

  1. in case of a company under incorporation, the persons that will sign the instruments of incorporation; or
  2. in case of an existing company, the members of the board of directors; and
  3. when the Investment Company is externally managed, the following must be submitted to CySEC:
  1. the name, registered address, and headquarters address of the AIF;
  2. sufficient information and data, including a résumé, of the persons who effectively direct the business of the internally managed AIF;
  3. the name and the data identifying and certifying the appropriateness of the AIF's external manager, as well as the identity of the persons responsible for the risk management and portfolio management functions;
  4. a statement by the external manager, where one is appointed, confirming that it agrees to perform the investment management functions for the AIF;
  5. a statement by the depositary confirming that it agrees to perform the depositary functions;
  6. the identity of the person or persons appointed by the depositary as responsible for monitoring the activity of the AIF;
  7. a draft of the AIF's instruments of incorporation;
  8. a draft of the AIF's offering document;
  9. a draft of the AIF's key investor information document; and
  10. (j) any other information as provided in article 30(1) of the AIFM Law.

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Originally published in: Global Legal Group - ICLG

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