After the application of the EU Alternative Investment Fund Managers Directive 2011/61/EU ("AIFMD"), Cyprus has uniquely managed to combine the benefits of the sound EU framework on alternative investment funds and their managers with the considerable advantages of its common law background, leading financial services status and strategic geographical location of Cyprus.
The national framework regulating such funds and their managers as well the significant investment opportunities have managed to attract specialised expertise locally to serve the needs of EU and non-EU investors and to materialise portfolio investments in the wider region, comprising the Central and Eastern Europe, the Middle East and Asia. This rapid development of the fund industry in Cyprus is also attributed to the expertise, efforts and willingness of market players and the local securities regulator, being the Cyprus Securities and Exchange Commission ("CySEC"), which have maintained an open dialogue with regulated entities, for the benefit of all market participants. Through such dialogue, a completely updated framework was introduced in 2018.
Key legislation
The key legislation applicable to alternative investment funds (AIFs) in Cyprus is:
- the Alternative Investment Funds Law 124(I)/2018 ("AIF Law"), which replaced the regime that was applicable since 2014; and
- the Alternative Investment Fund Managers Law 56(I)2013 ("AIFM Law"), as amended, which transposes the provisions of the AIFMD.
Secondary legislation, both at an EU level through the competent EU bodies and ESMA as well as at Cyprus level, via directives of CySEC regulate the authorisation, activities and operations of AIFs and their managers.
Authorisation of AIFs
An AIF may be established in the legal form of either a common fund, or of an investment company (with either fixed or variable capital) or as a limited partnership, with or without separate legal personality. Obviously, different authorisation requirements apply depending on the legal form as well as whether the marketing is expected to be made to an unlimited or limited (up to 50 natural persons) number of investors.
However, in common for all forms of AIFs seeking authorisation by CySEC, the following apply:
- The prior authorisation and approval of CySEC is required and no units/shares/ partnership interests can be marketed to any prospective investors before the granting of the requisite authorisation.
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Originally published Corporate LiveWire
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