Alternative Investment

In review: key regulatory issues for asset managers in Cyprus

All questions

General introduction to the regulatory framework

In 2018, Cyprus further upgraded its legislative framework with a new AIF regime, reflecting the latest market demands and introducing a new product called a registered AIF that does not require licensing, and the new legal form, the limited partnership with separate legal personality, which allows for greater scope for fund structuring.

i Regulator

The Cyprus Securities and Exchange Commission (CySEC) is the independent public supervisory authority responsible for the supervision of the investment services market, transactions in transferable securities carried out in Cyprus and the collective investment and asset management sector. CySEC is the regulator of most parts of the financial industry, including Cyprus investment firms (CIFs), undertakings for collective investment in transferable securities (UCITS), AIFs and alternative investment fund managers (AIFMs). In parallel to the development of the regulatory system the industry itself organised by creating the Cyprus Investment Firms Association (CIFA), which is the body that comprehensively represents the fund industry, working in tandem with the Cyprus Investment Promotion Agency (CIPA), a quasi-governmental organisation set up to assist and provide information about investment to and through Cyprus.

ii Key legislation

The key statutes regulating asset management in Cyprus are outlined below:

  1. Law 73(I)/2009 Regulating the Structure, Responsibilities, Powers, Organisation of the Securities and Exchange Commission and Other Related Issues (CySEC Law): the law that establishes the creation and regulates the operation of CySEC, including its constitution, tasks and responsibilities, rights and powers;
  2. Open-Ended Undertakings for Collective Investment (UCI) Law 78(I)/2012 (UCI Law): UCITS funds in Cyprus are governed by the UCI Law transposing the UCITS IV Directive into national law;
  3. Law 124(I)/2018 Providing for the Alternative Investment Funds and Other Related Matters (AIF Law): The AIF Law is one of the main statutes that governs, among other things, the incorporation, operation, organisation and licensing requirements of AIFs registered and domiciled in Cyprus, being the vast majority of regulated entities in the island at present;
  4. Law 56(I)/2013 on Alternative Investment Fund Managers (AIFM Law): the AIFM Law has generally transposed the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD), as per the minimum requirements of the same. The AIFs and AIFLNPs5 Directive (as defined below) sets outs the procedure that applies when marketing and selling via the private placement regime; and
  5. Law 81(I)/2020 on the Small Alternative Investment Fund Managers Law (Mini Managers Law): the Mini Managers Law creates a regime for the regulation and licensing of small alternative investment fund managers by removing undue regulatory burdens while introducing new safeguards that uphold best practice standards of investor protection.

iii Secondary legislation

CySEC has issued the following directives, which are the main secondary pieces of legislation regulating asset management in Cyprus:

  1. Directive DI131/56/02 regarding the procedure and conditions for the marketing of units of AIFs and AIFLNPs in Cyprus, the organisation of the marketing network, the obligations of the persons that participate in the marketing network, as well as the conditions for the marketing of units of AIFs established in Cyprus, in another Member State or in a third county (AIFs and AIFLNPs Directive);
  2. Directive DI56-2013-01 regarding the procedures and conditions for granting authorisation to an AIFM Company and the submission of an application for granting authorisation to an AIFM Company (AIFM Authorisation Directive);
  3. Open-Ended Undertakings for Collective Investment (UCI) Law of 2012 Directive DI78-2012-01 as regards the procedures and conditions for granting a management company operation licence and as regards the submission of an application for granting a management company operation licence (UCITS Directive);
  4. Directive D 78-2012-11 regarding the terms and the procedure for the marketing network of UCITS units in Cyprus, the organisation of the marketing network and the obligations of the persons participating in the network (UCITS Marketing Directive);
  5. Directive 131-2014-03 regarding the classification of the AIFs of the Republic of Cyprus and other relevant matters – Administrative Act No. 471/2015 (Classification Directive); and
  6. Directive DI 81-2 on the procedures regarding authorisation of Small AIFMs.

Broadly speaking, the AIFMD has generally been transposed as per the minimum requirements laid down in the same. No additional local conditions have been imposed in order for an AIF to be marketed and sold into Cyprus via the private placement regime or via the AIFMD marketing passport.

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