Alternative Investment Fund Management (AIFM) License

On July 5 2013 Cyprus transposed into law the European Alternative Investment Fund Managers (AIFM) Directive by introducing the “AIFM Law” (56 I/2013). On July 22 2013 the EU Level II Regulation, which substantiates the directive’s provisions and is directly and uniformly applicable in all EU member states, became applicable in Cyprus.

This update presents the main provisions of the AIFM Law that apply to managers of alternative investment funds falling within the scope of the law. These provisions relate to:

• The authorization, operating conditions and organizational requirements of a Cyprus AIFM;
• Depositary provisions; and
• The cross-border management and marketing of alternative investment funds managed by a Cyprus AIFM.

AIFM Law

The AIFM Law contains, amongst others, the following provisions:

• The competent authority for the authorization and supervision of Cyprus AIFMs is the Cyprus Securities and Exchange Commission (“CySEC”)
• The only eligible legal form for setting-up a Cyprus AIFM is a limited liability company (by shares) with its registered and head office in Cyprus
• The minimum initial capital for a Cyprus AIFM is set at €125,000, plus professional liability insurance or additional own funds. The authorization period is three (3) months in principle
• Certain alternative investment funds can appoint an entity other than a credit institution or an investment firm under the European Markets in Financial Instruments Directive (MiFID) as depositary (e.g., a fiduciary services provider). This possibility provides for closed-ended alternative investment funds, which invest in assets other than “assets subject to custody” within the meaning of the AIFM Law, or act as private equity investment funds
• External verification of the valuation procedures and/or valuations of a Cyprus AIFM may be required by CySEC if the valuation function is performed internally or by an external valuator not considered to be independent
• Provisions ensuring re-domiciliation of an EU or non-EU AIFM to Cyprus have been adopted.
• Special rules apply for Cyprus management companies of undertakings for collective investment in transferable securities (UCITS) applying to be additionally authorized as AIFMs
• When their assets under management exceed €250 million, they are not required to provide the initial minimum capital of €125,000 and the additional own funds required

Cyprus AIFM authorization procedure

Once the Cyprus AIFM passes the thresholds detailed under the AIFM Law, it must submit an application to CySEC for authorization as an AIFM within 30 calendar days from the date on which it exceeded the thresholds. CySEC has the right to restrict the scope of the license to only certain alternative investment strategies. A duly submitted application form, the appropriate legal form and minimum capital requirements must be met before CySEC will authorize the AIFM.

The initial minimum capital requirement is €125,000 for an external AIFM (same goes for an internally managed alternative investment fund). The AIFMs (both externally and internally managed)) must also have professional indemnity insurance and provide for additional own funds against liability arising from professional negligence. External AIFMs must provide for additional own funds in cases where the assets in the alternative investment fund portfolios under their management exceed €250 million.

The cap for large-sized AIFMs is set at €10 million, including initial capital and an additional amount of own funds. UCITS management companies applying also to act as AIFMs are exempted from paying the initial minimum capital and the additional own funds required where their assets under management exceed €250 million. However, they must either conclude professional indemnity insurance or provide for additional own funds against liability arising from professional negligence.

The application to be submitted to CySEC covers information relating to the AIFM itself and to the alternative investment funds it intends to manage. The information regarding the AIFM refers to the persons effectively conducting its business, its qualifying shareholders, its programme of activity, remuneration policy and practices and delegation arrangements. In case of an internally managed alternative investment fund (i.e., where the alternative investment fund is equivalent to an AIFM), the qualifying shareholder information applies to the investors with qualifying participations in the fund. Information relating to the alternative investment funds includes:

• The constitutional documentation of the funds;
• Investor-related information;
• Information on the appointment of the depositary; and
• Information about the investment strategies of the funds.

The authorization period lasts three (3) months from the date on which the complete file is submitted. Under certain circumstances, this may be extended by another three (3) months. In order for an application by a Cyprus AIFM to be approved, it must be authorized to provide at least portfolio and risk management to alternative investment funds. Following its authorization under the law, a Cyprus AIFM may additionally apply to be authorized as a Cyprus UCITS management company. In such cases, it must follow the authorization procedure and comply with the provisions of the relevant Cyprus law on UCITS.

Secqoia and its CPT can help you acquire your AIFM license in Cyprus and guide you through the tedious authorization process.

Despite the fact that our prices are, most probably, the best in the industry, we are committed to provide you with a beneficial counteroffer in case you receive a better offer from any other firm.

Regarding the granting of an authorization to act as an Alternative Investment Fund Manager in/through the Republic of Cyprus, please feel free to contact us.