Alternative Investment Funds (AIFs)

The Alternative Investment Fund law enacted in 2018 in order to make Cyprus one of the main destinations for fund establishment in Europe in licensing companies. An AIF has no limitations in relation to investment policies and it is suitable for raising funds from multiple investors with a view to investing them in crypto assets.

At Simon Zenios & Co LLC, our team watches closely the developments in investment funds and their connection to cryptocurrencies. We understand the complexity around choosing a suitable structure for your fund and will be able to assist you in every step of establishing it.

We provide legal guidance which begins with understanding your requirements and objectives and continue by providing a quote for our legal services.

The legal framework for establishing an AIF in Cyprus includes various options depending on the type and number of investors the establishment is directed to. It is thus, of the utmost importance to study the available options which offer the most suitable scenario for each case.

Types:

  1. AIFs

Legal Forms

  • Common funds (CF)
  • Variable Capital Investment Company (VCIC)
  • Fixed Capital Investment Company (FCIC)
  • Limited Partnership with or without legal personality (LP)

Eligible Investors

  • Professional/well-informed investors
  • Retail investors
  • Unlimited number of investors

Requirement for minimum capital

  • €125,000 or €300,000 for self-managed AIF/AIFM
  • N/A for externally managed
  • €500,000 minimum AUM (assets under management) for 12 months

Funds can be self-managed or controlled by a fund manager.

AUM

  • No restrictions if AIFM is appointed
  • Up to 100 million with leverage included/no redemption rights for 5 years if AIFM not appointed

Depositary

  • Mandatory appointment of a local Depositary in the case of an AIFM
  • Cyprus, Europe or in a third country based if there is no AIFM
  • AIFs with a Limited Number of Persons

Legal Forms

  • Variable Capital Investment Company (VCIC)
  • Fixed Capital Investment Company (FCIC)
  • Limited Partnership with or without legal personality (LP)

Eligible Investors

  • Professional/well-informed investors
  • Up to 50 investors

Requirement for minimum capital

  • €50,000 for self-managed AIF
  • N/A for externally managed
  • €250,000 minimum AUM for 12 months

Funds can be self-managed or controlled by a fund manager.

AUM

  • Up to 100 million with leverage included or 500 million/no use of leverage and no redemption rights for 5 years

Depositary

  • Cyprus, Europe or in a third country based
  • Possibility to be waived if one of the following criteria is met:
  • Total assets of the Fund <5 million
  • Up to 5 Investors
  • No more than 10% of total assets are subject to custody
  • Up to 25 investors and minimum investment per investor of at least €500,000
  • Registered AIFs

Legal Forms

  • Common Fund (CF)
  • Fixed Capital Investment Company (FCIC)
  • Variable Capital Investment Company (VCIC)
  • Limited partnership with or without legal personality (LP)

Eligible Investors

  • Professional/well-informed investors
  • Unlimited number of investors

Requirement for minimum capital

  • No subject to minimum capital requirement
  • €500,000 minimum AUM for 12 months

Funds always controlled by appointed fund manager.

AUM

  • No restrictions if AIFM is appointed
  • Up to 100 million with leverage included or 500 million/no use of leverage and no redemption rights for 5 years if AIFM is not appointed

Depositary

  • Mandatory appointment of a local Depositary in the case of AIFM
  • Cyprus, Europe, or in a third country based if there is no AIFM

Option 1: Self-managed AIF

  • Each Cell/Compartment is protected and isolated from any other Cell
  • Self-managed AIFs with a minimum of 100 million euros including leverage or 500 million euros with no leverage
  • Any asset class can be included
  • Requirement of premises for the operations of the AIF

Organizational Requirements

  • 2 Executive Directors (BoD) with responsibility for asset management
  • Non-executive director (BoD)
  • Compliance officer
  • AML officer
  • Finance manager
  • Risk manager
  • Internal Audit officer

-all last three can be outsourced

Option 2: AIF under Fund Manager

  • Each Cell/Compartment is protected and isolated from any other cell
  • Unlimited assets under management
  • Any asset class can be included
  • AIF has no organizational requirements/everything is controlled by the AIF manager
  • No requirement for premises

-the investment consultant can be a company in any jurisdiction and no license or permit are required

-the AIF manager executes investment decisions of behalf of the AIF

CySEC Fund Licensing

Step 1: Getting prepared-CySEC will assess if the company meets the admission requirements based on:

  • Operational, financial and regulatory track record of the firm and shareholders
  • Fitness and propriety of senior management and key appointment holders
  • Business strategy, processes, resources, systems and controls of the firm to ensure proper corporate governance and compliance with all applicable rules and regulations

Step 2: Preparation and Completion of application forms-the company will be required to complete:

  • Application for Financial Service Permission
  • Supplementary forms for each regulated financial services activity proposed by the company for authorized individuals

Step 3: Review of Application by CySEC: 12-16 weeks

  • Initial meetings and discussions between applicant and case officers regarding the application process and regulatory business plan
  • Application submission of the application form and fee payment
  • Review of application by CySEC including follow-up queries and clarification where necessary. Conduct interviews with Approved Persons. In case of information gap, follow-up with applicant.
  • In principle approval, subject to conditions and applicant to confirm acceptance of conditions
  • Applicant prepares to satisfy in-principle approval conditions
  • License issued after applicant meets conditions of Financial Services Permission

Application Pack Documents and Resources

  • Governance management
  • Regulatory Business Plan

-Assist the company in the preparation of the Regulatory Business Plan and prospectuses, policies, procedures, manuals in accordance with the requirements of CySEC.

  • Capital

-Capital requirement depending on the number of Compartments under the Fun

  • Authorized individuals/Principal Representative/Infrastructure

-Governing Body/Executive Directors/Finance Officer/Compliance Officer/Risk Manager/Money Laundering Reporting Officer/Internal Auditor.

-Key functions that must be carried out by individuals residing in Cyprus

-The regulator allows outsourcing after prior approval

  • Compliance and Audit: Structure and Resources/Risk Management/Policies and Procedures

-Anti-Money Laundering Manual

-Compliance Manual

-Compliance Monitoring Program

-Business Continuity Manual

-Risk Management Manual

-Internal Risk Assessment Process (IRAP)

-Internal Capital Adequacy Assessment Process (ICAAP)

Company Licensing and Incorporation

  1. Regulatory Business Plan (RBP)
  2. Financial Projections
  3. Regulatory and Other Business Manuals
  4. Preparation and Filing of Application Forms
  5. Support of Company Incorporation by CySEC
  1. Regulatory Business Plan

In line with DFSA requirements entailing the following key parts:

  • Business Model & Strategy
  • Shareholding Structure/Group Structure
  • Business Activities
  • Compliance & Regulations
  • Financial & Non-Financial Resources
  • Target Market & Target Clients
  • Functions, Roles & Responsibilities
  • Key Competitors
  • Outsourcing Arrangements
  • Financial Projections

In line with CySEC including:

  • Projected Profit and Loss Statement
  • Projected Statement of Financial Position
  • Projected Cash Flow Statements
  • Calculation of Capital Resources
  • Expenditure Based Capital Calculations
  • Assumptions, workings and calculations
  • Regulatory and Business Manuals
  • Internal Operations Manual
  • Anti-Money Laundering Manual
  • Compliance Manual
  • Compliance Monitoring Program
  • Business Continuity Manual
  • Risk Management Manual
  • Prospectus for each Compartment
  • Preparation and Filing of Application
  • Assist the company in filing all the required forms as stated by CySEC
  • Company Incorporation Support
  • Assist the company in preparing Articles of Association, Memorandum of Association and other required documents for the incorporation of the company in CySEC

-Management of the client with clear and detailed requirements for each stage of the company’s licensing phase during the incorporation/licensing.

-Liaise with CySEC on behalf of the company for all related to incorporation and licensing queries.

Fee Proposal

Fees based on following services:

  • Regulatory Business Plan
  • Financial Projections
  • Preparation of Business Manuals/Prospectuses
  • Filing out Application Forms
  • Licensing and Company Incorporation Support

-Fees based on the assumption that the company shall obtain an Alternative Investment Fund license.

-May revise in case of requesting any other additional services after discussion with the management of the company.

Assumptions:

  • Supporting schedules and data supplied by the agreed dates and according to the agreed information request list
  • The company shall timely provide with the requested information
  • Available management and staff to locate information
  • Provide with all relevant documents in English
  • Provide services in a timely manner
  • All fees are net of VAT
  • Fees do not include any costs to authorities for licensing or incorporating companies
  • The fees do not include overseas travelling and any out-of-pocket expenses
Published on: 02/09/19