The Cyprus Securities and Exchange Commission ("CySEC") has issued an announcement reiterating the legal and regulatory framework applicable to Registered AIFs ("RAIFs"). According to CySEC, communications and promotional material issued by several market participants contain incorrect information about the regulatory requirements that apply to RAIFs, and CySEC wishes to correct any misunderstanding.
RAIFs are governed by the Alternative Investment Funds Law of 2018 ("the AIF Law"), part VIII of which deals with RAIFs. Their fund rules or constitutional documents must expressly provide that they are subject to the provisions of Part VIII of the AIF Law, they must be externally managed by an authorised manager and they can only be marketed to professional or well-informed investors, not retail investors. Notwithstanding that RAIFs do not require CySEC's approval in the sense of formal authorisation, in order to operate, they must nevertheless be registered in CySEC's register of RAIFs, as required by article 138 of the AIF Law. The detailed procedure and documentation requirements are set out in article 138(2) of the AIF Law, CySEC Directive DI124-01 and CySEC Circular C285.
Article 10 of the Alternative Investment Fund Managers Law of 2013, as amended, ("the AIFM Law"), which requires managers of AIFs to notify CySEC in advance of any material changes made to the conditions for initial authorization, and to provide CySEC the information specified in article 7(2) of the AIFM Law, is also relevant.
CySEC concludes by emphasising that the references to "unregulated structures" that are advertised by certain market participants should be disregarded, and that any promotional material which includes such terms must be corrected. RAIFs are indeed regulated, albeit indirectly through their managers. The manager must comply fully with the provisions of the AIFM Law (or other relevant provisions of the legislation, if not an AIFM) and of the AIF Law concerning the principles of risk management, conflicts of interest, liquidity management, remuneration, valuation, the appointment of depositary and the exercise of due diligence to ensure that investors' rights are protected.
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