Cyprus Unregulated Funds (Registered Alternative Investment Funds, “RAIF”)

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Cyprus Registered Alternative Investment Funds (RAIF) – no CySEC licence required.

The new Cyprus Law regulating Alternative Investment Funds, approved by the parliament on 10 July 2018, provides for so-called Registered Alternative Investment Funds (RAIF), which will not be regulated by the Cyprus Security and Exchange Commission (CySEC).

The new Alternative Investment Funds Law 2018, regulating Alternative Investment Funds registered in Cyprus, which replaces the previous Law 131(I)/2014 regulating the Alternative Investment Funds, has been published by CySEC on 31 July 2018. The new AIF Law is yet only available in Greek language. The provisions regarding Regulated Alternative Investment Funds (RAIFs) are stipulated in Part VIII of the Law. However, several details of RAIFs are not referred to in the Law; CySEC is preparing a Directive covering all details and practical issues, which is expected to be published within one month. We will update this page once more information is available.

Cyprus legislation provides for unregulated funds, called Registered Alternative Investment Fund (RAIF)

The new Cyprus Law regulating the Alternative Investment Funds now provides foralternative investment funds, called “Registered Alternative Investment Fund”, or shortly RAIF, which do not need to be licensed by CySEC and which will not be regulated by CySEC.

Instead, Regulated Alternative Investment Funds (RAIFs) will be supervised by a mandatory licensed Alternative Investment Fund Manager (AIFM), which supervises the RAIF and provides certain mandatory services (risk management, compliance, internal compliance audit etc.

The new law aims to provide a more cost-effective fund vehicle and to reduce drastically the time until a fund can start offering investment opportunities.

There has been an increasing demand for unregulated alternative investment fund in Cyprus coming from China, the Middle East and EU countries.

An unregulated Cyprus Registered Alternative Investment Fund (RAIF) provides the following advantages:

• a Registered Alternative Investment Fund (RAIF) in Cyprusdoes not need to be licenced by the Cyprus Security and Exchange Commission (CySEC);
• a Registered Alternative Investment Fund (RAIF) in Cypruswill not be regulated by the Cyprus Security and Exchange Commission (CySEC) but will be instead under the supervision of the appointed external alternative investment fund manager;
• there are no minimum capital requirements for a Registered Alternative Investment Fund (RAIF), but minimum investment required, please see below;
• a Registered Alternative Investment Fund (RAIF) may be structured either as common fund, an investment company with variable or fixed capital or as a limited partnership;
• a Registered Alternative Investment Fund (RAIF) may be open-ended or closed-ended;
• a Registered Alternative Investment Fund (RAIF) is allowed to be set up as an umbrella fund, allowing the setup of multiple investment compartments (“sub-funds”);
• there are no investment restrictions for a Registered Alternative Investment Fund (RAIF), with the exception that RAIFs cannot set up as Funds of Funds, Money Market Funds or Loan Origination Funds;
• a Registered Alternative Investment Fund (RAIF) may have an unlimited number of investors;
• there is no limitation for the assets under management of Registered Alternative Investment Fund (RAIF).

The new Registered Alternative Investment Fund (RAIF) in Cyprus will drastically ease the procedures to set up a fund by eliminating the need for lengthy authorisation and licencing procedures by CySEC; licencing costs will be reduced substantially.

The following conditions apply for the setup of an unregulated Registered Alternative Investment Fund (RAIF) in Cyprus:

• a Cyprus Registered Alternative Investment Fund (RAIF) must be managed by an Alternative Investment Fund Manager (AIFM), which may be licenced in Cyprus or any other EU member state and is obliged to supervise an RAIF;
• the Alternative Investment Fund Manager will provide the services to theRegistered Alternative Investment Fund (RAIF), which are mandatory for “normal” Alternative Investment Funds, such as internal compliance and investor compliance, risk management, internal compliance audit etc.
• alternatively, to an Alternative Investment Fund Manager, a Regulated Alternative Investment Fundmay be managed by a UCIT Manager licensed in the EU or a Cyprus Investment Firm (CIF), if the Cyprus RAIF is set up as a partnership and if the RAIF invests minimum 70% of its funds in illiquid assets (real estate property, ships, planes etc.) and if the RAIF is closed-ended;
• in near future, a Registered Alternative Investment Fund (RAIF) may also be managed by a “Mini Fund Manager”, for which the respective legislation is expected very soon;
• a Registered Alternative Investment Fund (RAIF) must appoint a local Depository, which may be a financial institution in Cyprus or a Cyprus Investment Firm (CIF);
• with the consent and under the supervision of the local Depositary, bank accounts may be maintained anywhere in the world;
• CySEC must only be notified about the setup of a Registered Alternative Investment Fund (RAIF) and the RAIFs particulars, including its management etc.; CySEC will maintain a special register for RAIFs; once CySEC confirmed that an RAIF has been included in the special register, an RAIF may start to operate;
• a Registered Alternative Investment Fund (RAIF) may only address well-informed and/or professional investors;
• Registered Alternative Investment Funds (RAIF) must invest a minimum of EUR 500.000, which must be realised within the first year.