Registering a RAIF in 2022 in Cyprus

1. Why register a RAIF in Cyprus?

Over the last two decades, Cyprus has transformed into an international financial centre offering a variety of investment, payment, and crypto-asset services. Undoubtedly, the following reasons have added to the considerable growth of RAIF in Cyprus:

• Being subject to a modern and transparent regulatory framework based on common law, RAIF are facilitated by professional providers offering high-quality services at competitive costs.
• Establishing business relationships with credit and financial institutions governed by European legislation and supervised by the Central Bank of Cyprus (CBC).
• Overseen by a European-based AIFM able to market their funds and attract the attention of investors across the European Union (EU), RAIF utilise the EU passporting framework without seeking authorisation from the national competent authority (NCA) of each EU member state.
• Based on a business-friendly tax environment, RAIF enjoy one of the lowest corporate tax rates among the EU member states, with no withholding tax imposed on dividends distribution. Additionally, fund investors residing outside Cyprus benefit from the wide range of double tax treaties the Republic has to offer.
• Being able to choose among different types of entities, RAIF can appoint an investment firm, a credit or banking institution or any entity regulated as a depositary.

2. What are the characteristics of a RAIF?

The RAIF model differs from an AIF mainly because it does not require the authorisation of the CySEC. CySEC does not supervise a RAIF directly instead, it supervises the external AIFM appointed, which in turn oversees RAIF’s compliance with the applicable regulatory framework.

The following compile the specific characteristics of a RAIF:

• Can be legally formed as:
  • a common fund
  • an investment company with variable or fixed capital
  • a limited partnership.
• Can be closed-ended or open-ended.
• Can be structured as an umbrella fund with multiple investment compartments following different investment strategies.
• Is subject to no minimum capital requirements.
• No limitations apply to the amount of Assets Under Management (AUM).
• However, the minimum amount of AUM to be raised within the first 12 months equals €500,000.
• Can subscribe an unlimited number of professional and well-informed investors.
• Must be always externally managed.
• Must appoint a depositary.
• Is subject to no investment restrictions except being set up as a:
  • Fund of Funds
  • Money Market Fund
  • Loan Origination Fund.

The RAIF model has substantially contributed to the development of the Investment Funds sector in Cyprus, by reducing both the time and costs required for CySEC’s authorisation and licensing procedures and being characterised by flexible operational features.

3. What is the role of the Alternative Investment Fund Manager?

Establishing a RAIF mandates the appointment of an external fund manager authorised and supervised by CySEC or any other NCA within the EU, ensuring the fund’s European substance. The appointed AIFM is then responsible to register the Fund with CySEC, diverting in this way from the traditional application procedure.

According to Circular C484, CySEC shall examine and verify whether the AIFM is authorised to manage an AIF under the proposed investment policy of the potential RAIF. In the affirmative case, CySEC registers the RAIF within the relevant register and informs the fund manager accordingly. The entire procedure shall be concluded within one month from the date of submission of all the required information by the AIFM.

In this context the AIFM is responsible for:

• Preparing and collecting all the required documentation for the RAIF’s registration.
• Submitting a well-supported application to CySEC.
• Ensuring compliance for all RAIF’s operational and marketing activities.
• Overseeing all reporting and regulatory matters.
• Handling the onboarding procedure of investors and completing the Know-Your-Customer (KYC) process.
• The assignment of:
  • the depositary
  • the fund administrator
  • the investment advisor (if applicable)
  • any delegated contracts such as the Anti-Money Laundering (AML) compliance of the fund.

Therefore, in the eyes of the regulator, the AIFM is considered the person ultimately responsible for the supervision of RAIF’s activities and operations and confirming compliance with the AIF Law.

4. What is the role of the Depositary?

As mentioned above, the responsibility for the appointment of each RAIF’s depositary lies with its external fund manager. It is of great importance that the duties of the depositary are clearly segregated from those of the external fund manager and each role is performed by a different person.

The depositary shall always act in an honest, fair and professional manner and in the interest of the RAIF and its unitholders. Additionally, the depositary is responsible for:

• monitoring the RAIF’s cash flows,
• safeguarding and verifying ownership of RAIF’s assets,
• verifying ownership of other assets,
• verifying the Net Asset Valuation (NAV) calculations,
• issuing and redeeming RAIF’s units,
• ensuring investment compliance.

The type of entity appointed as a depositary depends on the amount of assets held by the RAIF, as long as the below thresholds are not exceeded:

• €100,000,000 including leveraged acquired assets, or
• €500,000,000 employing no leverage and the unitholders having no redemption rights for 5 years.

Based on the above thresholds, an appointed depositary can be a credit institution, an investment firm governed by MiFID Regulation, an entity supervised as a depositary, or an entity performing depositary functions in the context of its professional and business activities as recognised by the law.

In case the RAIF holds assets, which exceed the above-mentioned thresholds, the appointment of the depositary is limited to a credit institution.

In addition to the above, here is more information on the depositary’s role and requirements.

5. How can SALVUS support your RAIF registration?

The SALVUS Investment Funds Licensing team has extensive knowledge and expertise in matters relating to licensing, authorisation, and registration of Investment Funds, as well as to their management and administration.

We guide you in finding the most suitable solution to your investment fund business needs, by selecting the type and structure that suit your business plan and objectives. Furthermore, we ensure the timely and complete preparation of your application and support you in fulfilling all your regulatory obligations including internal audit, risk management, and compliance.

Do not hesitate to contact us at info@salvusfunds.com or call us at +357 7000 7898 if you require additional information on registering a RAIF or to discuss the needs of your investment fund.

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The information provided in this article is for general information purposes only. You should always seek professional advice suitable to your needs.