CYPRUS ENACTS AN INTERNATIONAL COLLECTIVE INVESTMENT SCHEMES LAW

In May 1999 Cyprus enacted the International Collective Investment Schemes Law 47(I)/99 which provides for the establishment and regulation of international collective investment schemes in Cyprus.

The legislation is intended to establish the necessary legal framework and appropriate incentives to encourage the establishment of such schemes in Cyprus. Under the law the authority vested with the duty to supervise such entities is the Central Bank of Cyprus.

The purpose of this note is to provide a brief summary of the main provisions of the said law.

A. Nature of entities that can be established:

Four different kinds of entities are envisaged by the law.

1. Fixed capital company

This is similar to a company established under the Cyprus Companies Law Cap 113 with the following two main differences:

(a) It may have limited duration;

(b) It may issue bearer shares.

2. Variable capital company

This is the same as the fixed capital company with the following differentiations:

(a) It may have shares with no par value or capital equal to the Net Asset Value of the company at any given time;

(b) It may buy back its own shares. 

3. Unit trusts

4. Limited partnerships

Limited partnerships have a general partner who acts as the manager. All provisions in the law to the manager apply to the general partner. 

B Conditions

In order to establish any International Collective Investment Scheme certain conditions must be satisfied the most important of which are:

(a) They must have a manager approved by the Central Bank of Cyprus. It should be noted that the requirement of a manager may be waived if the directors of the entity are, in the opinion of the Central Bank of Cyprus, sufficiently competent to manage the entity;

(b) They must have a custodian approved by the Central Bank of Cyprus; such custodian to be other than the manager. It is possible for the Central Bank of Cyprus to waive the requirement of a custodian if, among others, the shares of the scheme are quoted in and widely traded on a major stock exchange;

(c) The directors, general partner, trustee, manager or custodian must be fit and proper persons as determined by the Central Bank of Cyprus. 

C. Classification of International Collective Investment Schemes

International Collective Investment Schemes are classified in three categories depending on the identity and number of their investors.

1. Public schemes

These schemes:

(a) Need to issue prospectuses;

(b) need to follow the investment regulations issued by the Central Bank of Cyprus unless they get a special dispensation;

(c) May issue bearer shares.

2. Schemes addressed to experienced investors

These schemes:

(a) Need not follow the investment regulations of the Central Bank of Cyprus;

(b) May not issue bearer shares;

(c) Need to have a minimum amount of investment per investor, such amount to be fixed by the Central Bank of Cyprus;

(d) Need not publish its Net Asset Value but should make such value available to its investors.

3. Private schemes

These schemes:

(a) Cannot issue a prospectus to the public;

(b) Cannot have more than 100 investors;

(c) May not issue bearer shares;

(d) Need not have a manager or custodian;

(e) Need not follow the investment regulations of the Central Bank of Cyprus. 

D. Managers and Custodians

The following are the main provisions which apply to managers and custodians:

1. Managers

(a) They need to be fit and proper person appropriately staffed and organized with no common directors with the custodian;

(b) They may assign their duties to third parties, such assignment not relieving him from their legal duties;

(c) They need to maintain a place of business in Cyprus unless the Central Bank of Cyprus waives this requirement;

(d) They are not liable to any taxation in Cyprus. 

2. Custodians

(a) They need to be a bank or recognized custodian in a regulated jurisdiction or a subsidiary thereof registered in Cyprus;

(b) They need to be fit and proper person appropriately staffed and organized with no common directors with the manager;

(c) They may assign their duties to third parties, such assignment not relieving him from their legal duties;

(d) They need to maintain a place of business in Cyprus unless the Central Bank of Cyprus waives this requirement;

(e) They are not liable to any taxation in Cyprus. 

E. Supervision

International Collective Investment Schemes are subject to the supervision of the Central Bank of Cyprus. In that regard:

(a) They need to maintain records open to inspection by the Central Bank of Cyprus;

(b) They need to file sixmonthly financial statements with the Central Bank of Cyprus;

(c) The Central Bank may intervene with various Court proceedings to enforce the duties of the manager and custodian and ensure the protection of the investors. 

F. Regulations

The Central Bank of Cyprus has issued regulations on the following matters:

(a) The investment restrictions of the schemes including the kind of assets, percentages invested in each issuer, borrowing etc;

(b) The method and frequency of calculation of the Net Asset Value and the method of establishing the redemption prices;

(c) The procedures to be followed and information to be supplied for the establishment of a scheme;

(d) The code of conduct of managers, custodians, directors and the schemes themselves. 

The relevant Central Bank regulations may be found at the web site of the Central Bank of Cyprus to which there is a link from the present web site.

The above is a non exhaustive summary of the legislation.

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