Why Cyprus? Cyprus is fast gaining a competitive position within the global financial services industry. Some key
facts:
▪ Favourable Tax environment. Cyprus-based AIFs enjoy one of the lowest corporate tax rates across EU while non-Cypriot resident investors in Cyprus AIFs benefit from an extensive double tax treaty network at the time of redemption. Also, no withholding tax is imposed on dividend distribution in the case where the recipient is an overseas Company or individual. See below for more information.
▪ Non-Cypriot investors in Cyprus AIFs are entitled to apply for Cyprus citizenship if they meet certain eligibility criteria.
▪ Reliable professional services at very competitive rates: investment funds and fund managers are supported by a modern and transparent legal system based on common law, high quality audit services conducted by UK qualified accountants, matured banking system supervised by the European Central Bank.
▪ Credible jurisdiction that enjoys a well-respected investment services and fund management regulatory framework harmonized with all EU Directives and anti-money laundering regulations.
▪ Gateway to Europe offering AIFMs a “single passport” to provide portfolio fund management services across the EU. Once an AIFM is authorised in one Member State and complies with the Law, this manager will be entitled to manage or market funds to professional investors throughout the EU.
▪ Non-EU AIFMs can access the European market by choosing Cyprus as their Member State of Reference and entrance point into the EU.
▪ Multiple investment compartments (Umbrella Funds), enabling the management of different pools of assets in ring-fenced sub-funds within a fund, each being subject to distinct policies
▪ Depository no longer reserved for credit or banking institutions, this role can be undertaken by other entities such as investment firms.
▪ AIFs can be listed on the Cyprus Stock Exchange, where applicable, and other stock exchanges.
Tax Advantages As legal entities, funds incorporated in Cyprus benefit from the low tax burdens levied on Cyprus
based corporations as well as from some recently enacted tax provisions that provide further tax
incentives for the set up and operation of funds.
▪ Among the lowest corporate tax (12.5%) in the EU
▪ Tax exemption for: a) dividends received, b) gains arising from the trading of securities, c)
capital gains from sale of property abroad and d) capital gains from sale of shares of foreign
property companies.
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▪ No subscription tax on the net assets of the fund
▪ Fund management services are not subject to VAT
▪ Ancillary management services are subject to a 19% VAT rate, the lowest in the EU
▪ Double Tax Treaties with more than 50 countries
▪ Interest received by open and closed end collective investment schemes is considered
“active” interest income and taxed only at 12.5% corporate tax (no defense tax)
▪ No minimum participation on inbound dividends to qualify for tax exemption
▪ The liquidation of open and closed end collective schemes is not taxable if the unit holders
are not tax residents of Cyprus
▪ No stump duties on the subscription, redemption, repurchase or transfer of units
Tax advantages for Foreign Investors
▪ No withholding tax on dividends
▪ No taxation on redemption of units
▪ No deemed distribution restrictions
Tax advantages for Resident Investors
▪ If the investor is a company, there is no withholding tax on dividends
▪ If the investor is a physical person, the withholding tax on dividends is 17%
▪ No taxation on redemption of units
▪ Defense tax of 3% (as opposed to the normal rate of 17%) on deemed dividend distribution
on 70% of the funds accounting profits within a two-year period from the tax year to which
the profits relate.
What is an Alternative Investment Fund (AIF)? AIFs are collective investment undertakings raising capital from a number of investors, with a view to investing such capital in accordance with a defined investment policy for the benefit of those investors, and which has not been authorised as a UCITS fund (Undertaking for Collective Investment in Transferable Securities). The commencement of operations of an AIF requires the prior authorisation by the regulatory authority.
AIFs can take one of the following forms: ❖ variable capital company
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❖ fixed capital company ❖ limited partnership ❖ mutual fund (only for Unlimited AIFs).
What is an Alternative Investment Fund Manager (AIFM)? Each AIF shall have a single AIFM, which shall be responsible for ensuring compliance with the AIFM Law. The AIFM shall be either (a) an external manager, which is the legal person appointed by the AIF or on behalf of the AIF and
which through this appointment is responsible for managing the AIF (external AIFM), or (b) internally managed, i.e. where the legal form of the AIF permits an internal management and
where the AIF’s governing body chooses not to appoint an external AIFM, in which case the AIF itself shall act as AIFM.
The AIFM shall engage, at least, in the following core investment management functions when managing an AIF:
▪ Portfolio management ▪ Risk management.
The AIFM may additionally be authorised to perform any of the following functions in the course of the collective management of an AIF:
o Administration o Legal and fund management accounting services o Customer inquiries o Valuation and pricing, including tax returns o Regulatory compliance monitoring o Maintenance of unit/shareholder register o Distribution of income o Issues and redemptions of unit/shares in the AIF o Contract settlements, including certificate dispatch o Record keeping o Marketing services o Activities related to the assets of the AIF, namely services necessary to meet the
fiduciary duties of the AIFM, facilities management, real estate administration activities, advice to undertakings on capital structure, industrial strategy and related matters, advice and services relating to mergers and the purchase of undertakings and other services connected to the management of the AIF and the companies and other assets in which it has invested.
Additional Investment Services Subject to compliance with the relevant MiFID rules without separate MiFID authorisation being required, an external AIFM may also be authorised to provide the following MiFID services:
▪ individual management of portfolios of investments, including those owned by pension funds and institutions for occupational retirement, in accordance with the mandates given by investors on a discretionary, client-by client basis;
▪ along with the provision of individual portfolio management services outlined above, an AIFM may further be authorised to provide:
• investment advice
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• safe-keeping and administration in relation to shares or units of collective investment undertakings
• reception and transmission of orders in relation to financial instruments.
Cyprus Legal and Regulatory Framework Governing AIFs and AIFMs: What you Need
To Know The law governing AIFMs is Law 56(I)/2013 transposing the Alternative Investment Fund Managers
Directive (AIFMD 2011/61/EU) into Cyprus legislation. This is followed by the EU Regulation 231/2013
(Level 2) which supplements AIFMD 2011/61/EU and applies directly to all EU member states without
the need for transposition into national law.
The law governing AIFs is the Alternative Investment Funds Law of 2014.
The legislative provisions allow the establishment of two types of AIFs:
▪ AIFs available to an unlimited number of investors, which can be marketed to any investor, encompassing retail investors (the Unlimited AIF); and
▪ AIFs available to seventy-five (75) investors or less, which can be marketed to ‘well-informed’ investors or ‘professional’ investors (the Restricted AIF).
o A Professional Investor for the purposes of the Law is any investor that is considered, or may be treated on request, as an investor falling under the definition of a ‘professional client’ as defined in MiFID. A professional client is a client who possesses the experience, knowledge and expertise to make its own investment decisions and properly assess the risks that it incurs. In order to be considered a professional client, the client must comply with certain criteria that apply for across EU.
o A Well-Informed Investor is an investor not considered to be a Professional Investor who meets the following criteria:
▪ an investor confirming in writing that he is a well-informed investor and has been notified of the risks associated with investing in the AIF in question, and
▪ either his investment in the AIF is at least EUR125.000 or has been evaluated as a well-informed investor by either a bank or an investment firm or a UCITS manager or AIFM and further has the appropriate expertise and required knowledge to assess the suitability of the investment.
The AIFM Law shall apply in particular to the following activities: ❖ A Cyprus AIFM managing Cyprus AIFs or AIFs of another EU Member State or third
country; ❖ An EU or third country AIFM managing Cyprus AIFs; ❖ A Cyprus AIFM marketing units or shares of AIFs they manage in other EU Member
States or third countries; ❖ An EU or third country AIFM marketing units or shares of AIFs they manage in Cyprus.
The Cyprus Securities and Exchange Commission (CySEC) is the sole regulating authority for investment funds and investment fund managers in Cyprus. As such, CySEC is the supervising authority for AIFs, AIF Managers (and UCITS). CySEC is responsible, among others, to apply the Laws, examine applications, issue directives and generally supervise the operation of AIF and AIFMs in the Republic.
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Investment fund managers whose total assets under management of all AIFs managed do not exceed
▪ EUR 100 million (including leverage), or ▪ EUR 500 million (for unleveraged funds but with a lockup period of 5 years)
are exempted from authorisation but are however subject to registration and reporting requirements in their home Member State. Such managers established in Cyprus may elect to opt-in to authorisation (as Cyprus AIFM) under the AIFM Law in order to enjoy the beneficial provisions of the Law such as Passporting (see below) and demonstrate substance (to tax authorities overseas). Moreover, by being authorised by a well-respected regulatory authority such as CySEC provides additional confidence to prospective investors. Authorised AIFs with lower than 75 investors and total assets under management below the thresholds listed in the previous paragraph are subject to lighter regulatory framework under the AIF 2014 Law. There is no initial capital requirement, the reporting to investors and CySec is less frequent and with a reduced scope, the portfolio management can be performed by the AIF directors (this applies to internally managed AIFs), the risk management and compliance and internal audit functions can all be performed by the same person.
Passporting EU Passport - Cyprus AIFMs, once authorised by CySEC, can manage, market and distribute units of EU
AIFs to professional investors in all other EU Member States using the simplified regulator-to-regulator
notification mechanism without seeking permission from each Member State and the need to comply
with different national laws. Under certain conditions, not only a Cyprus AIFM can manage AIFs
established in the EU but AIFMs of another Member State can manage AIFs established in Cyprus.
Third Country Passport - Cyprus AIFMs can take advantage of Cooperation Arrangements that are in place between CySEC and regulators in third countries where non-EU AIFs are established so that, under certain conditions, a Cyprus AIFM can use the third country passport to market the units of non-EU AIFs to professional investors in the EU and/or manage non-EU AIFs marketed outside the EU. Moreover, under certain conditions, when the authorized Member State of Reference of a non-EU AIFM is Cyprus that non-EU AIFM can
▪ market the units of AIFs established in the EU (Cyprus or other Member State) as well as the units of non-EU AIFs to EU Member States
▪ manage AIFs established in Cyprus or in another EU Member State and marketed outside the EU.
2. PROCEDURE FOR OBTAINING A LICENSE Applications for AIFM authorization must be presented to CySEC using the prescribed application
forms and supporting documentation related to AIFM and the AIFs managed by the applicant AIFM:
AIFM related information: ▪ Corporate documents ▪ Business Plan
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▪ Organisational Structure ▪ Internal Control System: Risk Management policies, processes and procedures, Anti Money
Laundering procedures ▪ Operations Manual covering Liquidity Management, Conflict management and other
operational topics as well as internal regulations ▪ Information on delegation and sub-delegation arrangements of functions to third parties ▪ Information on the Management, Directors and Shareholders (with >10% holding or voting
power or exercising significant influence over the management of the AIFM).
AIF related information: ▪ Constitutional documents ▪ Investment strategies (including the types of underlying funds if the AIF is a fund of funds),
and the ▪ Risk profiles and other characteristics of the AIFs it manages or intends to manage, and
location (including the location of any underlying master fund) ▪ Risk appetite: risk limits, their monitoring, escalation procedure when exceeded and
corrective measures ▪ Policy as regards the use of leverage ▪ Valuation of the assets of the AIF ▪ Depositary arrangements ▪ Prospectus/Investors disclosure document ▪ Additional information if a Cyprus AIFM wishes to manage AIFs established in other EU
Member States or third countries (Passporting or private placements). Upon submission of a duly completed application form, CySEC typically reaches a decision on the
application within 3-6 months of its receipt.
3. MINIMUM REGULATORY REQUIREMENTS FOR OBTAINING A LICENSE
Physical Presence A Cyprus AIFM must have its head-office and registered office located in Cyprus staffed with
competent and experienced personnel of good repute.
Internal Control System A Cyprus AIFM must establish an internal control system with hierarchically and functionally independent Compliance, Risk Management and Internal Audit functions. An AIFM is required to establish, implement and maintain the following:
▪ Adequate risk management systems in order to identify, measure, manage and monitor (including appropriate stress testing procedures) all risks relevant to each AIF investment strategy and to which each AIF is or may be exposed;
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▪ Appropriate, documented and regularly updated due diligence process in compliance with the objectives, the investment strategy and, where applicable, the risk limits of each AIF
▪ Liquidity management systems to monitor the liquidity risk of each AIF ▪ Effective organizational and administrative arrangements with a view to taking all reasonable
steps designed to identify, prevent, manage and monitor conflicts of interest (e.g. rules for employee personal transactions)
▪ Sound accounting policies and procedures and valuation rules.
The shareholders of the AIFM that have qualifying holdings must be suitable taking into account the need to ensure the sound and prudent management of the AIFM. The AIFM shall monitor and, on a regular basis, evaluate the adequacy and effectiveness of their systems, policies, procedures and arrangements and take appropriate measures to address any deficiencies. Internally Managed AIF The AIFM may be able to delegate the carrying out of its internal control and AIF administration functions to third parties. al
Capital Requirements Initial Requirements: An AIFM which is an internally managed AIF shall have an initial capital of at least EUR 300,000. Where an AIFM is appointed as external manager of AIFs the AIFM shall have an initial capital of at least EUR 125,000. Additional Own Funds for portfolios with total value in excess of Euro 250 million: Where the value of the portfolios of AIFs managed by the AIFM exceeds EUR 250 million, the AIFM shall provide an additional amount of own funds equal to 0.02% of the amount by which the value of the portfolios of the AIFM exceeds EUR 250 million. Up to 50% of this additional amount of own funds can be covered by an EU bank (or insurance undertaking) guarantee. The total required initial capital inclusive of the additional amount shall not, however, exceed EUR 10 million. Additional Own Funds for potential professional liability risks: AIFMs shall either (a) have additional own funds which are appropriate to cover potential liability risks arising from professional negligence; or (b) hold a professional indemnity insurance against civil liability arising from professional negligence which is appropriate to the risks covered.
AIFM Offering MiFID Discretionary Portfolio Management Services: Where a Cyprus AIFM also provides individual portfolio management (in compliance with MiFID), it shall also be subject to the following:
❖ the own funds of the AIFM cannot be less than that required by Directive 2006/49/EC (capital adequacy directive) in respect of MiFID investment firms and may be higher given the requirements for additional professional indemnity cover; and
❖ it has to participate in an Investor Compensation Scheme, which is subject to annual subscriptions.
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4. REPORTING REQUIREMENTS A wealth of information, primarily risk related, must be reported to the AIFM Regulatory Authority
and Investors on a regular basis. The regulatory reporting requirements are common to all EU
countries and these are stipulated in AIFMD 2011/61/EU and supplementing EU Regulation 231/2013
(Level 2).
4.1 Reporting to Regulatory Authority (CySEC for Cyprus AIFMs)
Risk Reporting to Regulatory Authority: All AIFs must report detailed risk related information on
▪ Principal markets, Instruments, Exposures, Concentrations ▪ Risk Profile by risk type, including Market risk, Liquidity risk, Counterparty risk ▪ Risk Management systems ▪ Stress Testing Results ▪ Main Categories of Assets ▪ Leverage.
Annex IV of the EU Regulation 231/2013 (Level 2) provides five detailed templates containing 60 distinct & analytical sub-sections!
▪ Two templates with 4 sections at AIFM level ▪ Three templates with 56 sections at AIF level ▪ All 60 sections need to be completed where relevant!
The reporting frequency is tabulated below:
Notation: • PE (private equity): Unleveraged, control acquiring in non-listed companies or issuers • AuM (assets under management): without deducting liabilities, and valuing derivatives as an
equivalent position in the underlying assets.
AIFM criteria AIFM Reporting AIF Reporting
T ot. AUM < 100 mio l e v . or T ot. AUM < 500 mio unl e v ., 5 - yr lockup or All AIFs PE(*)
A n nua lly Annua lly
T otal AUM < 1 bln S emi Annually (SA) AuM < 500 mio : SA AuM > 500 mio : QTR PE(*): Annual y
T o t a l AuM > 1 bln Q uarterly (QTR) Quarterly PE (*): Annually
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Annual Report: The AIFM must document the Annual Report for each EU AIF it manages and each AIF it markets in the EU for each financial year no later than six months following the end of the financial year (and where applicable to the competent authorities of the home Member State of the AIF).
The Annual Report shall at a minimum contain:
▪ a balance sheet or a statement of assets and liabilities of the AIF ▪ an income and expenditure account of the AIF for the financial year ▪ a report on the activities of the AIF for the financial year ▪ any material changes in the information listed under the section “initial disclosure
requirements to investors” of this present publication during the financial year covered by the report
▪ the total amount of remuneration for the financial year, split into fixed and variable remuneration, paid by the AIFM to its staff, and number of beneficiaries, and where relevant, carried interest paid by the AIF
▪ the aggregate amount of remuneration broken down by senior management and members of staff of the AIFM whose actions have a material impact on the risk profile of the AIF.
The accounting information given in the annual report should be prepared in accordance with the accounting standards in the AIF Member State and audited by an approved auditor.
AIFs Managed: AIFMs shall provide to CySEC a detailed list of all AIFs they manage as at the end of each quarter.
Additional Information on Leverage (where applicable): AIFMs managing a leveraged AIF that uses leverage on a “substantial basis” (exposure of AIF exceeds three times its net asset value) will need to report on the level of leverage in each AIF distinguishing between sources of leverage, as well as identify the five largest sources of borrowed cash/securities and extent that assets are re-used under leveraging arrangements.
Additional Information on Acquisitions (where applicable): AIFMs managing a private equity AIF have reporting obligations in relation to the acquisition of shares in a listed or non-listed company.
4.2 Disclosure to Investors The reporting to the investors is at minimum annual, actual reporting frequency is specified by an AIF’s constitutional documentation. The contents of the AIFM reporting to investors should at minimum cover the following:
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▪ the current risk profile of the AIF and the risk management systems employed to manage the risks arising from investments, operations, exposures
▪ the percentage of the AIF’s assets which are subject to special arrangements arising from their illiquid nature (e.g. side pocket arrangements)
▪ any new liquidity management arrangements ▪ where applicable, information on leverage if the AIF employs leverage.
4.3 Why Delegate Your AIFM Risk Management and Reporting Needs? By outsourcing all or part of your risk management activity you will derive substantial benefits:
▪ Achieve regulatory compliance at reasonably low cost ▪ No need to train existing resources ▪ No need to buy a risk calculation engine which must meet the complex regulatory reporting
requirements ▪ Save time ▪ Continuous regulatory updating ▪ AIFMD & ESMA compliant automated risk reporting with drill-down capabilities using a
dedicated IT platform ▪ By hiring a team of dedicated risk experts sends a powerful message to the market and
investors that risk monitoring adds value to your fund and is not there merely for regulatory compliance
▪ The same information used for regulatory risk reporting will also be used for risk-based performance reporting, forward looking risk assessments and investment recommendation risk-return evaluations for the benefit of investors and the BoD, this way facilitating risk-informed decision making and adding real value to the fund stakeholders.
5. OUR SERVICES Our legal professionals work closely together with our associate firm MNK Risk Consulting Ltd who
are specializing in risk consulting and financial advisory services.
5.2.1 License Application 1. Act as legal advisors to the applicant. 2. Incorporation of the new legal entity which will be apply for the AIFM license 3. Guiding you step-by-step through the AIFM application process requirements 4. Review of the Applicant Internal Documentation that shall accompany the application, or draft
a new set of documents tailored to the Applicant’s circumstances. Internal Documentation includes: Organisational Structure, Business Plan, Organisational Documents (such as Internal Operations Manual, Risk Management Process, Compliance Policies and Procedures, Fund Administration Procedures, Fund Prospectus and Investment Policy).
5. Preparation of the CySec application forms and filling-in of the personal questionnaires on the applicant’s behalf
6. Conduct of Due diligence 7. Making sure the application pack is complete 8. Submission of the application pack to CySEC for licensing 9. Communication with CySEC until the AIFM authorization (license) is granted.
…About the Risk Management Process (RMP)
The RMP development and documentation is a pre-requisite. It forms the backbone of your risk management infrastructure, containing your fund’s most basic statement on financial risk identification and management. Typical elements of the RMP document include:
▪ Risk Measurement & Management for each identified type of risk ▪ Limits Setting and Monitoring ▪ Governance & Organization of the Risk Management function
o Risk Governance structure o The Risk Management function o The Risk Committee (if necessary) o The Risk Management function’s representation in the governing body o Independence of the Risk Management function and safeguarding potential
conflicts of interest ▪ Risk analyses, measurement and management information reports.
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5.2.2 Our Regulatory Compliance Services (Post-Licensing On-going Support) After obtaining AIFM authorization by CySEC we provide our clients on-going support by undertaking
the regulatory compliance tasks. We can assume the role of the control functions (risk management,
compliance, internal audit) or provide full support if any of these roles are carried out internally by
the AIFM. Our support and advisory services include the following:
RMP Implementation & Risk Management Practice Set-Up
Develop/implement
▪ Policies and supporting Procedures for risk identification, measurement, management, monitoring and mitigation
▪ Methodologies and arrangements for risk measurement and management under normal and stressed market conditions
▪ Internal Controls Assessment ▪ New Product Assessment ▪ Risk Mitigation & Action Planning ▪ Risk Data specification and capturing process, ensuring reliability and its reconciliation
with client records ▪ The production of risk management information reports on a regular basis using an
appropriate IT platform with data drilling capability ▪ Risk concentration limits system: definition by risk area, set up tolerance levels that are
consistent to the AIF investor prospectus ▪ Risk limit monitoring: monitor risk limit breaches, understand circumstances, escalate and
propose/implement action plans, follow-up implementation and effectiveness, produce exception reports to AIFM, Investors, BoD
▪ Pro-active assessments of the risk-return impact of investment recommendations.
Developing the Capability for the Risk Reporting to the Regulatory Authority A substantial amount of energy is required to produce the risk information reporting required to be
submitted to CySEC or other regulatory authority on a regular basis. The regulatory reporting
templates are demanding; besides raw data, further analytics must be calculated and reported. We
undertake entirely this responsibility. We shall provide a practical and cost-effective solution to the
above complex challenge. Therefore our overall offering includes the following important services:
▪ One-off Interfacing of the Client systems and data sources to our IT risk platform
▪ Collection of the specified Raw Data
▪ Extensive Data Consistency checks & Reconciliations
▪ Native Risk Engine for producing all Risk sections of the regulatory templates
▪ Multiple output formats that conform to regulatory expectations, including XML, PDF,
Excel. ESMA has proposed the use of a standardized file format (“XML”), instead of the
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more common PDF or Excel reporting, this way enabling both Regulators and Investors to
easily interpret, aggregate, and manipulate information coming from different funds.
Risks Disclosure to Regulatory Authority Required risk related data must be populated onto specific templates, and include
▪ AIFM Identification Information (total assets under management, principal markets and
main instruments)
▪ List of AIFs managed by AIFM
▪ AIF Identification Information
▪ AIF Investment Strategies (NAV share)
▪ Principal Exposures and Significant Concentration (instruments, markets, geographical,
investor concentration and MiFID breakdown)
▪ Instruments Traded and Individual Exposures (asset class breakdown, turnover value per
asset class, exposure by currency, typical deal to position size -for private equity
o Market Risk Metrics: Net Equity Delta, Net FX Delta, Net Commodity Delta, Net DV01, Net CS01, Vega Exposure, Value at Risk (VaR)
▪ Additional Information on High Frequency Trading ▪ Counterparty Risk Profile (trading & clearing mechanisms – exchange traded vs OTC,
central clearing parties vs bilateral vs triparty, collateral types, top exposures
from/towards the AIF, top clearing counterparties)
▪ Liquidity Risk Profile (Portfolio Liquidity Profile - portfolio liquidation time buckets and
unencumbered cash, Investor Liquidity Profile – investor redemption time buckets,
redemption frequency/notice and lock-up periods, funding liquidity, ownership
breakdown)
▪ Borrowing and Exposure risk (unsecured vs secured borrowings, securities borrowed for
short positions, gross exposure of financial or legal structures controlled by AIF, leverage
calculation)
▪ Number of Open Positions
▪ Historical Risk Profiling (gross returns, net returns, change in NAV, subscriptions,
redemptions)
▪ Stress Testing Results (for risk factors associated with each position of the AIF and their
overall effect on the AIF’s portfolio, liquidity stress tests under normal and exceptional
liquidity conditions)
▪ Reporting mechanism: XML files with detailed pre-defined schemas – see illustration below.
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Disclosure to Investors
In the modern environment, investors are becoming increasingly sophisticated and risk-averse. Track record, even if it includes an exceptional history of realized returns, is no longer sufficient to convince any institutional or other risk-conscious investor: “How much risk did you assume to achieve these returns?…or could you achieve the same return by taking lower risk?” are the questions that need to be answered.
In order to convince such an investor, you need to communicate the breadth and depth of your Risk Management Policy, show that your RMP is effectively monitored and adhered to, and to illustrate that your investment and operational activity is strictly compliant to your RMP.
We will not only provide your investors with the minimum necessary data as required by the Directive (AIFMD Art. 23 & Level 2 measures Art. 109). We will go beyond regulatory compliance and add value
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to what the AIFM does. We will present in a comprehensive manner all risk aspects of a fund’s portfolio including a snapshot and historical evolution of important risk information such as:
▪ Risk Overview ▪ Global exposure analysis
▪ Risk Profiling by risk category based on month-end position data
▪ Investment and regulatory limits (exposure, leverage, risk, position etc.): monitoring the Concentration risk taken vs Risk Limits per RMP vs AIF risk profile per investor prospectus
▪ Report on limit excesses, description of the circumstances and remedial measures ▪ Information for Leveraged Funds: Original and Revised maximum Leverage; Nature of the
Rights granted for the re-use of Collateral; Nature of granted Guarantees ▪ Market risk volatility estimates, Value-at-Risk (VaR), VaR Back-testing
▪ Risk factor sensitivity analysis: Identification of key risk factors, sensitivity (What If) analysis of Net Asset Value and VaR to these risk factors
▪ Customised stress testing (beyond the regulatory requirements) on specific risk factors which are considered significant for the fund (FX rates, stock prices, interest rates, commodity prices, market correlations, credit risk default probabilities, collateral values) and quantification of their risk-return impact
As a member of the Board of Directors of one or more funds, you should be getting accurate and independent information about all risks that are assumed by the AIF under your responsibility on a periodic basis. Such information includes consistency and compliance aspects, i.e. whether the defined risk limits are consistent to the AIF risk profile and whether the actual risk taken is within the approved risk limits.
We will also assess the adequacy and effectiveness of the RMP. The management of risk is an evolutionary process and, therefore, the Risk Committee or BoD may issue supplemental bulletins to clarify or update the core policies according to changes in the market place together with new product and technological developments. Our risk management experts will ensure that the Risk Policies will always be complete and current.
It is often beneficial when such information originates from a truly independent team, whose remuneration is independent from the performance of the fund.
Internal Audit ▪ Act as Internal Auditor or fully support an internally appointed Int. Auditor ▪ Prepare or review the Internal Audit Manual ▪ Conduct annual Internal Audit Reviews: audit plan drafting and execution, assessment of key
risks and any deviations from internal policies or procedures
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▪ Prepare the Internal Audit reports: evaluation of existing controls, results documentation with recommendations, and preparation of a report.
Compliance Officer Act as Compliance Officer or fully support an internally appointed Officer with regard to legislative
matters and CySec directives including Anti-Money Laundering rules and regulatory provisions.
5.2.3 Our Operational Compliance & Legal Services We assist clients with matters of legal nature and work with them in understanding the impact of
legislation to their business. Such services include
▪ Review and amendment of constitutional documents such as terms for custody, articles of association, offering memorandum in order to safeguard compliance with the AIFM Law;
▪ Review of delegation agreements and other agreements to be entered into by AIFMs and service providers to safeguard compliance with the requirements of the AIFM Law, performing notifications to the relevant regulatory authority in case of delegation of tasks by the manager.
▪ Advice on applicability of the scope of the AIFM Law on your organisation, optimization of your fund/business structure and advice on the use of exemptions;
▪ Depositary requirements, remuneration, valuation, and disclosure and reporting requirements.
5.2.4 Office Administration Services 1. Provision of Nominee services (shareholders, non-executive directors, secretary). 2. Assist you in the selection and leasing of office premises, and the recruitment of appropriately
qualified managers and personnel. 3. Other administration tasks that we can help you with include:
- Assist with obtaining of Professional indemnity insurance cover - Legal review of agreements - Bank reference letters - Corporate documents preparation - Powers of attorney - Signatures on contracts - True copy and notarization of documents - Apostille authentications.
6. EXPERIENCE & EXPERTISE Throughout our business relationship you will be supported by a team of experienced financial services professionals and subject matter experts.
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Our legal professionals work closely together with our associate firm MNK Risk Consulting Ltd who are specializing in risk consulting and financial advisory services, delivering the specialized and objective advice you need to clearly understand your exposure to risks, options and opportunities. Our associate firm’s market focus is Banks, Investment Firms, FX Brokers, Investment Fund Managers, internally managed Funds and the wider financial sector.
The services offered by MNK Risk Consulting Ltd cover the following areas:
▪ Risk Measurement and Management ▪ Regulatory Compliance ▪ Capital Adequacy ▪ Stress Testing ▪ Expert Valuation (also to companies outside the financial sector) ▪ Education & Training.
Our Team’s Advantage
Heavy-weight professionals with 20+ years of experience in the international financial sector providing:
▪ Unmatched technical expertise ▪ Innovative solutions ▪ Manageable project scope with scaled expense and phased implementation ▪ Customized tools and benchmarks ▪ Actionable results and insight ▪ Ongoing professional support to our clients and commitment to deliver within timelines.
Our Clients receive on-going and proactive communications to discuss emerging business trends and
industry issues. We will discuss with you the impact of new rules and regulations affecting your
business and compliance requirements, share best practices and value-added recommendations in
addressing these matters. We offer customised solutions and tailored advice based on your business
model strategy and level of complexity. We don’t believe in over-engineering; we try to make
