House to debate collective investment legislation in September — stakeholders raise concerns

The House is expected to discuss legislation concerning the establishment and operation of collective investment organisations in September, following the end of the summer recess, according to statements made on Monday.

The draft law aims to establish an additional tier of services for managing collective investments through the operation of Collective Investment Organisations (Fund managers), complementing the existing level of collective investment funds.

This aims to enhance sector specialisation, improving services for capital managers and investors alike.

Discussions began last April, with several stakeholders expressing reservations about specific provisions, despite their overall support for the draft.

“We need to strike a balance; we must move ahead with this legislation as it enhances our competitiveness as an economy,” stated Christiana Erotokritou, chair of the House Finance Committee, which convened on Monday.

“We say that we want to become a financial hub, so we must have a framework of laws while simultaneously protecting our country’s transparency and credibility,” she added.

Erotokritou also noted that there isn’t sufficient time to complete the article-by-article discussion of the bill before the House adjourns for summer recess, hence discussions will commence in September.

A spokesperson for the Ministry of Finance affirmed their belief in the correctness of the draft law and its provisions.

“We do not believe any amendment is necessary, but we are open to other proposals,” they said.

Addressing concerns raised by the Central Bank of Cyprus (CBC) about the provision regarding the retention of funds by these organisations, it was clarified that this provision aligns with similar provisions applicable to investment service providers and administrative service providers.

It was clarified that these companies do not accept deposits for investment purposes.

Regarding the provision concerning executive directors, it was noted that two additional non-executive directors, as suggested by the CBC, are not considered necessary, as these directors act on behalf of fund managers and therefore do not require additional supervision.

Regarding civil liability, the Finance Ministry spokesperson mentioned that the provision for 1 per cent of assets has been reduced to 0.5 per cent.

Meanwhile, Institute of Certified Public Accountants of Cyprus (Selk) director Kyriakos Iordanou described the draft law as “tedious,” as it introduces criteria for establishing a company and capital requirements that create “additional burdens on companies that essentially undertake subcontracting” from fund managers.

He also referred to provisions on civil liability and regulatory obligations in the compliance sector, noting that “after the sanctions imposed in 2022, the way we handle these issues has changed”.

Additionally, he mentioned the requirement to submit an annual report four months after the end of their financial year, stating that this provision applies to listed companies.

“In general, I feel that while it will bring stability, it significantly increases operational costs, considering that licensing will be for specific services rather than in totality,” he said.

He also commented on the €50,000 capital requirement for setting up these companies and expressed reservations about whether there will be interest from entities to enter this sector.

The Cyprus Bar Association agreed with Selk’s observations and added that it would submit article-specific comments.

However, the association noted that licensing for legal and accounting services is unnecessary as licenses are already issued.

The Cyprus Investment Funds Association expressed support for the draft law, as did the Cyprus Fiduciary Association (CYFA), noting that they share Selk’s concerns.

Disy MP Onoufrios Koulas said that they view the legislation in a positive light, asserting that it improves Cyprus’ operational environment.

However, he also noted as an initial observation that “we may have more regulations than necessary.”

Akel MP Andreas Kafkalias requested a memorandum with all the comments on points causing concern.

Finally, he also expressed some concern about the actual beneficiaries of these companies.