CySEC Circular C562 – Guidance to CAIFMs and AIFs, on key principles and concepts governing the Alternative Investments Fund Managers Directive 2011/61/EU (‘AIFMD’)


Relevant to: CAIFMs and AIFs[1]

Circular C562 (“the Circular”) dated 04/04/2023 wishes to provide guidance to Cyprus Alternative Investment Fund Managers (“CAIFMs”) and AIFs, on key principles and concepts governing the EU AIFMD (Directive 2011/61/EU).

Through Circular C562, CySEC wishes to provide guidance to CAIFMs and/or AIFs externally managed by CAIFMs in order to ensure better understanding and compliance with the single AIFM principle, the principles governing the delegation of functions and the ‘letter box entity’ concept, as well as the AIFMD and AIF scope.

The key takeaways from CySEC’s C562 circular can be found below:


  • The AIFM Legal Framework, details of which appear in ANNEX 1 of the Circular, aims to ensure that the CAIFM is the only legal person with ultimate responsibility to manage an AIF in accordance with the CAIFM Laws. In order for CAIFMs and AIF’s to comply with the ‘Single AIFM Principle’, the following should be followed:
    • Each externally managed AIF appoints a single CAIFM, who is the person legally responsible for ensuring compliance of the management of the AIF with the CAIFM Laws and for providing the investment management functions as outlined under the AIFM Laws.
    • The CAIFM should not be considered a delegate/ third party provider to the AIF.  The CAIFM should be the legal person appointed by the AIF to manage the fund in accordance with the CAIFM Laws. The Investment Management agreement between a CAIFM and an AIF should be construed on this basis.
    • An externally managed AIF cannot itself perform and/or be involved in any way in the execution of functions included under Annex I of the AIFMD (‘the Functions’) incorporated in the CAIFM Laws.
    • In the event of delegation of functions by the CAIFM, the AIF should only be part of the Delegation agreement signed between the CAIFM and the third party/delegate, where necessary. It is noted that the CAIFM must always be part of the Delegation agreement.
    • An externally managed AIF cannot be a ‘third party’ for the purposes of delegation in accordance with the ‘Delegation’ provisions.

CAIFMs’ and AIFs’ practices must be fully aligned with the content of the above paragraphs and ANNEX 1, otherwise the CAIFM could be assessed as not acting in the best interests of the AIF and its investors.


  • The AIFM Legal Framework, elaborated upon under ANNEX 2 of the Circular, aims to ensure that the CAIFMs and Internally Managed AIFs remain responsible for ensuring compliance with the CAIFM Laws relevant to the execution of the delegated functions and that the CAIFM should ensure at all times that it does not delegate such functions, especially investment management functions, to the extent it becomes a ‘letter-box entity’. For the purposes of CAIFMs and Internally Managed AIFs compliance, the following should be an integral part of their practice:
    • Each time a function is delegated, the sufficiency and appropriateness of human and technical resources should be assessed to ensure compliance with the principles of the delegation of functions in the AIFM Legal Framework.
    • In relation to the investment management functions, every time a new function is delegated, all existing delegations for a specific AIF should be taken into account.
    • As highlighted above, the provisions related to the delegation of functions in the AIFM Legal Framework, especially the assessment of a ‘Letter-box entity’, are applicable at each AIF under management level and not at the AIFM level.

CAIFMs’ practices must be fully aligned and act in accordance with the content of the above paragraphs and the ANNEX 2 AIFM Legal Framework. Otherwise, they run the risk of not being delegating ‘at arm’s length’ and risk becoming a ‘letter-box entity’.


  • CAIFMs should ensure at all times that their business and/or the investment undertaking fall within the AIFMD and AIF scope elaborated under ANNEX 3 of the Circular. To this end, the following points are highlighted:
    • Investment managers which manage one or more AIFs and whose only investors are the CAIFM itself or a related party of the CAIFM do not fall under the AIFMD framework.
    • Investment undertakings which invest the private wealth of investors without raising external capital should not be considered as AIFs meeting the AIF definition in the AIFMD.
    • In order for an investment undertaking to constitute an AIF and hence fall under the scope of the AIFM Legal Framework, it must be assessed according to the ESMA Guidance on Key Concepts of the AIFMD.

As a final remark, CySEC expects CAIFMs to take immediate actions to ensure compliance with the content of Circular C562 (especially Sections A and B), in case they identify any areas of concern as part of the review of their practises, policies and procedures.

Should you need more information or assistance you can email us at or call us at 25-508400


1 a. Cyprus Alternative Investment Fund Managers – (‘CAIFMs’):

  1. Cyprus Alternative Investment Fund Managers
  2. Cyprus Sub-threshold Alternative Investment Fund Managers.

   b. Alternative Investment Funds with separate legal personality – (‘AIFs’):

  1. Alternative Investment Funds – AIFs
  2. Registered Alternative Investment Funds – RAIFs
  3. Alternative Investment Funds with Limited Number of Persons AIFLNPs

2 For clarity purposes, the term CAIFMs includes both CAIFMs acting as External Managers and Internally Managed AIFs, except where expressly stated otherwise.


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