What rules apply to a CIF's board of directors?

The directors are the people who actually direct the firm's business, so the Law makes the CIF itself primarily responsible for their quality. Each must have sufficiently good repute and enough knowledge, skills and experience for the job, and must commit enough time to it. Each must be honest, act with integrity and think independently, so as to assess and, where needed, challenge the decisions of senior management and oversee how decisions are made.

The board is also judged as a team: collectively it must understand the firm's activities, including the main risks, and its composition should reflect a broad range of experience. The CIF must put adequate people and money into the induction and training of directors and apply a policy that promotes diversity on the board. CySEC collects information on diversity practices to benchmark them and passes it to ESMA.

For any CIF, the number of other board seats a director can take depends on the individual's circumstances and on the nature, size and complexity of the firm. For a significant CIF there is a hard limit: unless representing the Republic, a director may hold only one of two combinations at the same time, either one executive seat together with two non-executive seats, or four non-executive seats.

Some seats are counted together as a single directorship: all seats within the same group, seats in institutions belonging to the same institutional protection scheme, and seats in undertakings (including non-financial ones) in which the CIF has a qualifying holding. Seats in organisations that do not pursue predominantly commercial objectives, such as charities, are ignored altogether. CySEC may authorise a director to hold one extra non-executive seat and informs ESMA of such authorisations.

The Law judges significance by how large and how complex the firm is, including how it is organised and what it does. CySEC's Circular C487 of 10 February 2022 turns this into a single size test: a CIF is significant if its on- and off-balance-sheet assets, counting clients' assets and instruments held off balance sheet, averaged more than €100 million over the four years before the financial year. The firm checks this within four months of each year-end and tells CySEC at once if it crosses the threshold.

Whatever services it provides, a CIF must be run in practice by at least two people who meet these requirements. CySEC refuses authorisation if it is not satisfied that the proposed directors are fit, or if there are objective and verifiable grounds to believe the board could threaten the firm's effective, sound and prudent management, the proper consideration of clients' interests or the integrity of the market.

Once authorised, the CIF must notify CySEC of all its directors and of any change in the board's composition, together with the information CySEC needs to assess whether the requirements are still met. Since 2021 the Law also lets CySEC remove directors who no longer meet them, and requires loans to directors and their related parties to be documented and made available to CySEC on request.