How do UCITS management companies operate in other Member States?

To open a branch in another Member State, the company notifies CySEC. The notification names the state and gives a programme of operations covering the activities, services and branch structure, with the risk management process and complaint procedures. It also gives an address in the host state for documents and the names of those running the branch. If CySEC has no reason to doubt the company's organisation or finances, it sends the file to the host authority within 2 months, with investor compensation details, and tells the company; a refusal, with reasons, also comes within 2 months. The branch may start when the host authority's communication arrives, or when the host's period expires without one. The exam material lets the company start as soon as CySEC communicates its approval; the Law has linked the start to the host authority since 2012. A branch follows the host state's conduct rules under the host's supervision. Changes are notified 1 month ahead, and since 18 October 2021 CySEC can object within 15 working days.

To provide services without a branch, the company notifies CySEC of the state and its programme of operations, including its risk management and complaint procedures. CySEC forwards the notification within 1 month, again with compensation details, and the company may start as soon as CySEC tells it. It follows Cyprus conduct rules under CySEC's supervision, and marketing of units still needs the UCITS notification. The exam material adds the depositary contract and delegation arrangements to this notification; since 2012 the Law has placed those in the application to manage a UCITS established in another state.

A management company from another Member State may open a branch in Cyprus once CySEC has told it which Cyprus conduct rules apply, or at the latest 2 months after CySEC receives the file from its home authority. Services without a branch may start as soon as the home authority has notified CySEC. The exam material applies a 2-month wait to these services too; since 2012 the Law has kept that wait for branches only. Incoming services follow home conduct rules. Cyprus may not make a branch or services depend on a licence, initial capital or any measure with the same effect.

When a company manages a UCITS established in another state, that state's rules and regulator govern fund matters: set-up and authorisation, issue and redemption, investment policy and limits, borrowing and short sales, valuation and accounting, pricing errors, distributions, disclosure, marketing, relations with unitholders, mergers and liquidation, the register, fees and voting rights. The company's home regulator supervises its organisation, including delegation, risk management, prudential rules and reporting. A foreign company that wants to manage a Cyprus UCITS applies to CySEC. After consulting the company's home authority, CySEC may turn the application down on three grounds only: the company breaches CySEC's rules on fund matters, its home licence does not cover that type of UCITS, or the required documents are missing.

An incoming company with a Cyprus branch sends CySEC periodic statistical reports on the branch's business. Any incoming company must give CySEC the information it asks for to check compliance. If one breaches Cyprus rules, CySEC requires it to comply and informs its home authority. If it refuses, CySEC asks the home authority to act. If that fails or falls short, CySEC, after informing the home authority, may take measures, bar further activity in Cyprus, require it to stop managing a Cyprus UCITS and refer the home authority's inaction to ESMA. In urgent cases it may take precautionary measures, informing the Commission, ESMA and the home authority.

Before withdrawing the licence of a Cyprus company that manages UCITS based in other states, CySEC consults the home authorities of those UCITS, which may act to protect unitholders, including by barring the company. The exam material describes this both as informing and as consulting; since 2012 the Law has required consultation before the withdrawal. CySEC is likewise consulted before a foreign regulator withdraws the licence of a company managing a Cyprus UCITS.

CySEC may license a Cyprus company to operate a branch in a third country. The exam material also lets CySEC license third-country companies, and EU companies that fall short of the requirements, to run a branch in Cyprus. Since 16 June 2015, Law 88(I)/2015 has removed that option, so CySEC now licenses only a Cyprus company's branch abroad. A third-country firm may still act as a delegate. For portfolio management, CySEC must then be able to cooperate with its supervisor.