Home / CY AIF Law of 2018 / PART ΙΙ: PROVISIONS REGARDING THE ALTERNATIVE INVESTMENT FUNDS / Chapter 3: Common provisions regarding the organisation and operation of AIFs / [16] Risk management.

16. Risk management.

(1) Without prejudice to the provisions of article 16 of the Alternative Investment Fund Managers Law, applicable to AIFMs which are internally managed AIFs, this article shall apply to internally managed AIFs, unless otherwise provided in this Law.

(2) (a) Internally managed AIFs shall functionally and hierarchically separate the functions of risk management from the operating units, including the functions of portfolio management.

(b) The Securities and Exchange Commission shall assess the functional and hierarchical separation of the functions of risk management, in accordance with the principle of proportionality.

(c) Internally managed AIFs shall, in any event, be able to demonstrate that specific safeguards against conflicts of interest allow for the independent performance of risk management activities and that the risk management process satisfies the requirements of this article and is consistently effective.

(3) (a) Internally managed AIFs shall establish and implement adequate risk management systems in order to identify, measure, manage and monitor appropriately all risks relevant to the investment strategy of the AIF and to which the AIF is or may be exposed to.

(b) Internally managed AIFs shall review their risk management systems with the appropriate frequency and at least once a year, and to adjust them whenever it is necessary.

(4) Internally managed AIFs shall -

(a) establish and implement appropriate, documented and regularly updated due diligence process when investing, according to the investment policy, the objectives and the risk profile of the AIF∙

(b) ensure that the risks associated with each investment position of the AIF and their overall effect on the AIF’s portfolio can be properly identified, measured, managed and monitored on an ongoing basis, including through the use of appropriate stress testing procedures∙ and

(c) ensure that the risk profile of the AIF shall correspond to the size, portfolio structure and investment strategies and objectives of the AIF as laid down in the AIF fund rules or instruments of incorporation, prospectus or offering documents and any other documents inviting an investor to subscribe for its units.

(5) Internally managed AIFs shall set a maximum level of leverage which they may employ, as well as the extent of the right to reuse collateral or guarantee that could be granted under the leveraging arrangement, taking into account, inter alia -

(a) the type of the AIF∙

(b) the investment policy of the AIF∙

(c) the sources of leverage of the AIF∙

(d) any other connection or relevant relationship with other financial services institutions, which could pose systemic risk∙

(e) the need to limit the exposure to any single counterparty∙

(f) the extent to which the leverage is collateralised∙

(g) the asset-liability ratio∙ and

(h) the scale, nature and extent of the activity of the AIF on the markets concerned.

(6) The Securities and Exchange Commission may, by means of a directive, specify any detail or technical matter regarding the application of this article.