The Cyprus Securities and Exchange Commission (CySEC) has taken decisive action against KMG Capital Markets Ltd, revoking the firm's license for managing Open-Ended Undertakings for Collective Investment in Transferable Securities (UCITS). This is the second time KMG has faced such a penalty, reflecting its consistent lack of activity in the UCITS sector.

CySEC Revokes KMG Capital Markets' UCITS Management License

On 9 October, CySEC made the decision to withdraw the operation license for UCITS management from KMG Capital Markets Ltd. The license was revoked because the company had failed to utilize it within 12 months after being notified of its approval.

CySEC's actions were in accordance with sections 121(1)(a) and 150(1)(c) of the Open-Ended Undertakings for Collective Investment Law of 2012. The Commission made the information public today (Monday), 16 October.

Interestingly, this isn't the first time KMG has found itself in hot water. A prior revocation took place on 14 December 2021. Despite this, the company applied for and obtained a new UCITS management license from CySEC. Yet, once more, KMG had failed to engage in any activity in the UCITS sector by 23 June 2023, which led to another revocation.

However, it's worth noting that KMG Capital Markets continues to hold authorization as an Alternative Investment Fund Manager (AIFM). This authorization comes under section 8 of the Alternative Investment Fund Managers Law, providing a silver lining for the company's operations.

In the most recent quarterly report issued by CySEC, noteworthy developments emerged in Cyprus' Collective Investments sector for Q2 2023. Over this quarter, CySEC oversaw 334 Management Companies and Collective Investment Schemes, a marginal dip of 0.30% from the first quarter's 335 organizations. Yet, when juxtaposed with the same quarter from the prior year, there was an uptick of 1.2%, illustrating a steady upward trajectory for the sector.

Back in September, the Commission announced its decision to withdraw another license of FXBFI Broker Financial Invest Ltd. A few weeks earlier, the regulator confirmed the deletion of Binance Cyprus Ltd from the Register of Service Providers of Crypto-assets.

Difference between UCITS and AIFM

UCITS are European mutual funds that aim to allow for the sale of pooled investment products across the European Union (EU) under a harmonized regulatory regime. The structure offers high levels of investor protection and transparency. AIFMs manage Alternative Investment Funds, which include hedge funds, private equity funds, real estate funds, and other non-traditional investment vehicles.

UCITS are generally limited to liquid assets like listed equities , bonds, and money market instruments. Alternative investments such as real estate or commodities are typically off-limits. At the same time, AIFMs can manage a wide range of asset types, including illiquid and alternative assets like real estate, private equity, and commodities.

While UCITS are aimed at providing a high level of investor protection with stringent regulations, AIFMs offer more flexibility in investment strategies and asset types but are primarily designed for professional and institutional investors. Both have the ability to be marketed across the EU, but the regulatory frameworks they adhere to are different.