EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 26 October 2006  
at the request of the Cypriot Ministry of Fina nce on a draft provision amending the draft law 
amending the Central Bank of Cyprus Laws of 2002 and 2003 
(CON/2006/50) 
 
Introduction and legal basis  
On 13 October 2006 the European Central Bank (ECB) received a request from the Cypriot Ministry of 
Finance for an opinion on a draft provision (hereina fter the ‘draft provision’) amending the draft law 
amending the Central Bank of Cyprus Laws of 2002 a nd 2003 (hereinafter the ‘CBC Law’) in respect of 
the appointment of independent external aud itors for the Central Bank of Cyprus (CBC).  
The ECB’s competence to de liver an opinion is based on Article 105(4) of the Treaty establishing the 
European Community and the third indent of Article 2(1) of Council Decision 98/415/EC of 29 June 1998 
on the consultation of the European Central Bank by  national authorities regarding draft legislative 
provisions1, as the draft law relates to a national central bank. In accordance with  the first sentence of 
Article 17.5 of the Rules of Procedure of the Euro pean Central Bank, the Governing Council has adopted 
this opinion. 
 1  Subject matter and background  
1.1 The subject matter of this opinion is a draft provision amending Section 60 of the CBC Law on the 
audit of the annual financial statements  of the CBC in line with Article 27.1 of the Statute of the 
European System of Central Banks and of the European Central Bank
2. The ECB has been 
consulted in the past on two earlier versions of draft provisions amending Section 60 of the CBC 
Law and refers to its previ ous opinions on these provisions3.  
                                                      
1  OJ L 189, 3.7.1998, p. 42.  
2  The inconsistencies of Section 60 of the CBC Law w ith the Statute are identified on p. 222 of the 2004 ECB 
Convergence Report. 
3  ECB Opinion CON/2006/4 of 27 January 2006 at the request of  the Central Bank of Cyprus on a draft law amending the 
Central Bank of Cyprus Laws of 2002 and 2003; ECB Op inion CON/2006/33 of 28 June 2006 at the request of the 
Cypriot Ministry of Finance on a draft provision amending the draft law amending the Centra l Bank of Cyprus Laws of 
2002 and 2003.  
2 1.2 In Opinion CON/2006/4, the ECB concluded that, notwithstanding the Auditor General’s 
independence4 as enshrined in the Cypriot Constitution5, the Audit Office (of which the Auditor 
General is the Head) is not an external auditor w ithin the meaning of Article 27.1 of the Statute and 
cannot, for that reason, be appointed as the CBC’s independent external auditor6. Reaffirming its 
view on this matter7, the ECB also concluded that the appoi ntment of an independent external 
auditor, in accordance with Article 27.1 of th e Statute, to audit the CBC’s annual financial 
statements once Cyprus has adopted the single currency, ‘will not prevent the Audit Office from 
continuing to perform a control function, provided that its auditing activities: (i) do not interfere 
with the review of European System of Centra l Banks (ESCB) related tasks of the CBC to be 
undertaken by the CBC’s independent external au ditors to be approved by the Council of the 
European Union in accordance with Article 27 of the Statute; and (ii) do not jeopardise the CBC’s 
independence’8. 
1.3 In Opinion CON/2006/33, the ECB reiterated th e conclusions reached in Opinion CON/2006/4 , 
also drawing attention to its May 2006 Convergence Report, acco rding to which the powers of 
auditors, other than those appointed under Article 27.1 of the Statute, are compatible with central 
bank independence only when the necessary safeguards are in place9.  
 2 Assessment of the draft provision 2.1  Subsection 1(a) of the draft provision now under consideration provides that the financial 
statements of the CBC shall be audited in accordan ce with Article 27 of the Statute and that the 
CBC shall provide the auditors appointed in acco rdance with Article 27 with full information, 
books and other records that are necessary for the exercise of their duties. The ECB welcomes this 
subsection. 
2.2 Subsection 1(b) of the draft provision provides that the Auditor General may carry out financial 
and management audits of those activities of th e CBC that are not related to its ESCB tasks and 
competences, provided that his reports and audit activities do not impinge on the CBC’s 
                                                     
 
4  The personal independence of the Auditor General is guaranteed under Article 115.3 of  the Cypriot Constitution, 
according to which he or she is not to retire or to be removed from office except on the same grounds and in the same 
manner as a judge of the Supreme Court. 
5  Under Article 116(1) of the Cypriot Constitution, ‘The Audito r General assisted by the Deputy Auditor-General shall, on 
behalf of the Republic, control all dis bursements and receipts and audit and in spect all accounts of moneys and other 
assets administered, and of liabilities incurred, by or under the authority of the Republic and for this purpose he shall 
have the right of access to all books, records and returns relati ng to such accounts and to places where such assets are 
kept’. 
6  Paragraphs 2.1 and 2.2 of Opinion CON/2006/4. 
7  As expressed in paragraphs 5 to 7 of ECB Opinion CON/2002/22 of 2 September 2002 at the request of the Swedish 
Ministry of Finance on a draft legislative proposal establ ishing the National Audit, including proposed amendments to 
the Sveriges Riksbank Act (1988:1385).  
8  Paragraph 2.3 of Opinion CON/2006/4. 
9  See, generally, ECB Convergence Repor t, May 2006, page 66, available at: 
http://www.ecb.int/pub/pdf/conrep/cr2006en.pdf. For specific ex amples of such safeguards, see page 74 of the ECB 
Convergence Report of May 2006 (Appointment  of Independent External Auditors), ibid. 
3 independence. The ECB also welcomes subsection 1(b) and the draft provi sion’s definition of 
management audit, which preclude any interference with the audit to be carried out by the CBC’s 
independent external auditors. 
2.3 The ECB thus considers the draft provision to be consistent with its earlier opinions in this matter 
and recommends (as an alternative to the initial wording on which the ECB was consulted by the 
CBC10) its incorporation in the draft law ame nding the CBC Law as the appropriate means of 
adapting, in this particular case, national audit a rrangements to the requirements of Article 27 of 
the Statute and, in particular, to the principle of central bank independence.  
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 26 October 2006. 
 
[signed] 
 
The President of the ECB 
Jean-Claude TRICHET 
                                                     
 
10  Opinion CON/2006/4.