EN 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 28 June 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/2006/33) 
 
Introduction and legal basis  
On 24 May 2005 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 European 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, the purpose of which is to resolve the 
incompatibility between Section 60 of the CBC La w, which deals with the audit of the annual 
financial statements  of the CBC, and Article 27.1 of the Statute of the European System of Central 
Banks and of the European Central Bank2. In an earlier opinion on a draft law amending the CBC 
Law3, the ECB commented on a previous draft prov ision to amend Section 60 of the CBC Law, 
and emphasised the conditions for the correct application of Article 27.1 of the Statute.  
                                                      
1  OJ L 189, 3.7.1998, p. 42.  
2  This inconsistency was 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. 
1.2 In Opinio n CON/2006/4,  the ECB concluded that, notwithst anding t he Auditor General’s 
independence4 as enshrined in t he Cypriot Constituti on5, the Audit  Office of which the Aud itor 
General  is th e Head is  not an external  auditor w ithin the meaning of Article 27.1 of the Statu te and  
cannot, for that reason, be appointed as t he CBC’ s independent external auditor6.  
1.3 Reaffirming its view on this matter7, in Opinion CON/2006/4 t he ECB also concluded that  the 
appointm ent of an independent external auditor, in  accordance with Article 27.1 of the Statute, to  
audit the CB C’s annual fi nancial statements once C yprus has adopted the singl e currency , ‘will not  
prevent the Audit Office from  continui ng to perfor m a control function, provided that its auditin g 
activities: (i) do not i nterfere with the review of Euro pean Sy stem  of Central Banks (ESCB) related  
tasks of the CBC to be undertaken by  the CBC’s inde pendent external audito rs to be approved by 
the Council of the E uropean Union i n accordance w ith Article 27 of  the Statute; and (ii)  do not  
jeopardise the CBC’ s independence’8. 
 
2. Assessm ent of the draft provision 
2.1 In line with the previous draft law amending the CBC Law, subsection 1 of the draft provision 
provides that the financial statements of  the CBC shall be audited in accordance with Article 27 of 
the Statute. The ECB welc omes this. 
2.2 However, there are still so me elements that would need to be br ought into line with the Statute as 
recommended in the previous ECB opi nion. W hile subsection 1 o f the draft pro vision pr ovides that  
the financial statements of  the CB C sha ll be audite d in accordance  with Article  27.1 of the Statute, 
subsection 2 gives the Cy priot Auditor General th e power to conduct a full aud it of the operational 
efficiency  of the CBC as well as of its financial st atements, in parallel with th e audit conducted by  
the independent external auditor appoi nted in accordance with Article 27.1 of the Statute and 
without pr oviding f or the necessary  safeguards, refe rred to in t he ECB’s earlier opinion, agai nst the 
Auditor General’s interference in the activities of the CBC’s independent  external auditor.  
Similarly, subsection 3 of  the draft pro vision fails  to provi de any  limits to the Auditor General’s 
access to the CBC’ s books  and records. Finall y, whil e subsection 4 of the draft provision provides 
that the Auditor General shall not question the merits of the policy  objectives of the CBC, it 
                                                      
4  The p ersonal in dependen ce of the Auditor  Gen eral is guaranteed under  Article 115.3  of the C ypriot Constitution, 
accord ing to which he or she is not to retire or t o be removed from  office excep t on the sam e grounds and in the sam e 
manner as a judge of the Supreme Court. 
5  Under Articl e 116(1) of the C ypriot Constitu tion, ‘[T] he Aud itor General  assiste d by the Depu ty Auditor-Gener al shall , 
on behalf of the Republic , cont rol all disbursem ents and recei pts and audit and in spect al l account s of moneys and other 
assets adm inistered, and of liabilities incur red, b y or under the authorit y of the Republic and  for this purpose h e shall  
have th e righ t of access to all b ooks, records and returns relati ng to such accou nts and to p laces where such as sets are 
kept’. 
6  Paragraphs 2.1. and 2.2 of Op inion CON/2006/4. 
7  As expressed in paragrap hs 5 to  7 of ECB Opin ion CON/2002/22 of 2 September 2002 at the r equest of th e Swedish  
Ministr y of Finance on a draf t legislative propo sal establ ishing the Nation al Audit, in cluding pr oposed amendments to  
the Sver iges Rik sbank Act (1988 :1385).  
8  Paragraph 2 .3. of Opinion CON/2006/4. 
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provides n o safeguards against interfe rence by the Auditor General in the activities of the CBC’ s 
independent e xternal audito r. 
2.3 In order to br ing the draft provision i nto line w ith the require ments of the Statute, as expres sed in  
Opinion CON/2006/4 , the scope of the control exercised by  the Auditor General over the financial 
statements of  the CBC sh ould be clearly  defined by the national legal framework and should be  
without prej udice to the  activities of the CBC' s independent e xternal audit or as laid down in 
Article 27.1 of the Statute9, and in line with the E CB’s observa tions in paragraph 2.2. of this 
opinion. The ECB draws the consulting authorit y’s attention to its  May  2006 Convergence Report, 
where the ECB concluded that the powers of auditors, othe r than those appointed under  
Article 27.1 of the Statute, are compatible w ith ce ntral bank independence when the necess ary 
safeguards ar e in place10. Since neither the draft provision nor C ypriot law11 presen tly provide th e 
requisite safe guards, the ECB notes that safeguard s in line with the conclusions of its earlier 
opinio n should be intro duced. In particular, such safeguards should i nclude guarantees that the 
Auditor Gen eral cannot i nterfere with the in depe ndent external auditor ’s control of the ESCB-
related accou nts of the CBC and that the Auditor General may not jeopardise the independe nce of 
the CBC.  
 
This opini on will be publis hed on t he ECB’s website. 
 
 
Done at Frankfurt am  Main, 28  June 20 06. 
 
 
[signed ] 
The President of the ECB 
Jean-Claude TRICHET 
                                                      
9  See ECB  Convergence Repor t, May 2006, page 66, av ailable at http://www.ecb .int/pub/pdf/conrep/cr2006en .pdf. 
10  Specific examples can be found at page 74 of the ECB Converg ence R eport of  May 2006 (App ointment of Independent 
Extern al Audi tors),.ibid.  
11  The r eference is  to Arti cle 116 (1 ) of th e Cypriot Constitution , see footnot e 7. 
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