EN ECB-PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 21 June 2019  
on the governance and financial independence of the Central Bank of Cyprus and  
on amendments to the Constitution regarding the Central Bank of Cyprus  
(CON/2019/24) 
 
Introduction and legal basis 
On 20 May 2019 the European Central Bank (ECB) received a request from the Ministry of Finance of the 
Republic of Cyprus for an opinion on a draft law amending the Law of 2002 on the Central Bank of Cyprus
1 (hereinafter the ‘draft law’) and a draft amendment to the Constitution of the Republic of Cyprus2 
(hereinafter the ‘draft amendment to the Constitution’). The ECB was already consulted on an earlier version of the draft law and provided its observations in Opinion CON/2018/23
3.  
This opinion focuses on the amendments to the Law of 2002 on the Central Bank of Cyprus (hereinafter 
referred to as the ‘Law on the CBC’) that differ from the earlier version of the draft law on which the ECB 
provided its observations in Opinion CON/2018/23 and also considers the draft amendment to the 
Constitution. 
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the third indent of Article 2(1) of Council Decision 98/415/EC4, as 
the draft law and the draft amendment to the Constitution relate to the Central Bank of Cyprus (CBC). 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. Purpose of the draft law and the draft amendment to the Constitution  1.1 Purpose of the draft law 
1.1.1 The draft law introduces amendments to the Law on the CBC in respect of the CBC’s 
governance structure, the independence of the CBC’s directors, and the CBC’s capital and its 
alteration.  
1.1.2 The Law on the CBC lists the licensing and supervision of authorised credit institutions as one 
of the CBC’s basic tasks, without prejudice to the Law on the business of credit institutions
5. 
                                                 
1  Ο περί της Κεντρικής  Τράπεζας  της Κύπρου  Νόμος  του 2002 (138(I)/2002). 
2  Το Σύνταγμα  της Κυπριακής  ∆ημοκρατίας . 
3  All ECB opinions are published on the ECB’s website at www.ecb.europa.eu . 
4  Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national 
authorities regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 
5  Ο Περί Εργασιών  Πιστωτικών  Ιδρυμάτων  Νόμος  (66(I)/1997).  
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2 The draft law removes the licensing of credit institutions as one of the CBC’s basic tasks and 
makes reference to Council Regulation (EU) No 1024/20136.  
1.1.3 The draft law removes a provision on which the ECB provided its observations in Opinion 
CON/2018/23 that provided for different terms of office for the members of the board of directors during a transitional period. More specifically, this provision set out that three out of the five 
directors appointed for the first time after the entry into force of that draft law would have terms 
of office of three years. The terms of office of the other two directors would be four years. The 
draft law also removes the prerequisite that executive and non-executive directors must be 
citizens of the Republic of Cyprus in order to be appointed
7. In addition, the draft law has been 
revised to provide that two members of the executive committee constitute a quorum at any of 
its meetings8.  
1.1.4 The draft law revises the grounds for dismissal of directors9. The position of an executive 
director may become vacant for the following reasons: (a) in the case of his or her death; (b) 
upon a director’s written resignation; (c) if the director no longer fulfils the conditions required for the performance of his or her duties; (d) if the director has been guilty of serious misconduct. 
The position of a non-executive director may become vacant for the same grounds as for an executive director, as well as in the case of one of the events taking place that are listed in 
Article 14 of the Law on the CBC. Article 14 of the Law on the CBC provides that a person 
cannot be appointed as a director if he or she already holds a position that may create a conflict 
of interest with his or her capacity as a director, and sets out a number of specific events where 
such a conflict of interest exists.  
1.1.5 In addition, the draft law provides that ‘with the exception of the governor and deputy governor’, 
both executive and non-executive directors may be dismissed by a council that is chaired by the president of the Supreme Court and that has been established in accordance with Article 153(8) 
of the Constitution at the motion (προσφυγή ) of the Council of Ministers
10. The grounds for 
dismissal of the governor and deputy governor set out in Article 18(4) of the Law on the CBC 
have not been changed11.  
1.1.6 The draft law removes a provision on which the ECB provided its observations in Opinion 
CON/2018/23, which empowered the Council of Ministers to dismiss any CBC director who 
acquires an interest in or holds a position in a financial institution during the course of his or her term of office with the CBC.  
1.1.7 In the provision conferring upon the board of directors the power to adopt CBC accounting 
policies and procedures in accordance with international accounting standards, the draft law 
makes reference to the accounting standards that apply to the European System of Central 
                                                 
6   Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central 
Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 
63). See Article 6(2)(d) of the Law on the CBC, as amended by Article 3 of the draft law. 
7 See Article 13(1) and (5) of the Law on the CBC, as amended by Article 5(c) and (d) of the draft law, respectively. 
8 See Article 17A(6) of the Law on the CBC, as amended by Article 11(b) of the draft law.  
9 See Article 13(4) and (5) of the Law on the CBC, as amended by Article 5(a) and (c) of the draft law, respectively.  
10  Ibid.  
11  There is no need for a motion from the Council of Ministers in this case. 
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3 Banks (ESCB) and to the ECB’s Guidelines12. In addition, the provision of the draft law 
concerning the appointment of an alternate as a member of the Governing Council has been revised to refer to the Rules of Procedure of the European Central Bank
13. 
1.1.8 According to the draft law,  the executive committee members have no voting rights at meetings 
of the board of directors when matters connected with the executive committee’s management 
of the CBC are reviewed14. This provision has been redrafted to clarify that this limitation only 
applies in relation to specific tasks undertaken by the executive committee, namely the carrying 
out of the CBC’s day-to-day activities and the ma nagement of its work, the performance of the 
CBC’s objectives and mission as set out in Articles 5, 5A and 6 of the Law on the CBC15, and 
the appointment, suspension and dismissal of employees. The draft law clarifies that the 
oversight of the executive committee’s actions in relation to the performance of the CBC’s objectives and mission should not concern matters which fall within the ESCB’s fields of 
competence, the ECB’s competences pursuant to Council Regulation (EU) No 1024/2013 and 
the Single Resolution Board’s competences pursuant to Regulation (EU) No 806/2014 of the European Parliament and of the Council
16. Additionally, this provision is without prejudice to the 
executive committee’s independence and competence in the performance of its ESCB-related and other duties. 
1.1.9 The draft law introduces a qualification to the provision regarding the legal costs to be paid by 
the CBC as regards acts of the
 governor, deputy governor and/or members of the board of 
directors. This qualification stipulates that the CBC will not pay the legal costs incurred and/or 
damages awarded in connection with any act or omission of the governor and/or deputy governor and/or members of the board of directors during the exercise of their powers in cases 
where such an act or omission was committed in bad faith, or constituted fraud or gross negligence
17. 
1.1.10 As regards the CBC’s capital, the draft law removes a draft provision that the CBC’s general 
reserve should not exceed twice its capital and corrects the amount of the capital by setting it at 
EUR 150 million18.  
1.2 Purpose of the draft amendment to the Constitution 1.2.1 The draft amendment to the Constitution modifies two Articles concerning the CBC.  
                                                 
12  See Article 15(1)(k) of the Law on the CBC, as amended by Article 7 of the draft law. 
13  See Article 20(3) of the Law on the CBC, as amended by Article 14 of the draft law. 
14  See Article 17(4) of Law on the CBC, as amended by Article 10 of the draft law. 
15  Article 5 of the Law on the CBC sets out the CBC’s primary objective which is to maintain price stability and, without 
prejudice to this objective, to support the general economic  policies of the State. Article 5A provides that the CBC 
forms part of and contributes to the performance of the tasks of the ESCB and that it acts within the ESCB’s fields of 
competence. Article 6 provides that the CBC is to perfor m all tasks required for the achievement of its objectives and 
lists, without prejudice to the beforementioned, the basic tasks that the CBC may exercise.  
16  Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform 
rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 
225, 30.7.2014, p. 1).
 
17   See Article 22 of the Law on the CBC, as amended by Article 15 of the draft law. 
18  See Article 56(1) of the Law on the CBC, as amended by Article 17 of the draft law.  
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4 1.2.2 The first modification relates to Article 118(4) of the Constitution, which provides for the 
dismissal of the CBC’s governor and deputy governor. In this respect, the CBC’s governor and deputy governor may be dismissed by a council established in accordance with Article 153(8) of 
the Constitution and chaired by the president of the Supreme Court. The draft amendment to the Constitution extends the scope of Article 118(4) to the remaining members of the CBC’s 
executive committee and of the board of directors (i.e. the executive and non-executive 
directors).  
1.2.3 The second modification inserts the words ‘unless otherwise determined by law’ into paragraphs 
1, 2, and 3 of Article 119 of the Constitution, which describe the powers and tasks of the CBC’s governor and which, more specifically, provide that the governor is responsible for the CBC’s 
management and exercises all powers and performs all functions and duties within the scope of the CBC’s competences, assisted by the deputy governor. 
 
2. Observations  2.1 The ECB welcomes the amendments introduced by the draft law, which reflect a number of 
suggestions provided by the ECB in Opinion CON/2018/23
19. The ECB wishes to make the 
following additional observations in  relation to the draft law.  
2.2 The ECB welcomes the revisions introduced as regards the grounds for dismissal of the 
members of the executive committee as these are now aligned with Article 14.2 of the Statute of 
the ESCB and reinforce the independence of these members. As noted in the ECB 
Convergence Reports20, NCB statutes must ensure that governors are not dismissed for 
reasons other than those mentioned in Article 14.2  of the Statute of the ESCB, i.e. where they 
no longer fulfil the conditions required for the performance of their duties or have been guilty of serious misconduct. This principle also applies to other members of NCB decision-making 
bodies involved in the performance of ESCB-related tasks, especially where a governor is ‘first 
among equals’ with colleagues with equivalent voting rights, or where other such members are involved in the performance of ESCB-related tasks
21. The ECB also notes that these revisions 
go a step further by providing that the same procedure for the dismissal of the governor and deputy governor also applies with regard to the dismissal of non-executive directors. From a 
technical drafting perspective, the added wording referred to in paragraph 1.1.5 seems 
redundant as the governor and deputy governor cannot be considered to be executive or non-
executive directors.   
2.3 The ECB understands the deletion of the provisio n stipulating that the acquisition of an interest 
or holding of a position by a director in a financial institution during the course of his or her term 
would result in his or her dismissal by the Council of Ministers to be a technical amendment, 
                                                 
19  See paragraphs 2.3, 2.4, 2.7, 2.8, 3.1.2, 3.1.3, 3.1.6 and 3.1.7 of Opinion CON/2018/23. 
20 See for example the ECB’s Convergence Report of May 2018, page 24. 
21 See paragraph 2.2 of Opinion CON/2014/51. 
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5 which has been introduced in view of the introduction of a conflict of interest as a ground for 
dismissal for the non-executive directors22. 
2.4 The ECB welcomes the amendment to the provision that limits the voting rights of the members 
of the executive committee at the meetings of the board of directors. This provision aims to clarify the matters over which such a limitation woul d apply. It might also be useful to clarify the 
basis on which the board of directors may exercise oversight ( ανασκόπηση ) of the executive 
committee’s performance by identifying which of the tasks of the board of directors set out in 
Article 15 of the Law on the CBC
23 capture the task of oversight ( ανασκόπηση ) of the executive 
committee’s performance referred to in Article 17(4) of the Law on the CBC24. The ECB also 
welcomes the added qualification that this provision is without prejudice to the independence 
and competence of the executive committee in the performance of its ESCB-related and other 
duties. 
2.5 In relation to the amendments introduced r egarding the CBC’s capital and its alteration, the 
ECB reiterates its understanding that according to the draft law, the CBC will be entitled to be 
automatically recapitalised up to the level of the prescribed capital referred to in the Law on the 
CBC as amended by the draft law25.  
2.6 The ECB welcomes the provision of the draft law conferring powers on the board of directors to 
determine the level of ‘maximum provisions and reserves’ that the CBC can maintain in the 
medium term26. In this respect, the ECB reiterates its understanding that this provision intends 
to address financial buffers comprising general reserves, capital and financial risk provisions27. 
The ECB furthermore reiterates its understandi ng that the ‘maximum provisions and reserves’ 
exclude: (a) specific provisions against already incurred losses; and (b) any amounts recorded 
by the CBC on revaluation accounts, and that the profit to be distributed by the CBC to the 
general government account is determined fo llowing the establishm ent of adequate ‘maximum 
provisions and reserves’.  
2.7 Finally, the ECB welcomes the objective of the draft amendment to the Constitution to 
guarantee legal certainty by ensuring that the draft law is in line with the provisions of the 
Constitution. In particular, the ECB welcomes the extension of the scope of Article 118(4) of the 
Constitution on the grounds of dismissal to cove r the CBC’s executive directors, putting them on 
an equal footing with the governor and deputy governor,  and notes that the draft amendment to 
the Constitution goes a step further by  providing that the same procedure for the dismissal of 
the governor and deputy governor also applies with regard to the dismissal of non-executive directors. As regards the modifications to Article 119 of the Constitution, the ECB understands 
that these modifications aim to bring legal certainty as regards the performance of the powers 
                                                 
22 See paragraphs 1.1.4 and 1.1.6. 
23 See Article 7 of the draft law.  
24 See Article 10 of the draft law. 
25 See Article 56(2) and (3) of the Law on the CBC as amended by Article 17 of the draft law and paragraph 3.1.8 of 
Opinion CON/2018/23.  
26 See Article 59 of the Law on the CBC, as amended by Article 18 of the draft law.  
27 See paragraph 3.1.9 of Opinion CON/2018/23.  
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6 and tasks of the executive committee, which would otherwise be inconsiste nt with the powers 
and tasks of the governor, assisted by the deputy governor. 
 
This opinion will be published on the ECB’s website.   
 
Done at Frankfurt am Main, 21 June 2019  
[signed] 
 
The President of the ECB 
Mario DRAGHI