EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 19 October 2015  
on the regulation of financial leasing and financial leasing companies’ a ctivities  
(CON/2015/ 37) 
 
Introduction and legal basis  
On 4 September 2015 the European Central Bank  (ECB) received a request f rom the Minist er of Finance 
of Cyprus for an opinion on a draft law regulating financial leasing and financial leasing companies’ 
activities (hereinafter the ‘draft law’ ). On 28 September 2015 the ECB received a new version of the draft 
law from the Minist ry of Finance.  
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 and sixth indents  of Article  2(1) of Council 
Decision  98/415/EC
1, as the draft law  relates  to the Central Bank of Cyprus (CBC) and to the rules 
applicable to financial institutions insofar as they materially influence the financial stability of financial institutions and markets.  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  
1.1 The purpose of the draft law is to regulate the provision of financial leasing services  to the public  
and ensure the regulation and supervision of financial leasing services providers’ activities. As 
noted in the explanatory memorandum accompanying the draft law,  the draft law aims to provide 
natural persons and businesses with alternative ways of financing, thus contributing to the growth 
of the leasing services sector and generally the financial sector and the Cypriot economy as a 
whole.  
1.2 The draft law provides that financial leasing services may be provided to the public by : 
(a) authorised credit institutions in Cyprus ; (b) authorised credit institutions in other Member States 
of the European Economic Area (EEA)  which are licensed to provide financial leasing services , and 
which provide such services through a branch or on a cross- border  basis ; (c) financial leasing 
companies w hich are subsidiaries of credit institutions established in EEA Member States , and 
which provide such services in Cyprus through a branch or on a cross- border basis;  and ( d) a new 
category of regulated entit y – financial leasing companies  registered in Cyp rus, which shall be 
licensed by the CBC to provide such services under  the draft law
.2. The draft law s ets out the types 
                                                 
1  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) . 
2  See Article 4(1) a of the draft law.  
ECB -PUBLIC  
2 of activities to be performed by  those entities3. Furthermore, the draft law defines the supervisory 
and regulatory powers of the CBC w ith respect to financial leasing companies , including the power 
to take enforcement measures and impose sanctions , and puts in place a comprehensive legal 
framework regulating financial leasing service providers  and the provision of financial leasing 
servi ces.  
1.3 The draft law provides that financial leasing contracts that are a result of the settlement or 
restructuring of credit facilities  are subject to terms and conditions determined by the CBC4. In this 
respect, in relation to any leasehold described in the contract, the financial leasing must include, 
inter alia, the nominal and effective interest rate included in the rent, their calculation method and 
their amendment5.  
1.4 Pursuant to t he draft law , a financial leasing company may provide both financial leasing serv ices 
and ancillary services, including operating leasing services, the negotiation and purchase of movable or immovable property for the purpose of s ale and lease- back transactions , services for 
the maintenance and safekeeping of property  for leasing purposes , assignment of the manufacture 
or construction of buildings or premises for buying purposes in order to lease them, assignment of the improvement or maintenance of buildings or premises for leasing purposes, and any other 
relevant serv ices which may be determined by the CBC. A  financial leasing company is not allowed 
to provide any other services or conduct any other activities other than those necessary for the purposes of the provision of financial leasing services under the draft law , or to manufacture itself 
movable or immovable property
6.  
1.5 Without affecting the duty of the CBC to keep information obtained under the draft law confidential, the CBC may use any of the information provided under the draft law for the purpose of the 
preparation of anonymous , aggregated statistical data, which the CBC may publish
7. 
1.6 The draft law provides  that the CBC has the power , pursuant to directives issued by the CBC,  to 
require that financial leasing companies pay to  the CBC all costs related  to the ir supervision8.  
 
2. General observations  
2.1 The ECB understands  that the draft law may facilitate private debt restructuring by opening up the 
possibility to transform mortgage loans into real estate leases through sale and lease- back 
transactio ns, and potentially  impact the resolution  of non- performing loans in Cyprus.  In this 
context, it is welcome that financial leasing activities are going to be subject to prudential 
supervision, also with a view to avoiding regulatory arbitrage.  
2.2 The draf t law expands the CBC ’s powers to supervise financial leasing companies , thus 
complement ing the CBC’s  current responsibilities for the supervis ion of  the leasing  activities of 
                                                 
3  See Article 28(1) of the draft law.  
4  See Article 27(3) of the draft law.  
5  See Article 27 (1)(d) of the draft law.  
6  See Article 8 and Second Table of the draft law.  
7  See Article 11(4) of the draft law.  
8  See Article 11(5) of the draft law.  
ECB -PUBLIC  
3 licenced  credit institutions  and the macroprudential  supervision of the financial system for the 
purpose of safeguarding financial stability . The ECB underlines that, in the context of a proposed 
conferral of tasks on an ESCB member, it is necessary to assess such conferral against the 
prohibition of monetary financing under Article 123 of the Treaty . The ECB has developed the 
guidance  set out in paragraphs  2.2.1 to 2.2.3  of this opinion, in the form of general and specific 
considerations, on the basis of which it may decide whether a new task conferred on an ESCB 
national central bank  (NCB) is to be considered a central banking task or a government task for the 
purposes of assessing such conferral against the prohibition of monetary financing under Article  123 of the Treaty
9. The concrete assessment of whether the CBC’s task of supervi sing 
financial leasing companies is to be considered a central banking task or a government task is then 
undertaken in paragraph 3.1 of this opinion.  
2.2.1 General considerations  
First, the systematic categorisation of tasks assigned to NCBs as central banking or government 
tasks applies to genuinely new tasks that did not exist in the past or did not form an integral part of 
the central banking tasks already assigned to the NCB in the past. In recognition of the different 
Member States’ legal frameworks, c entral banking traditions and national set -ups, the tasks 
currently discharged by an NCB as central banking tasks are not reviewed and re- categorised, but 
may be reassessed if they are subject to legislative amendments of substance.  
Second, the principle of financial independence requires that the Member States may not put their 
NCBs in a position where they have insufficient financial resources to carry out their ESCB - or 
Eurosystem -related tasks, as applicable.  
Third , central banking tasks comprise in particular those tasks that are related to the tasks listed in 
Article 127(2), (5) and (6) of the Treaty.  
Fourth, new tasks conferred on an NCB which are atypical of NCBs’ tasks, or which are clearly discharged on behalf of and in the exclusive interest of t he government or of other public entities, 
should be considered as government tasks. In that context, a distinction should be drawn between 
liquidity - and solvency -related tasks of NCBs. While, for the purposes of the monetary financing 
prohibition, solvency support is a government task, liquidity -related tasks, the ultimate objective of 
which are to finance the economy, are central banking tasks.  
2.2.2 Specific considerations  
Banking supervision and macro- prudential tasks are central bank tasks when discharged by an 
NCB provided they do not undermine its independence in accordance with Article 130 of the 
Treaty.  
An important criterion for qualifying a ne w task as a government task is the  impact of the task on 
the institutional, financial and personal indep endence of the NCB. In particular, the following should 
be taken into account.  
First, it should be assessed whether the performance of the new task creates inadequately 
addressed conflicts of interests with existing central banking tasks, and does not necessarily 
                                                 
9  See Opinion CON/2015/22. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.  
ECB -PUBLIC  
4 complement those existing central banking tasks. If a conflict of interest arises between existing 
and new tasks, there should be sufficient mitigation in place to adequately address that conflict. 
Complementarity between the new task and existing central banking tasks should not, however, be interpreted extensively, so as to lead to the creation of an indefinite chain of ancillary tasks. 
Complementarity should also be examined from the point of view of the financing of those tasks.  
Second, it shoul d be assessed whether without new financial resources the performance of the 
new task is disproportionate to the financial or organisational capacity of the NCB and may negatively impact on its capacity to properly perform existing central banking tasks.  
Third, it should be assessed whether the performance of the new task does not fit into the 
institutional set -up of the NCB in the light of central bank independence and accountability 
considerations.  
Fourth, it should be assessed whether the performance of the new task harbours substantial 
financial risks.  
Fifth, it should be assessed whether the performance of the new task exposes the members of the 
NCB’s decision- making bodies to political risks which are disproportionate and may also impact on 
their personal independence and, in particular, the guarantee of the term of office under Article  14.2 of the Statute of the European System of Central Banks and of the European Central 
Bank . 
2.2.3 Any final assessment on the qualification of a task given to an NCB as either falling within the 
scope of a central banking task or a government task will be guided by the objective of ensuring the 
consistent application of the prohibition of monetary financing within the Eurosystem and the ESCB 
to the extent that it applies to its members.  
 
3. Specific observations  
3.1 Conferral on the CBC of the  task of supervising financial leasing companies  
The draft law designates the CBC as a supervisory authority f or financial leasing companies thus 
broadening its current functions and ac tivities. In the light of the guidance set out in 
paragraphs  2.2.1 to 2.2.3, it must be assessed whether the CBC’s new tasks could constitute a 
breach of the monetary financing prohibition.  
3.1.1 Principle of financial independence   
The principle of financ ial independence requires NCBs to have sufficient means to carry out not 
only their ESCB -related tasks from an operational and financial point of view, but also their national 
tasks
10. In this regard the ECB notes that the draft law provides that the CBC ha s the power to 
require that financial leasing companies pay to the CBC all costs related to their supervision11. The 
                                                 
10  See the ECB’s 2014 Convergence Report, p. 25.  
11  See Article 11(5)  of the draft law . In accordance with Article 6(2) (d) of the Central Bank of Cyprus Laws of 2002 to 
2007, the CBC exercises supervision of banks. Banks are allowed to provide financial leasing services by virtue of 
item 3 in Annex IV of the Business of Credit Institutions Laws of 1997 to 2015.   
ECB -PUBLIC  
5 new tasks assigned to the CBC would not affect the resources the CBC  allocates to the 
performance of its monetary policy tasks.  
3.1.2 Links  to tasks listed in Article 127(5) of the Treaty  
Supervision over financial leasing companies can be  considered a task  related to thos e referred to 
in Article  127(5) of the Treaty, based on the understanding that it is complementary to the 
supervisory tas ks exercised by the NCB , particularl y where, as in this case, the CBC already 
carries out supervision of credit institutions , including their financial leasing activities12, and has the 
task of ensuring the stability of the financial system13. Financial leas ing is a n instrument which has 
significantly gained in importance in the Union as an alternative to classical credit financing for 
consumers, small and medium -sized enterprises  (SMEs ) and large companies , as it also provides 
for the acquisition of property  through the payment of instalments . Although not required under 
Directive 2013/36/EU14, several EEA Member States have established a legal framework for the 
supervision of financial leasing companies  on a solo basis15 while others have introduced a 
registration requirement16. It is understood that these Member States have legislated in this area 
based on the assumption that the improper functioning of the financial leasing business as a 
consequence of poor management may lead to severe damage not only for cus tomers, but for the 
economy as a whole. In view of these developments, point 3 of Annex 1 of Directive 2013/36/EU 
lists financial leasing as an activity that is subject to mutual recognition.  Financial leasing activities 
may thus be carried out cross -border by credit institutions authorised and supervised by the 
competent authorities of another Member State, provided that such activities are covered by the 
relevant authorisation of the credit institution.  
3.1.3  Atypical tasks 
A number of Member States  have  conferred on their NCBs supervisory tasks related to the 
provision of  financial leasing services  and financial leasing companies . The ECB has generally  
accepted the allocation of such tasks to NCBs provided they do not interfere with the performance 
of the NCB’s ESCB -related tasks17. The tasks of an NCB with regard to the supervision of financial 
leasing companies can therefore be regarded as being tasks not atypical of a central bank, 
particularly if, as in the case of  the CBC , it has a statutory responsib ility for  bank supervision and 
financial stability18. Moreover, the complementarity between the supervisory tasks already 
discharged by the CBC and the new task of supervis ing financial leasing companies is reflected in 
                                                 
12  In accordance with Article 6(2) (d) of the Central Bank of Cyprus Laws of 2002 to 2007, the CBC exercises 
supervision of banks. Banks are allowed to provide financial leasing services by virtue of item 3 in A nnex IV of the 
Business of Credit Institutions Laws of 1997 to 2015.  
13  Article 6(2)  (e) of the Central Bank of Cyprus Laws of 2002 to 2007.   
14  Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of  
credit institutions and the prudential supervision of credit institutions and investment firms, amending 
Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC  (OJ L 176, 27.6.2013,  p. 338) . 
15  These include Portugal, Spain, Iceland, Germ any, Italy, Greece, Liechtenstein, France, Romania, Bulgaria and 
Malta.  
16  These include Belgium, the Czech Republic, Estonia, Lithuania, Luxembourg and Sweden.  
17  See Opinion CON/2009/57.  
18  See Article 6(2)(d) and (e) of the Central Bank of Cyprus Laws of 2002 to 2007.  
ECB -PUBLIC  
6 the common system of financing of the  CBC’s supervisory tasks via contributions from the 
supervised entities19. 
3.1.4  Discharge of tasks on behalf of and in the exclusive interest of the Government or of other public 
entities  
The CBC  is designated as the sole supervisory authority for companies prov iding financial leasing 
services  in its own name and not on behalf of any other authority. T here is no indication that in 
discharging its supervis ory function the CBC acts exclusively in the interests of another public 
entity.  
3.1.5 Extent to which conflic ts of interests with existing CBC tasks are addressed and the performance of 
tasks fits into the CBC ’s institutional set -up in the light of central bank independence and 
accountability considerations  
The conferral of these tasks on the CBC does not, prima facie, raise any issues of conflict of interest. The performance of these tasks fit s smoothly into the CBC’s institutional set -up, and do es 
not raise any issues arising out of central bank independence and accountability considerations.  
3.1.6 Extent to whi ch the performance of tasks is proportionate to the CBC ’s financial and operational 
capacity and its ability to perform its ESCB -related tasks  
As noted above, in order to remain financially independent, NCBs must have sufficient means to carry out not only  their ESCB -related tasks from an operational and financial point of view, but also 
their national tasks. In this regard the ECB welcomes the fact that the draft law provides  that the 
CBC’s costs for supervision of financial leasing companies will be coved by the industry.   
3.1.7  Extent to which the performance of tasks harbours substantial financial risks   
The draft law contains  provisions excluding or limiting the liability of the CBC as the  authority 
responsible for  the supervision of  financial leasing companies for any act or omission or other 
breach of any legal obligation when exercising supervisory powers  except if s uch an act or 
omission was not done in good faith or is the result of negligence.  In contrast, the liability regime for 
the CBC when conducting its supervisory powers over credit institutions is excluded, unless it is 
shown that the act or omission was not done in good faith or was the result of gross  negligence
20. 
The ECB considers that it would be useful to align the CBC’s liability under  the draft law  with the 
liability regime for the CBC when conducting its supervisory powers over credit institutions,  given 
that potential liability issues could represent financial risk s for the CBC.  
3.1.8  Conclusion  
The ECB considers that there are grounds for  regarding the CBC’s task of supervising financial 
leasing companies as a central banking task  in the sense that it complement s the CBC’s existing 
bank supervisory functions. The fact t hat the performance of the new supervisory function will be 
                                                 
19  See Section 26(3) of the Business of Credit Institutions Laws of 1997 to 2015, which similarly empowers the CBC to 
require credit institutions to pay to it all the fees, related to their supervision and inspection in accordance with CBC  
directives.  
20  Article 32(1) of the Business of Credit I nstitutions Laws of 1997 to 2015. See also Principle 2 of the ‘ Core Principles 
for Effective Banking Supervision’  setting out that the supervisor and its staff should be protected against lawsuits f or 
actions taken and/or omissions made while discharging their duties in good faith.  
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7 financed by  supervised entities has  a positive impact on the CBC’s  financial capacity to assume  
those tasks. However, the ECB considers that the draft law potentially creates  financial risks for  the 
CBC because it does not limit the CBC’s  liability , as a public authority,  for damages caused in the 
course of the exercise of its new supervisory powers , in similar terms to the CBC’s liability in 
connection with its bank supervisory tasks . It would be useful to align the CBC’s liability under the 
draft law  with the liabil ity regime for the CBC when conducting its supervisory powers over credit 
institutions .  
3.2 Concerns over level playing field issues and opportunities for regulatory arbitrage  
The ECB welcomes the extension of the supervisory scope of national competent authorities to  
non-credit  institutions providing services similar or equivalent to those provided by supervised 
credit institutions for level playing field reasons and to avoid regulatory arbitrage.  
The ECB acknowledges that financial leasing companies are subject to minimum capital and other 
regulatory requirements. The ECB understands that the Cypriot authorities opted not to impos e 
explicit limits on leverage and liquidity requirements at this stage so as to offer wider opportunities 
for financing to new leasing companies, with a view to facilitating private debt restructuring, as 
mentioned in paragraph 2.1. Nevertheless, the ECB considers that it would be useful to explicitly 
clarify  limits on leverage and liquidity requirements for these new entities  at som e stage, and 
particularly in the event of the emergenc e of risks relating to regulatory arbitrage or of concerns 
about financial stability.  
3.3 Ancillary services 
The ancillary services to  leasing activities covered in the draft law appear  quite  broad. The ECB 
considers that ancillary services should be carefully considered, in order to guarantee the financial 
nature of the entities authorised to perform leasing activities. In this sense, typical real estate 
services should be outsourced.  
 
This opinion wi ll be p ublished on the ECB’s website.  
 
 
Done at Frankfurt am Main,  19 October 2015.  
 
[signed]  
 The President of the ECB  
Mario DRAGHI