EN ECB-PUBLIC  
 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 23 July 2013 
on the supervision of cooperative credit institutions 
(CON/2013/51) 
 
Introduction and legal basis 
On 25 June 2013, the European Ce ntral Bank (ECB) received a request from the Ministry of Finance of 
the Republic of Cyprus for an opinion on two draft la ws (hereinafter the ‘draft laws’), which amend the 
Law on banking1 and the Law on cooperative societies2, respectively. 
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 si xth indents 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 provisions3, as the draft laws relate to the Central Bank of Cyprus (CBC) and to 
rules applicable to financial institutions insofar as they materially influence the stability of financial 
institutions and markets. In accordance with the first sen tence 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 laws 
1.1  The draft laws’ aim is to authorise the CBC to issue binding instructions to the Commissioner of 
the Co-operative Societies’ Supervision Authorit y (CSSA), which is currently responsible for 
supervising the cooperatives sector, thereby en abling the CBC to order the Commissioner to 
intervene at the level of individual cooperative credit institutions in regard to supervision. 
1.2  The Memorandum of Understanding on specifi c economic policy conditionality of 26 April 2013 
(hereinafter the ‘MoU’)
4 required Cypriot authorities to: (a) ensure that the regulation and 
supervision of cooperative credit institutions is in  line with that of commercial banks; (b) take 
responsibility for supervising cooperative credit institutions from the Ministry of Commerce, 
Industry and Tourism, and transfer this responsib ility to the CBC by the end of July 2013; (c) 
                                                 
1  Law 66(I) of 1997, as amended.  
2  Law 22(I) of 1985, as amended.  
3  OJ L 189, 3.7.1998, p. 42. 
4  Available on the European Commission’s website at www.ec.europa.eu . 
ECB-PUBLIC  
2 introduce, by the end of May 2013, legislation to authorise the CBC to instruct the Commissioner 
to intervene at the level of individual coopera tive credit institutions in regard to supervision5. 
1.3  According to the draft laws: 
(a)  the CSSA must provide all necessary data and information concerning cooperative credit 
institutions to the CBC to ensure th e stability of the financial system; 
(b)  the CBC may issue binding instructions to the Commissioner, where the CBC considers that: 
(i)  the capital adequacy, liqui dity and value of a coopera tive credit institution’s assets 
have been impaired or adversely affected, or there is a risk that these will be impaired 
or adversely affected; 
(ii)  there is a risk that the cooperative credit  institution’s ability to meet its obligations in 
relation to its depositors or creditors may be impaired or it is necessary to take 
measures to safeguard interest s of depositors or creditors; 
(iii)  the cooperative credit institution fails to  comply with its obligations under the law. 
1.4  Under the proposed amendments, the CBC may instruct the Commissioner to take, inter alia , the 
following specific measures in relation to a cooperative credit institution: 
(a) increase its share capital; (b) restore its funds to the required minimum level; (c) make adjustments to the in stitution’s corporate governance a nd the terms of its business, 
operation or its licence. 
 2. General observations on the draft laws The ECB welcomes transferring supervision of cooperativ e credit institutions to th e CBC, in line with the 
terms and conditions of the MoU. The ECB  notes that the draft laws are the first step agreed in the MoU 
towards the CBC assuming supervision of cooperative credit institutions. In this respect, the consulting 
authority may wish to indicate the transitional nature of  the draft laws, clarifying that their provisions are 
to remain in force until the new supervisory re gime for cooperative credit institutions has been 
introduced, at which time supervisi on of cooperative credit institutions will be fully transferred to the 
CBC, in line with the MoU. 
 
                                                 
5  Paragraph 1.13 of the MoU. 
ECB-PUBLIC  
3 3.  Specific observations on the draft laws 
3.1  With a view to reinforcing the efficiency of the draft laws, the consulting authority may wish to 
consider clarifying, in the draft law amendi ng the Law on cooperative societies, that the 
Commissioner has a duty to fully comply with the CBC’s instructions with regard to the specific 
measures to be applied to a cooperative credit institution. The ECB notes that the corresponding 
amendment to the Law on banking is clear on this point. 
3.2  Under new Section 35(3) of the draft law am ending the Law on banking, the CBC may, after taking 
into consideration whether the cooperative cred it institution is licenced under section 41B(1)(a) of 
the Law on cooperative societies or through affilia tion with the central body pursuant to section 
41B(1)(b) of that same law, issue binding instruc tions to the Commissioner to take the measures 
specified by the CBC. Since the dr aft laws’ purpose is to allow the CBC to intervene at the level of 
individual cooperative credit institutio ns in regard to supervision, regardless of whether they are 
affiliated, the consulting authority may wish to e liminate the above distinc tion made in the draft 
law amending the Law on banking. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 23 July 2013 
 
[signed] 
 
The President of the ECB 
Mario DRAGHI