EN ECB- PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 16 August 2019   
on the sale and purchase of credit facilities  
(CON/20 19/30) 
 
Introduction and legal basis  
On 6 June 2019 the European Central Bank (ECB) received a request from the Ministry of Finance of 
Cyprus  for an opinion on a draft law amending the Law on the sale and purchase of credit facilities of 
20151 (hereinafter the ‘draft law’ ). On 9 July 2019 the Ministry of Finance submitted a new request for an 
opinion on a revised version of the draft law.  
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 a nd the third and sixth indent s of Article 2(1) of Council Decision 
98/415/ EC2, as the draft law relates to the Central Bank of Cyprus (CBC)  and rules applicable to financial 
institutions insofar as they materially influence the stability of financial insti tutions and markets , and the 
tasks conferred on the ECB  pursuant to Article 127(6) of the Treaty concerning policies relating to the 
prudential supervision of credit institutions. 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 aim of the draft law is to improve certain aspects of the Law on the sale and purchase of credit 
facilities of 2015 (hereinafter the ‘ Law’). In brief, the Law governs the sale  and purchase of credit 
facilities in Cyprus and grants the CBC  the power to authorise, regulate and supervise entities that 
wish to engage in transactions  for the acquisition  and sale of credit facilities . 
1.2 The Law currently applies to credit facilities afforded to an individual or to a small or micro 
enterprise or group of affiliated enterprises the total balance of which does not exceed EUR 1 
million, above which threshold the Law is not applicable.  The draft law abolishes th is threshold  and 
provides for exemptions  from the Law’s scope of application in respect of transactions that are 
subject to foreign law , the Law on securitisation of 20183 or the Law on transfer of banking 
activities of 19974. The draft l aw also removes existing exempt ions from the Law’s scope of 
application with respect to credit facilities  that (a) have been granted by a credit institution or a 
branch  of a credit institution to a natural person  not permanently domiciled in Cyprus or to a legal 
                                                 
1  Ο περί Αγοραπωλησίας  Πιστωτικών Διευκολύνσεων και για Συναφή Θέματα Νόμος του 2015 (Ν. 169( I)/2015).  
2  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).  
3  Ο περί Τιτλοποιήσεων Νόμος του 2018 ( N. 88(I)/2018).  
4  Ο περί της Μεταβίβασης Τραπεζικών Εργασιών και Εξασφαλίσεων Νόμος του 1997 (Ν. 64( I)/1997).  
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2 entity not registered in Cyprus ; or (b) concern activities or investments outside Cyprus ; or (c) are 
secured by a mortgage on an immovable property or an encumbrance located outside Cyprus.  
1.3 The draft law also expands the list of legal persons enti tled to purchase credit facilities  under the 
Law, by adding institutions that  engage in immovable property transactions in accordance with the 
Law on credit agreements for consumers relating to residential immovable property of 20175 and 
legal entities that  have secured the prior written consent of the CBC following a substantiated and 
duly justified  application that explains why they are not required to apply for authorisation as a 
credit acquiring compan y. The Law currently provides that a  seller of cr edit facilities needs to be 
one of the entities eligible to purchase credit facilities or any other legal entity that has secured the 
CBC’s  prior written consent  for this purpose. T he draft law removes this requirement and simply 
allows  eligible purchasers to  acquire  credit facilities from a ny non-authorised entity in possession of 
such credit facilities.  
1.4 Further more , the draft law  establishes a framework for the licensing of credit servicers by the CBC 
and brings credit services under t he CBC’s supervisory scope . The draft law sets out the 
application procedure for the licensing of servicers  and the procedures for the suspension and 
termination of these licence s. It provides that a ny material changes that affect the information or 
documents submitted to the CBC as part of that procedure, the appointment of any member of the 
management of an authorised servicer and any increase or decrease in  any special participation 
rights in the o wnership structure of authorised servicers must  be notified to and, where appropriate, 
approved by the CBC.  The draft law also sets out the rules as regards the appointment of servicers 
by entities authorised to carry out credit activities in accordance wi th the Law, which include the 
requirement to enter into a written agreement with these  entities governing the servicing of the 
credit facilities portfolio.  The CBC may determine the minimum terms and requirements of such 
agreements  by way of issuing direct ives. 
1.5 The draft law also allows credit servicers that  engage in the collection and recovery of debt 
collection and the renegotiation with borrowers of the terms of credit facilities to obtain  access to 
data related to serviced credit facilities . In particular, credit servicer s may submit  request s to the 
CBC for ac cess to the CBC’s credit registry  as regards the credit facilities they are to manage, and 
the CBC may accept  or reject such request s. A request may only be granted for the purpose of 
servicing the credit facilities in accordance with the relevant outsourcing agreement and on  the 
basis of  the criteria  and terms  and conditions  laid down by the CBC by way of issuing directives  or 
in any other manner . If the CBC approves  a request, the servicer will  also be entitled to  have  
access to the database of the Department of Lands and Surveys . The explanatory memorandum 
notes  that such access to data will enable credit servicers to assess the borrowers’ 
creditworthiness, resultin g in a more effective evaluation of their repayment ability and in 
improvement of the propos ed restructuring solutions, and that  this is in compliance with Regulation 
(EU) 2016/679 of the European Parliament and of the Council6. 
                                                 
5  Ο περί Συμβάσεων Πίστωσης για Καταναλωτές σε σχέση με Ακίνητα που προορίζονται για Κατοικία Νόμος του 2017 
(Ν. 41(I)/2017).  
6  Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of 
natural persons with regard to the processing of personal data and on the free movement of such data, and  
repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1).  
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3 1.6 In addition,  the draft law provides that entities that intend to sell credit facilities  must  notify their 
security providers , as well as the  underlying borrowers and their guarantors , and provide them with 
the opportunity to submit within 45 days from the date of notification a proposal for the purchase of 
the relevant credit facilities. It also introduces an e xemption from  this ex ante notification 
requirement in respect of  credit facilities sold within the same group of companies . The trans feror, 
at the time of the transfer and/or on the date of publication of the notice to the relevant 
governmental departments , must notify , free of charge,  the registrar of the competent c ourt and the 
Department of Lands and Surveys  in relation to any proceedings which are pending before them , 
and such notification will constitute a final notification with regard to the transfer of the underlying 
credit facilities  and their finality . The draft law requires t he Registrar of Companies, the Department  
of Lands and Surveys, the Cyprus Stock  Exchange and any other relevant governmental  
department to update their records to show the name of the new holder  of the credit facilities . The 
transfer of c redit facilities and collateral pursuant to the Law should not be subject to any charges  
or tax7. 
1.7 Finally, the draft law expands the ex  post notification requir ement to cover not only underlying 
borrowers, but also security providers  and guarantors , the Registrar of Companies, the Department 
of Lands and Surveys , the Cyprus Stock  Exchange and other relevant government al departments . 
Accordingly, the seller and the purchaser are required (a) within 15 days from the transfer of the 
credit facilities to jointly and by post notify the underlying borrowers, the security providers  and the 
guarantors  of the transfer of the credit facilities and related collateral of the contact details of the 
persons that will be handling these  facilities and  the updated account details,  and (b) on the dat e of 
the transfer or no later than the next business day  to jointly and by means of personal service notify 
the above mentioned governmental departments of the sale and transfer of the credit facilities and 
provid e them with the necessary information  for th e purposes of updating their records .   
 
2. General observations  
2.1 The ECB recalls  that it was consulted on the draft version of the Law and issued  its observations in 
Opinion CON/2015/458. 
2.2 Tasks of the  CBC  
2.2.1  The draft law complements the CBC’s existing tasks, particular ly in respect of the supervision of 
regulated financial service providers and regulated businesses. However, it does not confer 
genuinely new tasks on the CBC in this area. For example, in respect of credit acquiring 
companies, the CBC already has powers to authorise and supervise such entities, to make them 
subject to the CBC’s directives, and to take enforcement measures against them9. Conseq uently, 
the issue of assessing the conferral of new tasks on a national central bank (NCB) from the 
perspective of the prohibition of monetary financing does not arise10. The ECB notes , in any event, 
that the principle of financial independence requires that the Member States may not put their 
                                                 
7  See Article 17 of the draft law , which amends Article 18 of the Law , for the provisions referred to in this paragraph.  
8  All ECB opinions are published on the ECB’s website at www.ecb.europa.eu .  
9 See Articles 17, 20 and 21 of the Law . 
10 See paragraph 3.1 of Opinion CON/2018/27 and paragraph 2.1 of Opinion CON/2018/31.  
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4 NCBs in a position where they have insufficient financial resou rces to carry out their E uropean 
System of Central Banks  (ESCB) or Eurosystem -related tasks11. Therefore,  when allocating 
specific non -ESCB  related tasks to the NCBs, additional personnel and financial resources must 
also be allocated so that these tasks may be carried out in a manner that will not affect the NCBs’ 
operational or financial capacity to perform their ESCB  or Eurosystem -related tasks12. 
2.2.2  Furthermo re, the ECB  notes that, according to the Law , credit acquiring co mpanies must pay an 
annual fee of EUR 3 000 in order to cover the costs incurred  by the  CBC in carrying out its 
supervisory fun ctions13. The ECB wishes to reiterate that a more flexible mechanism for 
determining the fee level would be more appropriate, with a view to safeguarding the CBC’s 
financial independence.  For example, it may be useful to include a provision in the L aw that will 
allow the fees to be increased, if ne eded14. In addition, the ECB  suggest s that the legislator 
considers whether, for the sake of consistency, the Law should also cater for  the reimbursement of 
the CBC for  costs incurred  in the context of  the licensing and  supervision of credit servicers.    
2.3 Impact on secondary  markets for credit institution assets  
2.3.1  The ECB has been a strong proponent of the development of secondary markets for bank assets, 
particularly non -performing loans (NPLs), as reflected in the Council’s action plan to tackle NPLs in 
Europe15. In the context of the large stocks of NPLs that remain on the balance sheet of some 
European credit institutions, and as part of a comprehensive solution to NPL resolution16, the 
development of secondary markets may contribute to reducing NPLs. Lookin g ahead, well -
functioning secondary markets may also prevent stocks of NPLs building up in the future17. 
2.3.2  Moreover, a well -functioning secondary market may have a positive effect on financial stability to 
the extent that it c ould facilitate the transfer of the risks of NPLs off credit institutions’ balance 
sheets . The presence of significant volumes of NPLs on credit institutions’ balance sheets reduces 
their ability to fulfil their function as providers of credit to the real econ omy and hampers the 
operational flexibility and overall profitability that are essential to a well -functioning banking sector. 
It is essential that the legal framework  applicable to secondary markets enables the efficient 
transfer of NPLs off the balance s heet of credit institutions18. 
2.3.3  While risk transfer through asset sales, securitisation and other measures may be effective in 
reducing NPLs, risk reduction measures remain, nevertheless, an important channel, particularly in 
a context where NPL stocks are h igh. In that regard, and in the context of a comprehensive 
solution to NPL resolution, the originating credit institutions’ internal procedures for handling the 
work -out of NPLs themselves will always remain important19. 
                                                 
11   See paragraph 2.4.1 of Opinion CON/2015/45.  
12  See paragraph 2.2.5 of Opinion CON/2017/32 and paragraph 3.2.3.5 of Opinion CON/2018/16.  
13  See Article 16 of the Law.   
14  See paragraph 3.1.1, 3.1.6 and 3.1.8 of Opinion CON/2015/45.  
15  See the Council’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non- performing 
loans in Europe’, available on the Council’s website at www.consilium.europa.eu  
16  See, for e xample, Section B of the ECB’s November 2016 Financial Stability Review , ava ilable at  
www.ecb.europa.eu . 
17 See paragraph 2. 2.1 of Opinion CON/2018/31 and paragraph 1.1 of Opinion CON/2018/54.  
18  See paragraph 2.2.2 of Opinion CON/2018/31 and paragraph 1.2 of Opinion CON/2018/ 54. 
19  See paragraph 2.2.4 of Opinion CON/2018/31.  
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5 2.4 Impact on securitisation 
2.4.1  The ECB has  a strong interest in the sustainable revival of the European securitisation market. As 
a form of asset -based financing with the capacity both to channel flows of credit to the real 
economy and to transfer risk, securitisation has particular significance f or the transmission of 
monetary policy. A healthy European securitisation market is important to ensure  well-functioning 
capital markets in the Union. Particularly where credit institutions’ capacity to lend to the real 
economy is constrained, securitisati on can act as a fresh source of funding and free up capital for 
lending.  Securitisation may also have a positive effect on financial stability to the extent that it can 
facilitate the transfer of the risks of NPLs off credit institutions’ balance sheets20. Securitisation is 
one of a variety of options  that banks may apply alone or in combination with other measures , such 
as borrower -creditor engagement , to address the issues posed by  NPLs21.  
2.4.2  The ECB understands that the draft law intends to exempt securitisation s from its scope. The ECB 
welcomes this intention, as this will ensure that the draft law does not discourage securitisation 
activity22.  
2.5 Interaction with prospective Union legislative measures  
2.5.1  Finally, the ECB notes that on 3 March 2018, the Commission published its proposal for a Directive 
of the European Parliament and of the Council on credit servicers, credit purchasers and the 
recovery of collateral23. This proposal seeks to set out a common Union framework and 
requirements for credit serv icers, credit purchasers, and for the recovery of collateral in respect of 
credit agreements concluded with business borrowers, with a view to ensuring a high level of 
consumer protection and a level playing field across the Union. If  this proposed Directi ve is 
adopted by the European Parliament and the Council , its provisions will be transposed into Cypriot  
law, potentially requiring further amendment of the rules applicable to credit ownership and credit  
servicing24.  
 
3. Specific observations   
3.1 The ECB takes note of the abolition of the current threshold of EUR 1 million , above which the Law 
is not applicable as regards sales of credit facilities to natural persons and micro and small 
enterprises. The ECB understands that , by abolishing th is threshol d, the Law will become  
applicable as regards any kind of credit transaction undertaken by the entities set out  in the Law, 
except in respect of transactions which  are subject to foreign law , securitisation s and transfer s of 
banking activities.  It is unders tood that, as a result of this amendment, any entity wishing to engage 
in credit transactions in Cyprus will need to comply with the requirements of the Law and,  in 
particular , with authorisation requirements and ex  ante and ex  post notification requirements.  
3.2 The ECB also takes note of  the expansion of the list of legal persons entitled to purchase credit 
facilities under the Law and,  in particular , the inclusion of legal entities that have been granted prior 
                                                 
20  See paragraphs 3.1.1 and 3.1.2 of Opinion CON/2018/16 and paragraph 2.3.1 of Opinion CON/2018/31.  
21  See paragraph 2.3.1 of Opinion CON/2018/31 . 
22  See paragraph 2. 3.2 of Opinion CON/2018/31.  
23  COM (2018) 135 final . 
24  See paragraph 2. 4.5 of Opinion CON/2018/31.  
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6 written consent from the  CBC25. It is understood that  these legal entities will not fall within the 
supervisory scope of the CBC and that, in particular, t he provisions concerning changes to 
qualifying holdings, suspension and revocation of authorisation, supervision , minimum capital, 
assessment of management bodies, submission of information and the carry ing out of 
investigations apply  only in relation to credit  acquiring companies and credit  services26. The 
consulting authority may nonetheless consider whether these provisions should also apply to legal 
entities that have obtained the CBC’s prior written consent . In addition, from a technical drafting 
perspective, the words ‘or natural  person ’ in Article 4 of the draft law  may need to be removed as 
the rest of the provision refers only to legal persons.    
3.3 As regards the revised ex  post notification requirements, the ECB understands that by requiring the 
transferor and the transferee to notify not only the underlying borrowers  as regards completed 
credit transactions  but also their guarantors and security providers , as well as the r elevant 
governmental department s27, the legislator may have inte nded to achieve greater transparency  and 
to ensure that the records held by these departments are kept up to date.  However , the consulting 
authority may need to consider the potential implications that the requirement to notify the 
guarantors and security providers  might have  in practice,  and in particular whether it might create a 
risk of  judicial challenge  on procedural grounds , for example in a situation where one security 
provider  has not been properly notified  or not notified at all , and whether this may potentially create 
an obstacle to the smooth execution of transactions  for the sale and purchase of credit facilities .  
3.4 The draft law requires  the CBC  to issue  a directive governing the procedure for approving or 
rejecting applications for authorisation of credit  servicer s28. The ECB understands that, on the 
basis of this provision, the CBC will not be able to consider any applications submitted by credit 
servicers until it has first issued a directive setting out the applicable procedure that it would need 
to follow. This , however, may have the consequence of delaying the practical implementation of the 
Law with regard to the granting of authorisations to servicers  until such time as the CBC  issues the 
relevant directive. It is therefore proposed that the wording of the relevan t article should be revised 
in a manner that would allow, rather than require, the CBC to issue a  directive regulat ing its internal 
authorisation procedure.  
3.5 The ECB also takes note of the intragroup exemption introduced with regards  to the  ex ante 
notification requirements. It is understood that the purpose  of this exemption is to alleviate the 
notification burden in respect of credit transactions carried out within the same group of 
companies29.   
3.6 Finally , the ECB reiterates its understanding that the Cypriot authorities opted not to impose 
express limits on leverage and liquidity requirements  on credit acquiring companies , in order to 
                                                 
25  See paragraph 1.3,  and Article 4(f) of the Law  (as inserted  by Article 4 of the draft law ). 
26  See Articles 6, 8, 9, 10, 11, 12, 13 and 14 of the Law, respectively.  
27  See paragraph 1.7.  
28  See Article 4A(4) of the Law, as added by Article 5 of the draft law.  
29  The term ‘group of companies’ is defined in the draft law by reference to the Companies Law, Cap 113, as a group of 
companies comprising the holding company and the subsidiary company or companies.  
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7 offer wider opportunities for new companies entering the market for such services, with a view to 
facilitatin g private debt restructuring30.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 16 August 2019 . 
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
30 See paragraph 3.3 of Opinion CON/2015/45.