EN ECB-PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 26 November 2013 
on the licensing, regulation and supervision of cooperative credit institutions  
(CON/2013/81) 
 
Introduction and legal basis 
On 3 September 2013, the European Central Bank (ECB) received a request from the Minister for 
Finance of the Republic of Cyprus for an opinion on a series of proposed amendments to Cypriot banking 
legislation (hereinafter the ‘amending laws’). Th e amending laws were adopted by the House of 
Representatives on 5 September 2013 and published in  the Official Gazette on 9 September 2013. 
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 of 29 June 1998 on the consultation of  the European Central Bank by national authorities 
regarding draft legislative provisions1, as the amending laws relate to ru les applicable to the Central Bank 
of Cyprus (CBC) and to financial in stitutions 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 amending laws 
1.1 General 
The amendments follow the need  to implement the Memorandum of Understanding between the 
Republic of Cyprus and the European Stability Mech anism, and specifically to bring the licensing, 
regulation and supervision of cooperative credit ins titutions (CCIs) into line with the regime for 
commercial banks by integrating these functions into the CBC. The amending laws are also intended to strengthen the corporate governance of  commercial banks and CCIs. Additionally, the 
amending laws put the Deposit Protection F und (DPF) for CCIs under the CBC’s general 
responsibility and specifically under the administra tion of the Deposit Protection and Resolution of 
Credit and Other Institutions Scheme. The ame nding laws amend the following legislative and 
regulatory instruments: 
1.2 The Business of Credit Institutions Laws of 1997 to (No. 3) 2013  
Several new provisions refer to the CBC’s licenci ng, regulation and supervision of CCIs. All 
legislative provisions currently applicable to ba nks are made applicable to authorised credit 
                                                 
1 OJ L 189, 3.7.1998, p. 42. 
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2 institutions (ACIs), which are defined to include  CCIs. CCIs are required to obtain a licence from 
the CBC before accepting deposits from the public and lending funds in the Republic of Cyprus or 
abroad. A CCI’s affiliation to the Cooperative Central Bank (CCB), which is the CCI’s central 
institute, requires the CBC’s prior approval under co nditions that are set by the CBC. Additionally, 
the solvency and liquidity of the CCB and the CCI s are subject to the CBC’s supervision, and CCIs 
are subject to the same liquidation and winding up rules applicable to commercial banks. CCIs are 
prohibited from providing cross-border services prior to 31 March 2014. Additionally, existing 
regulations, directives and other administrative act s also apply to and shall be implemented by 
CCIs. 
Several amendments pertain to the corporate gove rnance of commercial banks and CCIs. ACIs are 
prohibited from having any credit exposure to in dependent members of their management bodies; 
credit exposure to non-independent members of  ACIs’ management bodies is permitted under 
certain conditions. The level of credit facilities av ailable to all non-independent members of ACIs’ 
management bodies is reduced to 10% of own funds  and the level of unsecured credit facilities to 
1% of own funds. Credit facilities available to  any non-independent member of the ACIs’ 
management bodies are limited to EUR 500 000, wher eas independent members are not allowed to 
obtain any credit facilities. An ACI’s credit exposure to shareholders who directly or indirectly 
hold more than 10% of their share capital is lim ited to 20% of own funds, and to 2% if the credit 
exposure is not secured with tangible security. ACIs are obliged to terminate the appointment of members of a management body whose facilities are in arrears, and the restrictions imposed in 
relation to members of a management body extend to their related persons, including their spouses 
and dependents. 
ACIs are prohibited from acquiring or dealing in their own shares for their own account without the 
CBC’s prior approval. They are also prohibited from financially assisting in the acquisition of their own shares, or shares of their holding or subsidiary companies. 
1.3 The Laws on Cooperative Societies of 1985 to (No. 3) of 2013 
Several provisions refer to the transfer of th e licensing, regulatory and supervisory powers over 
CCIs from the Cooperative Societies Authority to the CBC. Basic terms have been introduced 
which will govern CCIs’ ordinary shares so they are classified as Common Equity Tier-1 capital in 
accordance with Regulation (EU) 575/2013 of th e European Parliament and the Council of 
26 June 2013 on prudential re quirements for credit institutions and investment firms
2. 
The external audit of CCIs’ accounts whose si ze exceeds the limit set by the CBC will be 
performed by independent auditors instead of  the Cooperative Societies Audit Service. The 
independent auditors will be appointed by a CCI’s  general assembly and will be approved by the 
CBC. 
                                                 
2  OJ L 176, 27.6.2013, p. 1. 
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3 Arrangements are introduced for the recapitalisa tion of the CCB and CCIs through the acquisition 
of capital from the Republic of Cyprus, and CCIs are prohibited from lending to individuals who 
are not their members. 
The liquidation of CCIs will be ca rried out in accordance with the provisions of the Business of 
Credit Institutions Laws and the Companies Law, a nd provisions have been introduced to facilitate 
CCI mergers. 
The amendments also include provisions under which the Law on the Financial Ombudsman is 
applied to the arbitration framework of CCIs. In  addition, the CBC Code of Conduct in relation to 
the management of loans or other credit fac ilities in arrears is also applied to CCIs. 
The Deposit Protection Scheme for CCIs is under the CBC’s responsibility and will be governed by 
the provisions of the Law on the Deposit Protection and Resolution of Credit and Other Institutions 
Scheme. 
1.4 The Laws on the Central Bank of Cyprus of 2002 to 2013 
Amendments have been introduced to generally re flect that the supervision of CCIs  is brought 
within the CBC’s regulatory and s upervisory competence, and restrictions have been imposed on 
CBC officers from holding office in ACIs or from pa rticipating in the capital of ACIs, without first 
obtaining approval from the CBC’s Board. 
1.5 The Law on the Deposit Protection and Resoluti on of Credit and Other Institutions Scheme  
The main purpose of the amendments is to impl ement the transfer of the DPF of CCIs under the 
administration of the Management Committee of the Deposit Protection and Resolution of Credit 
and Other Institutions Scheme. 
 2. Appropriate time to consult the ECB The consulting authority sent the request for an opi nion only two days before  the amending laws were 
adopted by parliament. The consultation request did not  make any reference to such timetable and did not 
indicate such a deadline for prepari ng the opinion. Pursuant to Article 4 of Decision 98/415/EC, the ECB 
must be consulted at an appropriate stage in the le gislative process. This implies that the consultation 
should take place at a point in the legislative process that allows the ECB sufficient time to examine the 
draft legislative provisions and adopt its opinion, and the national authorities to take into account the 
ECB’s views in accordance with Decision 98/415/EC. Therefore, the ECB would appreciate the consulting authority honouring its obligation to consult the ECB in good time in future.  
 3. Principle of central bank independence  
3.1 The principle of central bank independence requir es Member States to ensure that national central 
banks (NCBs) have sufficient financial resources to perform European System of Central Banks or 
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4 Eurosystem-related tasks as well as their own national tasks3. Pursuant to the Laws on Cooperative 
Societies of 1985 to (No. 3) of 2013, the pow ers of licencing, regulation, supervision and 
imposition of supervisory measures over CCIs ar e transferred from the Cooperative Societies 
Authority to the CBC. The transfer of these task s to the CBC should not affect the CBC’s ability to 
carry out its Eurosystem-related tasks from an ope rational and financial point of view. In this 
respect, the new CBC functions should be performed in a manner that is fully compatible with the 
CBC’s institutional and financial independence a nd consequently should not impede the proper 
performance of its Eurosystem-related tasks. Th e CBC should be able to collect fees for the 
performance of its new supervisory tasks that bega n on 9 September 2013. In this respect, the ECB 
welcomes that pursuant to Section 26(3) of the Business of Credit Institutions Laws, the CBC has 
the power to demand that authorised credit institu tions, including CCIs, pay to it the costs relating 
to their supervision, thereby safeguarding its fina ncial independence. The ECB understands that the 
CBC has put in place a regulatory framework implemen ting Section 26(3) of the Business of Credit 
Institutions Laws under which the supe rvised entities pay supervisory fees. 
3.3 The ECB understands that the transfer of ju risdiction and power from the Cooperative Societies 
Authority to the CBC as regards CCIs provided by  the Laws on Cooperative Societies of 1985 to 
(No. 3) of 2013 does not involve any transfer  of liabilities. Provisions under which an NCB 
becomes the legal successor to any liabilities of a specific supervisory authority may raise issues in 
regard to financial independence and compliance wi th the prohibition of monetary financing laid 
down in Article 123(1) of the Treaty4, read in conjunction with Council Regulation (EC) No 
3603/93 of 13 December 1993 specifying definitions fo r the application of the prohibitions referred 
to in Articles 104 and 104b (1) of the Treaty5. 
 This opinion will be published on the ECB’s website.   Done at Frankfurt am Main, 26 November 2013. 
 
[signed]  
 
The President of the ECB 
Mario DRAGHI 
                                                 
3 See, inter alia,  the ECB’s Convergence Report of June 2013, p. 30 , paragraph 3 of Opinion CON/2011/69 and paragraph 
2.3 of Opinion CON/2012/52.All ECB opinions are publis hed on the ECB’s websit e at www.ecb.europa.eu. 
4 See paragraph 3.2.3 of Opinion CON/2010/33. 
5 OJ L 332, 31.12.1993, p. 1.