EN ECB-PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 17  March 2016 
on the establishment and operation of immo vable property conveyancing organisations 
(CON/2016/16) 
 
Introduction and legal basis 
On 5 February 2016 the European Central Bank (ECB) received a request from the Cypriot Minister for 
Finance for an opinion on a draft law establishing and regulating how immovable property conveyancing 
organisations operate (hereinafter 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 and the third indent of Article 2(1) of Council Decision 98/415/EC1, as 
the draft law relates 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 
1.1 The purpose of the draft law is to create a new category of institution (‘escrow institutions’) whose 
aim is to safeguard the interests of immovable property buyers. The draft law requires any 
immovable property transfer to be carried out throug h an escrow institution that provides contract 
management and immovable property transfer services pursuant to the provisions of the draft law. 
As noted in the explanatory memorandum accompanying the draft law, escrow institutions will 
ensure that immovable property transfers will take place as soon as the buyer has fulfilled his contractual obligations. The draft law regulates the terms and conditions governing the licensing 
and operation of the escrow institutions providing these services. It also entrusts the CBC with authorising, regulating and supervising these institutions.  
1.2 The draft law addresses the need in Cyprus for title deeds to be issued more quickly, an issue 
which is being addressed in the framework of the economic adjustment programme for Cyprus.  
1.3 Under the draft law, only escrow institutions that are incorporated in Cyprus and licensed by the 
CBC may provide contract management and immovable property transfer services
2. In addition, the 
draft law sets out the types of activities that escrow institutions will carry out, as well as the 
obligations they must meet during the performance of their duties3. Furthermore, the draft law 
                                                 
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 8(1) and 8(2) of the draft law. 
3  See Article 7 and 21 of the draft law. 
ECB-PUBLIC  
2 defines the CBC’s supervisory and regulatory powers with respect to escrow institutions, including 
the power to take enforcement measures and impose sanctions, and puts in place a comprehensive legal framework that regulates these institutions and the services they provide. 
1.4 The draft law sets out the application procedure that an escrow institution must go through to 
obtain authorisation, including the documentation th at the applicant institution must submit to the 
CBC. It also stipulates that the CBC will only grant an authorisation if specific conditions are met. In 
particular, the CBC must be satisfied that the escrow institution: (a) is in a position to fully comply 
with the draft law and the CBC directives adopted on the basis of the draft law; (b) has 
shareholders with the capacity to ensure the organisation’s sound and prudent management; (c) has members of its administrative body in good standing with sufficient knowledge, 
qualifications and experience to carry out their duties; and (d) has no close professional or personal links with any other entity or individual that, in the CBC‘s opinion, could prevent the CBC from 
carrying out effective supervision
4. There are also provisions requiring individuals to notify the CBC 
of any changes to their special holdings in escrow institutions5, which will have to be approved by 
the CBC. In cases where an individual fails to follow the notification procedure set out in the draft 
law, the CBC Governor may impose administrative fines of up to one million euro. If the infringement continues, the Governor may impo se administrative fines ranging from 200 to 
100 000 euro for each day that the infringement continues
6. 
1.5 The draft law also sets out: (a) the CBC’s super visory powers over escrow institutions and other 
supervisory requirements relating to minimum capital requirements;, (b) the assessment of the 
company’s management body and key function holders; (c) the procedure for reporting to the CBC; (d) the CBC’s access to a company’s books and reco rds; (e) the CBC’s confidentiality duties; and 
(f) the imposition of supervisory measures and sanctions by the CBC
 7. 
1.6 The draft law gives the CBC the power, pursuant to its own directives and guidelines, to: (a) set out 
procedures to grant, suspend and revoke authorisation for institutions8; (b) determine the criteria 
for measuring the fitness and probity of shareholders, directors and key function holders9; 
(c) regulate the internal organisation and governance of escrow institutions10 and the fees charged 
by the institutions for the services they provide pursuant to the draft law and the Law on immovable 
property contracts and conveyancing11; and (d) to determine the sum insured and the method for 
determining the sum insured under professional lia bility insurance as well as the amount of the 
guarantee against liability as a re sult of professional negligence12. 
                                                 
4  See Article 8(5) of the draft law. 
5  See Article 16 of the draft law, which sets out the relevant qualifying thresholds and the procedure for the CBC’s 
approval. 
6  See Article 16(5) of the draft law. 
7  See Articles 18 to 23 and 29 to 32 of the draft law. 
8  See Article 12 of the draft law and Article 31(a) of the draft law. 
9  See Article 31(b) of the draft law. 
10  See Article 31(c) of the draft law. 
11  See Article 31(d) of the draft law. 
12  See Article 31(e) of the draft law. 
ECB-PUBLIC  
3 1.7 Finally, the draft law provides that the CBC has the power to require escrow institutions to pay all 
licensing and supervision costs in accordance with the CBC’s directives13. 
 
2. General observations 2.1 The ECB notes that the aim of the draft law is to provide legal certainty and confidence with regard 
to the transparency and safety of the sales process in the Cypriot real estate market. These 
measures will have an impact on the payment of arre ars that affect bank balance sheets in Cyprus, 
which may be indirectly beneficial to preserving financial stability in Cyprus. 
2.2 By giving the CBC specific regulatory and superv isory authority over escrow institutions, the draft 
law is primarily aimed at ensuring that these institutions carry out their activities properly that 
individuals and organisations that purchase real estate in Cyprus are adequately protected.  
2.3 The ECB underlines that, as regards conferring new tasks on a central bank within the European 
System of Central Banks (ESCB), it is necessary to assess such a conferral against the prohibition 
of monetary financing under Article 123 of the Treaty
14. The ECB has developed the guidance set 
out in paragraphs 2.3.1 to 2.3.3 of this Opinion, in the form of general and specific considerations, 
on the basis of which it may determine 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 the 
monetary financing prohibition. The concrete assessment of whether the CBC’s task of supervising 
escrow institutions should be considered a central banking task or a government task is addressed 
in paragraph 3.1 of this opinion. 
2.3.1 General considerations  
First, genuinely new tasks, or those tasks that do not  form an integral part of the central banking 
tasks already assigned to an NCB in the past , must be systematically categorised as central 
banking or government tasks. In recognition of the Member States’ diverse legal frameworks, 
central 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 fi nancial resources to carry out their ESCB- or 
Eurosystem-related tasks.  
Third, central banking tasks comprise in particular those tasks that are related to the ones listed in 
Article 127(2), (5) and (6) of the Treaty. 
Fourth, new tasks conferred on an NCB that are atypical of NCBs’ tasks, or which are clearly 
discharged on behalf of and in the exclusive interest of the government or of other public entities, 
should be considered as government tasks.  
                                                 
13  See Article 8(7) of the draft law. 
14  See paragraph 2.3 of Opinion CON/2015/22. All ECB opinions are published on the ECB’s website at 
www.ecb.europa.eu. 
ECB-PUBLIC  
4 2.3.2  Specific considerations  
An important criterion for qualifying a new task as a government tasks is the impact of the task on 
an NCB’s institutional, financial and personal independence. In particular, the following should be 
taken into account. 
First, it should be assessed whether the performance of the new task will create inadequately 
addressed conflicts of interests with existing central banking tasks, without necessarily 
complementing the existing central banking tasks. If a conflict of interest arises between existing 
and new tasks, there should be sufficient mitigation measures in place to adequately address that 
conflict. Complementarity between the new task and existing central banking tasks should not, however, be interpreted broadly, as this could lead to the creation of an indef inite chain of ancillary 
tasks. The assessment of the complementarity of a new task should also take into account the financing of that task. 
Second, it should be assessed whether, without new financial resources, the performance of the 
new task places a disproportionate burden on the financial or organisational capacity of the NCB concerned, and may negatively impact its capacity to properly perform existing central banking 
tasks.   
Third, it should be assessed whether the performance of the new task is aligned with the 
institutional set-up of the NCB, in particular as regards central bank independence and 
accountability considerations. 
Fourth, it should be assessed whether the performance  of the new task entails substantial financial 
risks. 
Fifth, it should be assessed whether the perfor mance of the new task expose the members of the 
NCB’s decision-making bodies to political risks that: (a) are disproportionate; (b) could have an impact on their personal independence, including, in particular the guarantee of the term of office 
under Article 14.2 of the Statute of the Europea n System of Central Banks and of the European 
Central Bank. 
2.3.3 Any final assessment on the qualification of a task given to an NCB as either falling within the 
scope of  central banking tasks or government tasks should be guided by the objective of ensuring that the prohibition of monetary financing within the Eurosystem and the ESCB is consistently 
applied, to the extent that it applies to its members. 
 
3. Specific observations  
3.1 Conferring the task of supervising escrow institutions on the CBC 
The draft law designates the CBC as the supervisory authority for escrow institutions. This 
broadens its current functions and activities, which include supervising the activities of authorised credit institutions, including asset management activities
15 and other financial institutions, and 
                                                 
15  In accordance with Article 6(2)(d) of the Laws of 2002 to 2007 on the Central Bank of Cyprus, the CBC exercises 
supervision of banks. Banks are allowed to provide asset m anagement services by virtue of item 11 in Annex IV to 
the Laws of 1997 to 2015 on the business of credit institutions. 
ECB-PUBLIC  
5 ensuring the stability of the financial system16. In the light of the guidance set out in 
paragraphs 2.3.1 to 2.3.3, it must be assessed whether the CBC’s new task constitutes a breach of 
the prohibition of monetary financing.  
3.1.1  Principle of financial independence  
The principle of financial independence requires NCBs to have sufficient means to carry out not 
only their ESCB-related tasks, but also their national tasks, from an operational and financial 
perspective17. Further, when allocating specific non-ESCB-related tasks to the NCBs, additional 
staff and financial resources must also be allocated so that these tasks can be carried out in a 
manner that will not affect the NCBs’ operationa l capacity to perform their ESCB-related tasks18. In 
this regard, the draft law provides that the CBC ha s the power to require that escrow institutions 
pay all the costs related to their licensing and supervision in accordance with the CBC directives19, 
so as to safeguard the CBC’s financial independence.  
3.1.2 Links to tasks listed in Article 127(5) of the Treaty  
Supervision over escrow institutions can be consi dered a task that is primarily designed to provide 
legal certainty and confidence with regard to the transparency and safety of the sales process in 
the Cypriot real estate market. Escrow institutions can further improve the payment of arrears of buyers and sellers of immovable properties, thus affecting the balance sheets of banks, which 
could indirectly assist in preserving financial stability in Cyprus. However , the ECB does not 
consider that the CBC’s tasks of su pervising escrow institutions is related to the financial stability 
and prudential supervisory tasks referr ed to in Article 127 (5) of the Treaty, or that it complements 
the CBC’s supervision of financial institutions or the CBC’s task of ensuring the stability of the 
financial system
20.  
3.1.3 Atypical tasks 
Currently, escrow institutions do not exist in other  Member States; as such, the supervision of such 
institutions is not assigned to any other ESCB member.  The ECB considers this new task to be 
completely atypical for an NCB.  
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 author ity of escrow institutions. Ensuring that these 
institutions carry out their functions properly  and that immovable/real property buyers are 
adequately protected are public policy objectives which do not fall within the objectives of a central 
bank. As such, the draft law is considered as conferring on the CBC a task that is exercised in the 
exclusive interest of the government and of other public entities. The performance of this task by the CBC raises issues of centra l bank independence and accountability, in particular with regard to 
                                                 
16  Article 6(2)(e) of the Laws of 2002 to 2007 on the Central Bank of Cyprus.  
17  See the ECB’s 2014 Convergence Report, p. 25. 
18  See, for example, paragraph 3.1.2 of Opinion CON/2016/6. 
19  See Article 8(7) of the draft law. 
20  Article 6(2)(e) of the Laws of 2002 to 2014 on the Central Bank of Cyprus. 
ECB-PUBLIC  
6 the CBC assuming accountability in  the governance of the someti mes contentious area of real 
estate transactions.  
3.1.5  Extent to which the performance of the new task is  aligned with the institutional set-up of the CBC 
The task conferred on the CBC by the draft law does not appear to fit into the institutional set-up of 
the CBC. The different nature of this new task, compared to those that are currently exercised by 
the CBC, means that it could not be readily assim ilated into any of the CBC’s existing departments. 
3.1.6  Extent to which the performance of tasks is pr oportionate to the CBC’s financial and operational 
capacity and its ability to perform its ESCB-related tasks 
As noted in paragraph 3.1.1, the draft law provides for the CBC’s costs for licensing and 
supervising escrow institutions to be covered by such institutions. However, conferring this task on 
the CBC raises questions concerning the CBC’s operational capacity. The CBC would need to 
ensure that it has the necessary staff with the a ppropriate skills that are considered essential for 
the supervision of these institutions. The CBC would also need to ensure that its capacity to 
perform its ESCB-related tasks and existing supervisory functions would not be affected by the assumption of these new tasks.  
3.1.7 Extent to which the performance of tasks  entails substantial financial risks 
The draft law contains provisions excluding or limi ting the CBC’s liability, as well as the liability of 
any CBC director or officer, for any act or omission committed during the exercise of powers and 
responsibilities vested in the CBC – either as a re sult of the draft law or as a result of any 
regulations issued pursuant to the draft law – unless such an act or omission was not carried out in 
good faith or was the result of gross negligence
21. The CBC’s liability under the draft law is aligned 
with the liability concerning its supervision of credit institutions.  
3.1.8 Conclusion  
The new task of supervising escrow institutions, and thereby protecting purchasers of 
immovable/real property, serves public policy objectives that fall outside the objectives of a central 
bank. This task is also atypical for an ESCB member and does not complement the CBC’s existing 
supervisory or financial stability functions. For th ese reasons, this task is not considered by the 
ECB to be a central banking task, and its conferral on the CBC thus raises issues of central bank independence and accountability, particularly since the task concerns the sometimes contentious 
nature of real estate transactions. 
It is acknowledged that requiring supervised escrow institutions to finance the new supervisory 
function will have a positive impact on the CBC’s financial capacity to assume the new task. In 
addition, it appears that no substantial financial risks are presented since the CBC’s liability under 
the draft law is aligned with its liability concerning its supervision of credit institutions. However, 
conferring the new task on the CBC raises questions regarding the CBC’s operational capacity to perform the task. The CBC would need to ensure that  it has the necessary staff, with appropriate 
                                                 
21  See Article 30 of the draft law. See also Principle 2 of the principles established by the Bank for International 
Settlements, setting out that the supervisor and its staff should be protected against lawsuits for actions taken and/or omissions made while discharging their duties in good faith.
 
ECB-PUBLIC  
7 skills, to supervise escrow institutions and ensur e that its capacity to perform its ESCB-related 
tasks and existing supervisory functions would not be affected. In view of these considerations, the ECB wishes to express considerable concern about the proposed assignment of this task to the 
CBC. 
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 17  March 2016. 
 
[signed] 
 The President of the ECB 
Mario DRAGHI