EN ECB -PUBLIC  
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 22 July 2014   
on the resolution of credit and other institutions  
(CON/2014 /60) 
 
Introduction and legal basis  
On 23 May 2014 , the European Central Bank (ECB) received a request from the Minister for Finance of 
the Rep ublic of Cyprus for an opinion on a draft law (hereinafter the ‘draft law’) amending the Resolution 
of Credit and Other Institutions Laws of 2013  (hereinafter the ‘ Law’)1. 
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/EC2, as the draft law relates to  the Central Bank of Cyprus (CBC) and to rules applicable to 
financial institutions insofar as t hey materially influence the 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  
The draft law amends  certain  provisions of the  Law, with the overall aim of  improv ing the operational 
effectiveness and efficiency of the CBC in its resolution tasks . More s pecifically, the draft law:   
(a) designat es the CBC  as the Resolution Author ity (the CBC in its capacity as resolution authority is 
hereinafter referred to as the ‘Resolution Authority ’);  
(b) establishes  the Resolution Committee of the Resolution Authority , which is composed of the 
CBC’s Governor and the two executive members of the CBC’s Board of Directors and whose 
primary responsibilit ies are to  implement the provisions of the Law  and to take decisions and issue 
decrees ; 
(c) establish es a resolution u nit within the CBC,  the main duty of which is to assist the Resolution 
Authority and t he Resolution Committee in the exercise of their duties ; 
(d) confers on  the CBC , in its capacity as the competent supervisory authority, the power to decide 
whether an institution is no longer viable or likely no longer to be viable, after consultation with th e 
Resolution Committee ; and 
                                                 
1  Law 17(I)/2013, as amended.   
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).  
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2 (e) inserts  new sections  into the Law, empowering the Resolution Authority to collect information and 
conduct investigations for the exercise of its responsibilities and to impose administrative fines in 
the event  of breaches  of the  Law.  
 
2. General observations  
Directive 2014/59/EU of the European Parliament and of the Council (hereinafter the ‘ BRRD ’)3 lays 
down rules and procedures that must  be transposed by the Member States by 31 December 2014 . The 
ECB understands that the fram ework established under the  Law,  as amended by  the draft law once it has 
been adopted,  will be reviewed in due course in order to ensure full transposition of the BRRD  into 
Cypr iot law. This framework will also be reviewed to ensure  full consistency with a ll developments at 
Union level , such as the provisions of the proposed r egulation on the  Single Resolution Mechanism 
(hereinafter ‘the proposed SRM regulation’)4, when the latter  has been adopted and enters into force .  
Once the proposed SRM regulation is applicable, the Single Resolution Board of the Single Resolution 
Mechanism ( SRM ) will be responsible for institutions : (a) that are considered significant under the terms 
of Council Regulation (EU) No 1024/20135; (b) in relation to which the ECB has decide d to exercise 
directly itself all the relevant powers in accordance with Regulation (EU) No 1024/2013; o r (c) that 
constitute other cross -border groups6. However, the Resolution Authority  will still retain some  tasks in 
relation  to institutions  under the r esponsibility of the Single Resolution Board . According to the proposed 
SRM regulation, national resolution authorities will be required to  assist the Single Resolution Board in 
resolution planning and in preparing resolution decisions for institutions under the Single Resolution 
Board’s responsibility. The national resolution authorities should implement the resolution scheme 
established by the Board by exercising resolution powers and tools in relation to the institutions  in 
question.  
 
3.  Appropriate ti me to consult the ECB  
The ECB received the consultation request on 23 May 2014 . The ECB notes that the draft law has already  
been  enacted and was published in the Official Gazette of the Republic on 30 June 20147. The 
consultation request did not refer to such timetable and did not indicate a deadline for preparing the 
opinion. Pursuant to Article 4 of Decision 98/415/EC, the ECB must be consulted at an appropriate stage 
in the legislative process. This implies that the consultation should take place at a p oint in the legislative 
process that allows the ECB sufficient time to examine the draft legislative provisions and adopt its 
                                                 
3  Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the 
recovery and resolution of credit institutions and investment firms (OJ L 173, 12.6.2014, p. 190).  
4  Proposal for a regulation of the European Parlia ment and of the Council establishing uniform rules and a uniform 
procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution 
Mechanism and a Single Bank Resolution Fund (COM (2013) 520 final). Se e also Outcome of the European Parliament’s 
first reading, 23 April 2014, available on the Council’s website at www.consilium.europa.eu.  
5  Council Regulation (EU) No 1024/2013 of 15  October 2013 conferring specific tasks on the European Central Bank 
conc erning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63).  
6   Article 6a of the proposed SRM regulation.  
7  Law 90(I)/2014, Episimi Efimerida tis Dimokratias, Annex . Ι(Ι), No. 4450, 30.6.2014  
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3 opinion, and the national authorities to take into account the ECB’s views in accordance with Decision 
98/415/EC. Therefore, the E CB would appreciate the consulting authority honouring its obligation to 
consult the ECB in good time in the future.  
 
4. Specific observations   
4.1 The Resolution Authority  
 The ECB welcomes the draft law as it substantially improves the operational effect iveness and 
efficiency of the Resolution Authority  and allocates sole responsibility  to the CBC  for the 
execution of tasks which are broadly consistent with the CBC’s financial stability role. 
Furthermore,  the ECB understands that these tasks do not interf ere with the performance of the 
CBC’s  Eurosystem -related tasks provided for in the Treaty and do not prejudice the financial 
means necessary for carrying out the CBC’s  Eurosystem -related tasks. Any involvement of the 
CBC  and the members of its decision -making bodies in measures to strengthen financial stability 
must be compatible with the Treaty and, consequently, with the CBC’s  institutional and financial 
independence, as well as with the personal independence of the members of its decision -making 
bodies s afeguarding the proper performance of their tasks under the Treaty and the Statute of the 
European System of Central Banks and of the European Central Bank8.   
4.2 Separation and operational independence of supervisory and resolution tasks  
 The draft law  provides that the CBC  must  take all measures necessary to ensure : (a) the effective 
separation between its supervisory tasks pursuant to the Central Bank of Cyprus Laws of 2002 to 
(No 3) of 20139 and its resolution tasks laid down in the draft law ; (b) oper ational independence of 
its supervisory tasks pursuant to  the Central Bank of Cyprus Laws of 2002 to (No  3) of 2013 and 
its resolution tasks  laid down in the draft law;  and (c) adequate expertise, resources and operational 
capacity to apply the resolution measures10. The draft law  further provides that  the Resolution 
Authority must have access to all information in the possession of the competent supervisory 
authorit y that is  necessary for the implementation of the resolution measures and the exercise of its  
tasks11.  
 In accordance with  the draft law , the CBC  will also establish a resolution u nit consisting of C BC 
staff members12. The staff of the resolution unit will be structurally separate from the staff involved 
in carrying out the CBC’s  supervisory tasks and must  report directly to the Resolution Committee . 
The ECB takes note of the solution adopted in the draft law which is one of the organisational 
arrangements that can  ensure  the effective separation and operational independence between  the 
CBC’s  super visory tasks and its resolution tasks , as well as the expertise and the operational 
capacity of the CBC  to implement any of the Resolution Committee’s decisions.  
                                                 
8  See Opinion CON/2013/3, paragraph 3. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.  
9  Law 138(I)/2002.  
10  Section 5(6) of the draft law.  
11  Section 5(13) of the draft law.  
12  Section 5A(2) of t he draft law.  
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4  The ECB welcomes this section of the draft law and reiterates that any resolution powers vest ed in 
the CBC  need to be functionally separate from its supervisory  and other  tasks, in order to ensure 
independence and to avoid conflicts of interest. That separation should not prevent the exchange of 
information and close cooperation between the resolu tion function  and the supervisory function13. 
4.3 Minister for Finance’ s consent to the Resolution Committee’s decisions   
 Under the  draft  law, the Resolution Committee, with the consent of the Minister for Finance,  where 
required,  may decide to adopt some of the  resolution measures provided for in the Law . The 
Minister for Finance ’s consent  is required in order to  apply the sale of operations tool without 
complying with the associated marketing requirements14, for the transfer of all or some assets, 
rights o r obligations of an institution under resolution to a bridge bank15, for the transfer of assets 
and rights to an asset management company16 and for the application of the bail -in tool17.  
 The ECB understands  that this requirement for the  Minister’s consent t o the Resolution 
Committee ’s decisions  is limited to situations where  a resolution measure with a direct fiscal 
impact or systemic implications  is being applied18. If so, i t would be preferable to make this clearer 
in section 7(1)  of the Law . 
4.4 Power s of the Resolution Authority to collect information and conduct investigation s  
4.4.1 The draft law includes new sections empower ing the Resolution Authority to collect information 
and conduct investigations for the exercise of its responsibilities and to impo se administrative fine s 
if it establishes that a person has acted in breach of any provision of the Law19. In addition, 
criminal offences are introduced for cases where a  person makes a false, misleading or deceitful 
statement as to any fact , or fails to su bmit facts in the course of providing information to the 
Resolution Authority20.  
4.4.2  The ECB acknowledges that both the CBC’s resolution function  and its supervisory function 
should have all the information -gathering and investigatory powers that are ne cessary for the 
exercise of their respective functions21. However, a ctivities such as requesting information and on -
site inspections should be coordinated to avoid duplication of tasks; in that sense, a possible 
solution would be to require that these activ ities should primarily be conducted by the supervisory 
function , wh ich, in such case, would be the main provider of  the information necessary to the 
Resolution Authority in order to prepare for the resolution of the institution.  
 
                                                 
13   See Opinion CON/2013/42, paragraph 2.2, and Opinion CON/2013/28, paragraph 2. 4. See also Article 3(3) of the BRRD.  
14  Section 9(9) of the Law.  
15  Section 10 of the Law.  
16  Section 11 of the Law.  
17  Section 12 of the Law.  
18  In accord ance with Article 3(6) of the BRRD.  
19  Sections 28A to 28D of the draft law.  
20  Sections 35 and 36 of the draft law.  
21  See Article 110(3) of the BRRD.  
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5 5. Credit institutions su bject to resolution measures  
The draft law provides that a decision of the Resolution Committee may be made in relation to a 
‘subsidiary’ of an affected institution, as well as in relation to the affected institution itself22. The ECB 
understands that the term ‘subsidiary’ may include companies incorporated in countries other than the 
Republic  of Cyprus . Therefore, it must be assumed that  the resolution measures contained in the draft law 
are intended also to apply to foreign incorporated subsidiaries of th e affected institutions. The ECB notes 
that these measures may only be enforceable against such foreign legal entities to the extent permitted 
under the foreign law applicable to them.  
 
6. Cooperation with the ECB  
6.1 According to the Law,  the supervisory  and resolution functions of the  CBC  will cooperate in a 
number of instances : for example , in determining whether a credit institution is no longer viable or 
is likely no longer to be viable  for the purpose of taking resolution measures in relation to an 
affected institution .  
6.2  As clarified in Section 2  above , following the forthcoming adoption and entry into force of the 
proposed SRM regulation the Resolution Authority will only be competent in relation to the 
resolution of institutions that do not fal l withi n the competence of the Single Resolution Board of 
the SRM . In order to ensure cooperation between the competent supervisory authority and the 
Resolution Authority once the proposed SRM regulation is adopted and enters into force,  the 
competent supervisory authority should only exercise its supervisory tasks and, in turn, decide that 
the affected institution is no longer viable or is likely no longer to be viable in respect of 
institutions for which both it and the Resolution Authority remain compete nt.  
6.3 In this regard, the EC B will assume the supervisory tasks conferred on it by Regulation (EU) 
No 1024/2013 on 4 November 2014. There is a need to ensure consistency during the period after 
which the ECB has assumed its tasks  under Regulation (EU) N o 1024/2013 , but before all the 
provisions of the proposed SRM regulation are applicab le (most likely from  1 January 2016). 
During this period, elements of the Law will apply to credit institutions under ECB supervision. 
Therefore,  the Resolution Authority  should  also be obliged to  cooperate  closely with the  ECB  in 
accordance with Article 3 of Regulation (EU) No 1024/2013 .  
6.4 The consulting authority is also requested to consider the provisions of the Law in order to ensure 
compatibility with the exclusiv e competence  of the ECB to authorise credit institutions and to 
withdraw authorisations of credit institutions under Regulation (EU) No 1024/2013 . Relevant 
procedures for conducting those tasks are provided for in Regulation (EU) No 468/2014 
(ECB/2014/17) of the European Central Bank23 (hereinafter the ‘SSM Framework Regulation’), 
which applies to public authorities and credit institutions. Both Regulation (EU) No 1024/2013 and 
                                                 
22  Section 8 of the draft law.  
23  Regulation (EU) No 468/2014 (ECB/2014/17) of the European C entral Bank of 16 April 2014 establishing the 
framework for cooperation between the European Central Bank and national competent authorities and with national 
designated authorities  (OJ L 141, 14.5.2014, p. 1).  
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6 the SSM Framework Regulation have primacy over the  Law and the  draft law , once the latter  is 
adopted . These national laws must therefore be read and applied in conjunction with the 
aforementioned Union -level regulations.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 22 July 2014.  
 
[signed]  
 
The President o f the ECB  
Mario DRAGHI