EN ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 4 April 2018  
on the creation of a securitisation framework  
(CON/20 18/16) 
 
Introduction and legal basis  
On 3 January 2018 the European Central Bank (ECB) received a request from the Ministry of Finance of 
Cyprus for an opinion on a draft securitisation law (hereinafter the ‘draft law’). On 22 February 2018, 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 Articl es 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/EC1, as the draft law relates to the Central Bank of Cyprus (CBC) and to rules applicable to 
financial in stitutions insofar as they 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  
1.1 The purpose of the draft law is to establish a framework for securitisations in Cyprus to facilitate 
the secondary market for loans which may in turn support the reduction of the high level of non-
performing loans (NPLs) of Cypriot banks. The draft law vests in the CBC the power to regulate 
and supervise securitisations in order to safeguard the proper functioning of the securitisation 
market in Cyprus.  
1.2 In particular, the draft law establishes the procedure that an originator w ould need to follow in 
order to notify the CBC that it intends to carry out a securitisation. The draft law provides that a 
securitisation special purpose entity (SSPE) set up by an originator may not commence its 
activities as a securitisation vehicle, unless the originator has notified the CBC in writing of its 
intention to carry out one or more securitisation transactions and has furnished the CBC with the 
necessary information required under the draft law.  
1.3 In the case of a traditional securitisation, t he notification must be accompanied by the information 
that the originator needs to supply to the CBC in order to enable the CBC to assess whether the 
servicer of the SSPE has sufficient resources to carry out its activities and whether a sound and 
prudent  management of the SSPE is achieved. The information required includes the amount and 
type of credit facilities to be securitised, the structure of the securitisation and the terms on which 
                                                 
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).  
ECB -PUBLIC  
2 the SSPE will issue the financial instruments. In the case of a sy nthetic securitisation, the 
notification to the CBC must be accompanied by such information as required under the draft law 
or any directives issued by the CBC under the draft law.  
1.4 The CBC will evaluate the information received on the basis of  the smooth functioning of the 
securitisation market in Cyprus and compliance with the provisions of the draft law and any 
directives or guidelines issued under the draft law. It must inform the originator within 20 days of 
receipt of the notification of its decision to oppose or not oppose the securitisation. An SSPE that 
fails to commence its activities within 24 months of the date on which the CBC adopt s its decision 
must begin the notification procedure again and resubmit all necessary information.  
1.5 For the purposes  of the draft law, only credit institutions, financial institutions and credit acquiring 
companies2 can act as originators. According to the draft law, originators are required to notify the 
underlying debtors, collateral providers and guarantors at least 45 days in advance of the transfer 
of exposures to an SSPE.  
1.6 Where the originator is a credit institution and a right of set -off in respect of the underlying 
exposures of the securitisation against credit balances held by the underlying borrower with that 
credit institution exists or is created during the securitisation, the draft law provides that the terms 
of the securitisation shall include provisions pertaining to such right. The draft law sets out a 
number of mitigating actions that should be taken in cases where such a right of set -off exists or is 
created during the securitisation. In addition, the draft law provides that an SSPE will be 
subrogated to all rights of the originator to collateral held by it for the purposes of securing the 
repayment of t he exposures and this subrogation will take place simultaneously with the transfer 
of exposures to the SSPE. The SSPE will assume all the rights and obligations of the originator 
and its ranking in respect of both the exposures and the related collateral.  
1.7 The draft law contains provisions on the true sale of the exposures to the SSPE. In particular, it 
provides that the method of transfer of exposures is to be agreed between the originator and the 
SSPE and that the transfer becomes final, irrevocable and b inding once the terms of such an 
agreement have been satisfied.  The draft law allows for the possibility for originators to transfer 
the exposures using a trust and clarifies that an insolvency procedure against the originator will 
have no impact on an SSP E, its rights or exposures.  
1.8 The draft law grants SSPEs both the right to borrow under credit facilities and the right to issue 
financial instruments. The financial instruments may be offered to professional clients or admitted 
to trading on a regulated market or on a multilateral trading facility.  
1.9 The draft law stipulates that an SSPE shall appoint a servicer for the day -to-day management of 
the securitised exposures under the terms of a management agreement. Prior to undertaking the 
servicing of the securitised exposures, the servicer may obtain from the originator such 
information as it deems necessary to properly evaluate the securitised exposures. The 
appointment of a servicer which is not the originator would need to be notified to the underlying 
borrowers and guarantors no more than five business days after the date of appointment. The role 
                                                 
2  For the purposes oft he draft law, a credit acquiring company  is a company incorporated in Cyprus and granted 
authorisation by the CBC pursuant to Law 169(I)/2015 on the sale of credit facilities and related issues.  
ECB -PUBLIC  
3 of servicer can be undertaken by credit institutions, financial institutions, credit acquiring 
companies or limited liability companies established in Cyprus. Limi ted liability companies need to 
apply to the CBC for authorisation in accordance with the draft law. The draft law sets out the 
application procedure for the licensing of limited liability companies as servicers, as well as the 
procedures for the suspension and termination of such a licence.  Any material changes that affect 
the information or documents submitted to the CBC as part of that procedure, the appointment of 
any member of management of authorised servicers and any increase or decrease of any speci al 
participation rights in the ownership structure of authorised servicers would each need to be 
notified to and, where appropriate, approved by the CBC.  
1.10 The draft law grants the CBC the power to supervise the activities of SSPEs and servicers. It sets 
out a number of requirements relating to the assessment of the management and key function 
holders of a servicer; the requirement for SSPEs and servicers to report audited financial 
statements to the CBC; the CBC’s right to conduct on- site investigations and have access to 
SSPEs’ and servicers’ books and records; the CBC’s confidentiality duties; and the supervisory 
measures and sanctions that may be imposed in relation to SSPEs and servicers.  
1.11 The draft law provides for the involvement of the CBC in the liqui dation of an SSPE by 
establishing a requirement for the CBC’s prior consent in the case of a voluntary liquidation of an 
SSPE and by entitling the CBC to initiate liquidation procedures and appoint a liquidator for an 
SSPE in certain circumstances.  
1.12 The dr aft law empowers the CBC to issue directives and guidelines and to regulate, inter alia: (a) 
the procedure for granting a licence to servicers; (b) the criteria for the aptitude and fitness of 
shareholders, directors and key function holders of servicers and SSPEs; (c) the internal 
organisation and governance of servicers; (d) the supervisory fee and other charges that the CBC 
may impose from time to time; and (e) the information required for the purpose of synthetic 
securitisations.  
1.13 The scope of the draft law is limited to the securitisation of credit facilities or other forms of 
receivables and/or exposures originated or acquired by credit institutions, financial institutions or 
credit acquiring companies, provided that the institution or company is an ent ity subject to 
supervision by a competent authority. For this purpose, a competent authority includes the CBC 
and, in the case of branches of credit institutions or financial institutions established in another 
Member State, the competent authority of the home Member State.  
 
2. Scope of the opinion  
This opinion focuses on: (1) specific aspects of the newly established securitisation framework 
(paragraph 3.1); and (2) the new tasks conferred on the CBC in to the context of the prohibition of 
monetary financing under Article 123 of the Treaty (paragraph 3.2).  
 
ECB -PUBLIC  
4 3. Observations  
3.1 Specific aspects of the newly established securitisation framework  
3.1.1  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 for the transmission 
mechanism of monetary policy. A healthy European securitisation market is important for well -
functioning capital markets in the Union. Particularly where credit institutions’ capacity to lend to 
the real economy is constrained, securitisation can act as a fr esh source of funding and free up 
capital for lending. The ECB has significant experience in the field of securitisation through the 
Eurosystem’s monetary policy operations. Considering the ECB’s monetary policy and macro-
prudential tasks, the ECB has part icipated actively in the public debate on regulatory initiatives on 
securitisation during which it has highlighted the benefits of sound securitisation markets, 
recommended differentiated capital treatment of securitisations and supported a prudent Union 
framework for simple, transparent and standardised (STS) securitisations3. 
3.1.2  The ECB welcomes the establishment of the framework for securitisation in Cyprus as it may 
enable the efficient transfer of non- performing loans (NPLs) off the balance sheet of credi t 
institutions. From a financial stability point of view, 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 economy and hampers operational f lexibility and overall profitability essential to a well -
functioning banking sector. As such, the draft law may have a positive effect on financial stability 
to the extent that it would result in the transfer of the risks of NPLs off credit institutions’ balance 
sheets4. In addition, by granting the CBC regulatory and supervisory authority over the 
securitisation activity of originators, servicers and SSPEs, the draft law intends to ensure that this 
activity is properly carried out and, more generally, to s afeguard the proper functioning of the 
securitisation market in Cyprus.  
3.1.3  The ECB takes note of the provisions of the draft law requiring originators to notify securitisations 
to the CBC.5 It would be worth clarifying whether the notification obligation woul d be equally 
applicable in cases where the SSPE has been set up by  a person other than  the originator which 
intends to carry out securitisation.  
3.1.4  The ECB wishes to express its concerns as regards the power granted to the CBC to oppose a 
securitisation  in advance, noting that such a power would be unusual in European securitisation 
markets  and the justification for having such a power is not clear . In particular, the provision of the 
draft law requiring the CBC to consider whether the securitisation will affect the smooth 
functioning of the securitisation market in Cyprus appears to be rather vague and it would be 
helpful to clarify exactly what is meant by it. The ECB also notes that the disclosure provisions of 
the draft law may be intended to facilitate the CBC’s assessment of compliance as regards 
specific entities regulated under  the draft law, such as SSPEs and servicers , with the relevant 
regulatory requirements . If this is the intention, then the ECB suggest s that the draft law clarif y 
                                                 
3  See paragraphs 2.1- 2.3 of Opinion CON/2016/11.  
4  See paragraph 3.2.1 of Opinion CON/2016/17 and p aragraph 2.2 of Opinion CON/2015/45.  
5  See Articles 5, 6 and 7 of the draft law.  
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5 that the submissi on of documentation relates to these regulatory requirements  and that non-
compliance with the disclosure provisions may result in the CBC’s refusal to authorise these 
entities to act in a particular securitisation. This  clarification  would reduce the possi bility of a 
vague evaluation of the merits of individual securitisations. In case this provision is retained,  and 
since  the draft law would also apply to securitisations established by credit institutions which are 
directly supervised by the ECB, it is nec essary to avoid any overlap between the supervisory 
competences of the ECB and the CBC. The ECB understands that the intention of the consulting 
authority is indeed to confine the role of the CBC under the draft law to matters falling out of the 
scope of t he ECB’s competences . It should therefore be clarified that the criterion in respect of  the 
smooth functioning of the securitisation market in Cyprus  does not overlap with the provisions of 
Regulation (EU) No 575/2013 of the European Parliament and of the Council6 as regards, for 
example, the assessment of whether a reduction in a risk -weighted exposure, through the means 
of securitisation, is justified by the transfer of credit risk to third parties.  
The consulting authority may wish to further consider the practical aspects of granting such a 
power to the CBC in order to ensure that the provision does not discourage securitisation activity. 
For instance, as currently drafted, the draft law implies that an originator would have already 
embarked on the process of setting up a securitisation and would have borne all relevant legal 
and advisory costs, before notifying the CBC of its intention to carry out a securitisation and 
furnishing the CBC with the required information. Furthermore, the requirement for the CBC to 
assess the ability of the servicer to carry out its activities under Article  5(2) of the draft law 
appears  redundant given that other provisions of the draft law require the authorisation of the 
servicer by the CBC. It is therefore not clear what a dditional standard would be applied under 
Article 5 of the draft law to assess the servicer’s capacity.  
3.1.5  The requirement imposed on originators to provide underlying borrowers, collateral providers and 
guarantors with 45 days’ prior notice of the proposed transfer of loans to an SSPE raises 
concerns7. It is noted that requiring the  prior notification of borrowers is inconsistent with the usual 
practice for true sale securitisations of performing assets in Member States with which the ECB 
has experience. Per forming assets securitised by way of true sale are, by definition, freely 
transferrable and their transfer is , in the ECB’s experience, ‘silent’, in the sense that the transfer  is 
not notified to borrowers. Primarily, this is due to the fact that much of a securitisation’s efficiency 
lies in the possibility of transferring large portfolios of exposures, often relating to thousands of 
borrowers, without the administrative costs of preparing letters to notify each borrower in order for 
the transfer to take ef fect legally. Notification  of a borrower  usually only takes place when an 
originator becomes insolvent or suffers another serious credit event. The introduction of s uch a 
notice requirement would create an unjustifiably heavy burden for originators, as regards both 
their operations and their resources, and may run the risk of creating an obstacle to the smooth 
execution of securitisations.  
                                                 
6  Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential 
requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 (OJ L 176, 
27.6.2013, p. 1).  
7  See Article 16(1) of the draft law.  
ECB -PUBLIC  
6 The ECB understands that the intention of including this requirement in the draft law is to reflect a 
similar provision  which exists in Cypriot Law 169(I)/2015 on the sale of credit facilities and related 
issues8, whereby , in contrast to the draft law, borrowers and guarantors are explicitly entitled to 
submit a counterproposal for the acquisitions of the credit facilities . In any case, where  the 
borrowers of loans being securitised wish to rearrange their financial transactions because of the 
securitisation, including to repay their loans  early , this could,  in principle,  also take place, to the 
extent permitted under their  loan contracts  after the securitisation has been established . 
Therefore a shorter notice period or even a general ex -post notification done through a publication 
in the official gazette of Cyprus, as is the case, for example, under the Italian Law of 1999 on 
securitisation, in particular Article 4(2) of that law9, could be an alternative. This could be 
combined with a right for any borrower to receive the information listed in Article 16(2) of the draft 
law upon request.  
3.1.6  In addition to the above, a shorter notice period or an ex post notification requirement would also 
better serve the securitisation of credit card receivables and trade receivables , which typically 
have a maturity of less than 30 days. The 45 days’ notice period,  currently foreseen under  the 
draft law , risks excluding the possibility of securitising real  economy linked assets with short -term 
maturities since the claims would already have been repaid before the notice period has expired.  
3.1.7  Furthermore, it is suggested that the assurances to be  provided by originators to borrowers under 
Article 16(2) of the draft law could simply be enshrined as guarantees with the force of law in the 
draft law itself without the need for originators to provide these legal assurances separately to 
each individua l borrower. In addition, it is noted that Article 16 of the draft law seems to concern 
true sale securitisations. Therefore, Article 16 of the draft law should be revisited to take account 
of the fact that there is no transfer or delivery of exposures in t he case of synthetic or trust -based 
securitisations  and thus some of the legal assurances are not applicable to securitisations of this 
kind. 
3.1.8  With regard to the provisions of the draft law on true sale in traditional securitisations10, the 
protection of the true sale is very comprehensive. While robust true sale protection is a welcome 
part of the draft law, even jurisdictions with strong true sale protections may allow a limited period 
to challenge asset transfers in the event of fraud, bad faith or an intention to defraud creditors.  
3.1.9  It is noted that there is a provision in the draft law that the transfer of underlying loans and related 
collateral may be recorded with, and registered by, inter alia , το Τμήμα  Κτηματολογίου  και 
Χωρομετρίας ( the Department of Lands and Surveys) and το  Τμήμα Εφόρου Εταιρειών και 
Επίσημου Παραλήπτη  (the Department of the Registrar of Companies and Official Receiver) free 
of char ge11. While there is merit in ensuring that such formalities will not incur any additional costs 
for the originator or the SSPE, it is not clear whether other entities would have to bear these 
                                                 
8  Ο περί Αγοραπωλησίας Πιστωτικών Διευκολύνσεων και για Συναφή Θέματα Νόμος του 2015 (169( I)/2015).  
9  Legge 130/1999 sulla cartolarizzazione dei credit i. See Article 4(2) of Law 130/1999 on securitisation and covered 
bonds.  
10   See Article 21 of the draft law.  
11  See Article 19 of the draft law.  
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7 costs, or whether costs would be waived for all entities. The co nsulting authority may wish to 
revisit the draft l aw to clarify this point.  
3.1.10  The ECB understands that it is quite common for Cypriot credit institutions to use the same asset, 
which in most cases is immovable property, as collateral for more than one facili ty granted by a 
credit institution to the same borrower (so called cross -collateralisation). However, in cases where 
the originator intends to securitise only part of its exposure towards certain debtors, a situation 
may occur where the originator will share legal rights over the same collateral with the SSPE. I t is 
suggested to avoid disputes , delays and standstill situations between the two parties in such 
situations if, for instance, the originator and the SSPE have a different recovery strategy . The 
smooth functioning of securitisations affected by cross -collateralisation can be ensured by either 
(a) the draft law providing for rules to address such conflicts in enforcement or (b)  the securitising 
parties address ing these risks at the outset of the secur itisation using contractual solutions.  
3.1.11  According to the draft law limited liability companies which the CBC may authorise as servicers 
need to be incorporated in Cyprus.12 The ECB understands that the reason for not expanding the 
scope of this provision to cover companies incorporated in other Member States is the lack of 
harmonisation of the rules on authorisation of servicers across the Union.13 Servicers established 
in other Member States would therefore need to incorporate a limited liability company in Cyprus 
in order to carry out servicing activities in Cyprus. The decision of servicing companies to do so 
may depend also on the requirement imposed by the draft law on such authorised companies to 
notify the CBC of any direct or indirect changes to their qualifying holdings and by the ability of the 
CBC to then permit or prohibit direct or indirect acquisitions of shareholdings14. It is therefore 
suggested that the criteria on the basis of which the CBC may decide to prohibit an acquisition be 
elaborated in the draft law and that it should be clarified what is meant by an evaluation of the 
suitability of the new shareholders.  
3.1.12  Furthermore, it is noted that the draft law contains potential safeguards against the potential 
reduction in the assets of the SSPE w hich might arise due to a debtor’s right of set -off15. The draft 
law provides that the negative impact that a debtor’s right to set -off the credit balances it holds 
with the originator  against the debtor’s exposures included in a securitisation shall be mit igated by 
the originator by creating blocked assets of at least equal value to the amount of that set off right 
for the benefit of the SSPE. The ECB understands that  while exercising the set -off constitutes a 
right, and not an obligation, of the debtor, if  this right exists in respect of exposures transferred in 
a securitisation,  it is the obligation of the servicer to take the necessary mitigating measures  once 
a set -off right is created or maintained in a securitisation. The obligation to fully collateral ise the 
liability arising out of such set -off risk, as prescribed in the draft law, would cause securitisations 
to be highly inefficient for originators, thereby reducing the incentives to use securitisation as a 
financing tool. The assets blocked to meet such set -off risk would serve only to make whole the 
                                                 
12  See Article 8 of the draft law.  
13  The consulting authority may wish to closely monitor the developments regarding the European Commission’s 
proposal for a Directive of the European Parliament and of the Council on credit servicers, credit purchasers and the 
recovery of collateral (COM(2018)135).  
14  See Article 12 of the draft law.  
15  See Article 17 of the draft law.  
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8 noteholders of the securitisation, and have no impact on the rights or position of underlying 
debtors. They therefore create additional protection for the investors of the securitisation.  
However, this c ould be so costly that the securitisation is not economical for either originators or 
investors. In other Member States, this type of protection is usually a commercial compromise 
provided for by way of a partial reserve, which is accounted for in the over all rating and risk 
premium, i.e. the interest rate of the notes issued by the SSPE. While mitigation measures may 
be necessary to protect noteholders , it is more efficient to leave originators and investors free to 
come to commercial agreements on the appropriate level of protection from set -off risk needed for 
each transaction, without prejudicing the economics of securitisation as a whole in the Cypriot 
market. It is therefore suggested to remove paragraph (2) of Article 17 on the obligation of the 
originator to collateralise the liability in respect of the set off right for the benefit of the SSPE from 
the draft law.  
Nevertheless, the ECB recommends that if it is commercially agreed in a securitisation to include 
the provision of additional collateral b y the originator, then the effectiveness of the collateral 
arrangement should be protected from the effects of the default, insolvency or restructuring of the 
originator. This would help facilitating that the securitised exposures are put beyond the reach of 
the originator institution and its creditors, including in bankruptcy and receivership16.  
3.1.13  Finally, in relation to the structure of the SSPE and the ring- fencing of its assets, it could be 
considered to address the possibility of multiple securitisations  by a single SSPE. The draft law , 
possibly in conjunction with amendments in other pieces of legislation, could provide statutory 
protection for distinct asset portfolios securitised and held by the same SSPE in order to reduce 
the legal, administrative and accounting costs of establishing a new SSPE for each individual 
securitisation. This type of protection is found, for example, in the compartment feature of the 
Luxembourgish Law of 2004 on securitisation, in particular Articles 5, 8, 33 and 62 of that l aw17.  
3.2 Conferral of new tasks on the CBC  
3.2.1  As noted in paragraph 1, the draft law confers new tasks on the CBC. The ECB underlines that a 
proposed conferral of tasks on a national central bank (NCB) in the European System of Central 
Banks (ESCB) must be asses sed against the prohibition on monetary financing under Article  123 
of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of Council Regulation (EC) 
No 3603/9318 defines ‘other type of credit facility’, inter alia, as ‘any financing of the public sector’s 
obligations vis -à-vis third parties’.  
Ensuring that Member States implement a sound budgetary policy is one of the key objectives of 
the monetary financing prohibition, which may not be circumvented.19 Therefore, the task of 
financing meas ures which are normally the responsibility of the Member States, and which are 
financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. 
In order to decide what constitutes a form of financing of the public sector’s obli gations vis -à-vis 
                                                 
16  See Article 243(5)(b) of Regulation (EU) No 575/2013.  
17  Loi du 22 mars 2004 relative à la titrisation.  
18  Council Regulation (EC) No 3603/93 of 13 December 1993 specifying definitions for  the application of  the 
prohibitions referred to in A rticles 104 and 104b(1) oft he Treaty (OJ L 332, 31.12.1993, p. 1).  
19  Article 123 of the Treaty also serves the objective of maintaining price stability and reinforces central bank 
independence.  
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9 third parties, which can be translated as the provision of central bank financing outside the scope 
of the central bank tasks, it is necessary to carry out, on a case- by-case basis, an assessment of 
whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a 
task within the responsibility of the Member States. In other words, adequate safeguards must be 
in place to ensure that circumventions of the objective of the monetary financing prohibition of 
maint aining a sound budgetary policy of Member States do not take place.  
3.2.2  As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 
Article 35.6 of the Statute of the European System of Central Banks and of the European Central 
Bank (hereinafter the ‘Statute of the ESCB’), to ensure that NCBs honour the obligations laid 
down by the Treaty, the Governing Council has endorsed safeguards of that kind in the form of 
criteria for determining what may be seen as falling wit hin the scope of a public sector’s obligation 
within the meaning of Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, what 
constitutes a government task as follows:  
First, central bank tasks are in particular those tasks that are related to the tasks that have been 
conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks 
are mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as 
Article  22 and Article 25.1 of the Statute of the ESCB.  
Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new 
tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the 
NCBs, are not precluded per se. However, new tas ks that are undertaken by an NCB and which 
are atypical of NCB tasks or which are clearly discharged on behalf of and in the exclusive 
interest of the government or of other public sector entities should be considered government 
tasks.  
Third, an important  criterion for qualifying a new task as atypical of an NCB task or as being 
clearly discharged on behalf of and in the exclusive interest of the government or other public 
sector entities is the impact of the task on the institutional and financial independence of that NCB 
and the personal independence of the members of that NCB’s decision- making bodies.  
In particular, the following aspects should be taken into account:  
(a) whether the performance of the new task creates conflicts of interest with existing central 
bank tasks which are not adequately addressed and does not necessarily complement 
those existing central bank tasks. If a conflict of interest arises between existing and new 
tasks, sufficient safeguards to mitigate that conflict should be in place. The 
complementarity between a new task and the existing central bank tasks should not be 
interpreted broadly, so as to lead to the creation of an indefinite chain of ancillary tasks. 
Such complementarity should be examined also in relation to the financing of those tasks;  
(b) whether without new financial resources the performance of the new task is 
disproportionate to the NCB’s financial or organisational capacity and may have a 
negative impact on the capacity to perform properly the existing central bank task s; 
(c) whether the performance of the new task fits into the institutional set -up of the NCB in the 
light of central bank independence and accountability considerations;  
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10 (d) whether the performance of the new task harbours substantial financial risks;  
(e) whether the performance of the new task exposes the members of the NCB decision -
making bodies to political risks which are disproportionate and may also have an impact 
on their personal independence and, in particular, on the guarantee of term of office set 
out in Ar ticle 14.2 of the Statute of the ESCB.  
3.2.3  On the basis of the criteria set out above, the following paragraphs assess whether the new tasks 
of the CBC are in line with the monetary financing prohibition.  
3.2.3.1  Tasks related to the tasks conferred upon the ECB and t he NCBs by the Treaty and the Statute of 
the ESCB  
The powers conferred on the CBC by the draft law cannot be considered as tasks conferred upon 
the ECB and the NCBs by virtue of the Treaty. The draft law provides that the powers conferred 
on the CBC to sup ervise the activities of SSPEs and servicers aim to safeguard financial stability 
in Cyprus20. These tasks are generally related to the ESCB’s contribution to the smooth conduct 
of policies pursued by the competent authorities relating to the stability of t he financial system 
pursuant to Article 127(5) of the Treaty. Moreover, as previously noted by the ECB21, 
Article  127(6) of the Treaty only permits the conferral of tasks on the ECB in policy areas relating 
to the prudential supervision of credit institutions. Accordingly, Council Regulation (EU) 
No 1024/201322 assigns to the ECB, for prudential supervisory purposes, the task of ensuring 
compliance by significant credit institutions with the relevant Union law that imposes prudential 
requirements in the area of securitisation. The conferral of supervisory tasks in the area of 
securitisation which are not primarily prudential in nature, but rather relate to product markets or 
investor protection, do not fall within the scope of Article 127(6) of the Treaty. The supervisory 
tasks conferred on the CBC under the draft law are not related, as such, to the prudential 
supervision of credit institutions , but rather to the securitisation market in Cyprus.  
3.2.3.2  Tasks which are atypical of NCB tasks  
The conferral of the power to oppose, regulate and supervise the activity of securitisations can be 
considered to be uncommon tasks for central banks in the Union. Only one other Member State 
has conferred such powers on its central bank23. However, the ECB understands that the 
under lying reason for allocating the new tasks to the CBC is linked to the CBC’s overall set of 
responsibilities for financial supervision in Cyprus. In this context, the ECB considers that the new 
tasks complement the CBC’s existing supervisory powers  over credit institutions, financial 
institutions and credit acquiring companies and thus contribute to the soundness of the financial 
                                                 
20  See Article 31 of the draft law.  
21  See paragraph 3 of  Opinion CON/2016/11.  
22  See Article 4(1)(d) of Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the 
European Central Bank concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 
29.10.2013, p. 63).  
23  This is the case in Hungary. In Ireland, the central bank is respons ible for the authorisation and supervision of credit 
servicing firms and in Portugal the central bank is responsible for the authorisation and supervision of credit 
securitisation fund management companies.  
ECB -PUBLIC  
11 market and the preservation of confidence in the marketplace.24 As such they are not atypical for 
an NCB of the ESCB.  
3.2.3.3  Tasks clearly discharged on behalf of and in the exclusive interest of the government  
The ECB notes that under the draft law the CBC will be responsible for supervising the conduct of 
SSPEs and servicers and their compliance with their obligations under the draft law. The CBC is 
already the competent authority responsible for the authorisation and supervision of credit and 
financial institutions and of credit acquiring companies. The CBC’s new tasks as the competent 
authority for the implementation and enforcement of the draft law therefore seem to complement 
its existing tasks, and have not been conferred on the CBC in the exclusive interest of the 
government or of other public entities.  
3.2.3.4  Extent to which performance of the new task creates conflicts of interest with exis ting central bank 
tasks 
Carrying out the new tasks conferred upon the CBC by the draft law does not appear to create 
conflicts of interest with other central bank tasks performed by the CBC.  
3.2.3.5  Extent to which performance of the new task is disproportionate t o the financial or organisational 
capacity of the CBC  
The principle of financial independence requires that the Member States may not put their NCBs 
in a position where they have insufficient financial resources to carry out not only their ESCB -
related tas ks, but also their national tasks, both from an operational and financial perspective. 
Furthermore, when allocating specific new tasks to the NCBs, additional personnel and financial 
resources must also be allocated so that these tasks may be carried out i n a manner that will not 
affect the NCBs’ operational or financial capacity to perform their ESCB -related tasks25. It is noted 
that the draft law provides that the CBC may issue directives, inter alia, on the annual supervision 
fee or any other fee that the CBC may impose from time to time.26 The CBC would also need to 
arrange for the necessary staff with the appropriate skills that are essential for the authorisation of 
securitisation activity, the supervision of the SSPEs and servicers and the enforcement of the 
draft law in order 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 tasks27.  
3.2.3.6  Extent to which performance of the new task fits into the institutional set-up of the CBC, in the 
light of central bank independence and accountability considerations  
Given the complementarity of the new tasks with the CBC’s existing powers, in particular in the 
field of supervision of credit institutions, financial institutio ns and credit acquiring companies, the 
new tasks appear to be aligned with the CBC’s institutional set -up. In addition, the performance of 
the new tasks does not appear to raise accountability or personal and institutional independence 
concerns.  
                                                 
24  See paragraph 2.3.2 of Opinion CON/2017/3.  
25  See paragraphs 2.1 and 2.2 of Opinion CON/2011/30.  
26  See Article 37(2) oft he draft law.  
27  See paragraphs 2.1 and 2.2 of Opinion CON/2011/30.  
ECB -PUBLIC  
12 3.2.3.7  Extent to which the performance of tasks harbours substantial financial risks  
The draft law provides that the CBC and its advisors or officers shall not be subject to any liability 
in case of any legal action or other legal proceeding for damages in relation to any act or omission 
in the performance of their duties related to the tasks conferred by the draft law or directives 
issued pursuant to the draft law, unless it is proven that such act or omission was done in bad 
faith or is a result of gross negligence. The performance of the new tasks would not, therefore, 
appear to harbour undue financial risks for the CBC.  
3.2.3.8  Extent to which performance of the new task exposes members of the decision- making bodies of 
the CBC to disproportionate political risks and impacts on t heir personal independence  
The performance of the tasks conferred under the draft laws does not appear to be exposing the 
decision -making bodies of the CBC to any disproportionate political risk or to impact the personal 
independence of the members of its decision -making bodies.  
3.2.4  Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing  
The ECB considers that the tasks conferred on the CBC under the draft law are new tasks. 
Nonetheless, the ECB understands that these tasks have been conferred on the CBC due to its 
overall set of responsibilities for financial supervision in Cyprus and that they appear to 
complement its existing supervisory powers over credit institutions, financial institutions and credit 
acquiring com panies. The CBC’s financing of the new tasks is in principle in compliance with the 
prohibition of monetary financing under Article 123 of the Treaty. It is, however, important that the 
Cypriot authorities ensure that the CBC can avail itself of sufficient  resources for the performance 
of these new tasks so that its capacity to perform its ESCB -related tasks is not affected.  
 
This opinion will be published on the ECB’s website.  
 
 
Done at Frankfurt am Main, 4 April  2018 . 
 
[signed]  
 
The President of the ECB  
Mario DR AGHI