EN ECB -PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 5 June 2013  
on changes to the governance of the Central Bank of Cyprus  
(CON/20 13/41) 
 
Introduction and legal basis  
On 18 April 2013, the European Central Bank (ECB) received a request  from the President of the House 
of Representatives of the Republic of Cyprus (hereinafter ‘the consulting authority’) for an opinion on a 
proposed amendment to the Central Bank of Cyprus Laws of 2002 to 20071. On 16 May 2013, the ECB 
received a revised version and, on 31 May 2013,  a furt her revised version  of the proposed amendment  
(hereinafter the ‘ draft  law’), and it is this last version which forms the basis for this opinion.  
The ECB’s competence to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Function ing of the European Union (hereinafter the ‘Treaty’) and the third  indent 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 provisions2, 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 
The draft  law provide s for the following:  
1.1 The composition of the  CBC’s  Board of Directors ( hereinafter the ‘Board ’) is modified by 
providing for seven directors instead of five, in addition to the Governor and the Deputy Governor. 
Two of the directors will be executiv e directors , while  the remaining five will be non- executive 
directors.  
1.2 Remuneration and other terms of tenure of the executive directors and the remuneration of the non-
executive directors are to be set by the Council of Ministers at the time of the direct ors’ 
appointment.  
1.3 The number of annual mandatory meetings of the Board is increased from six to twelve . 
1.4 The quorum for meetings of the Board is increased from four  to five  members . 
                                                 
1  Law 138(I)/2002 as amended and currently in force.  
2  OJ L 189, 3.7.1998, p.  42. 
ECB -PUBLIC  
2 1.5 Decision s relati ng to the CBC ’s policy, including licensing of banking inst itutions and amendments 
to existing banking licences, are to be adopted  by the Governor with the approval  of the Board . 
1.6 The Board will assign specific duties to the executive directors who , in turn, will assist the 
Governor in the management, supervision a nd control of the CBC ’s operations. Executive directors 
will be employed on a full-time basis.  
1.7 The composition of the  CBC’s  Personnel Committee is augmented by the inclusion of the two 
executive directors, and the quorum for meetings of the Personnel Commi ttee is increased from 
three  to four  members . 
1.8 An Audit Committee  compris ed of  three members of the Board , appointed by the Board and who 
will have no executive powers , is to be established and its function s will be to audit compliance 
with the corporate governance code, supervise the carrying out of internal administrative audit s and 
report to the Board. The Audit Committee may  also use  the services of an internal auditor.  
 
2. ECB observations on the draft law  
2.1 The ECB notes the consulting authority’s aim to facilitate the smooth functioning of the CBC’s 
decision -making bodies. I t nevertheless makes the following observations to the consulting 
authority, for its consideration. 
2.2 As a general remark, unless the executive directors and board members of a national central bank 
(NCB) are subject to the same legal requirements, and enjoy the same independence safeguards as 
the Governor of the NCB  concerned, any provision assigning ESCB -related tasks of the Governor 
to an executive director , or requiring the approval  of that  NCB’s Board for decisions of the 
Governor, raise s concerns about the Governor’s ability to independently carry out the  ESCB -
related tasks  assigned  to the Governor . This  would not be compatible with Article  130 of the Treaty 
and Article  7 of  the Statute of the European System of Central Banks and of the European Central 
Bank (hereinafter the ‘Statute of the ESCB’) . The Governor should not be influenced by an 
executive director or the members of the Board in the performance of ESCB -related tasks  which , 
under national law , are assigned  exclusively to the Governor . 
2.3 The ECB considers that the  draft law is unclear  with regard to the nature of the executive directors’ 
powers and the division of competence s between the Board and the Governor . In the case of 
Cyprus, the ECB understands that the  competences of the  CBC’s Governor stem both from primary 
Union law – in particular the Statute of the ESCB – and from the Constitution of the Republic of 
Cyprus3. Although the draft law purports to vest  two members of the Board with executive powers , 
in addition to the Governor, it does not specify the corporate governance arrangements applicable 
to the CBC once the draft law has entered into force . In the ECB’s view , the draft law should 
                                                 
3  It follows from Article 119 of the Constitution of the Republic of Cyprus that the Governor and Deputy Governor are 
independent State officials , with  clearly circumscribed powers and tasks . The same provision also provides that the 
Governor shall be in charge of the management of the CBC and shall exercise all powers and perform all functions and 
duties within the scope of the CBC’s competences.  
ECB -PUBLIC  
3 provide clarity in terms of : (a) the precise scope of the powers and tasks to be assigned to the 
executive directors, (b) the limits of the competence of the executive directors  when assisting the 
Governor , in particular as regards whether the executive directors will have decision -making 
power s4, and ( c) the position of the proposed executive directors in the CBC’s organisational 
structure , for instance, whether or not CBC staff members w ill report directly to the executive 
directors.  In particular, the independence of the Governor of the CBC should be reinforced by 
ensuring that the assistance provided by the executive directors to the Governor should be 
conducted under the supervision of the Governor. Without clarity in these respects, the ECB is 
concerned that the CBC’s dec ision -making processes  will be undermined.  
2.4 Clarification of the division of competences between the Board and the Governor is also necessary 
in order to ensure that the draft law does not interfere with central bank independence 
requirements. The ECB notes that, under Sections  15 and 17 of the Central Bank of Cyprus Law, 
(a) the Board has no competence in relation to matters which fall within the fields of competence of 
the European System of Central Banks (ESCB) ; and (b)  the Board , when exercising its  duties and 
tasks, should take due account of the Governor’s role as a member of the Governing Council and 
the General Council of the ECB. Sections  17 and 17A as amended or introduced by  the draft law 
provide  that the proposed amendments are without prejudice to the powers of the ESCB  and the 
ECB, and to the Treaty and the Statute  of the ESCB . Notwithstanding this , the ECB invite s the 
consulting authority to clarify the interplay between the powers newly granted to two of the 
members of the Board and the pr oposed governance structure’s compliance with the requirement s 
of central bank independence.  
2.5 The ECB would like to point to the fact  that there are currently a number of vacancies on the 
Board. Against this background, it is unclear why the number of Board members is being 
increased , taking into account : (a) the appointment  of executive directors ; and (b) the requirement 
for the approval  of the Board as regards decision -making in implementing  the CBC’s policy . 
Central bank independence needs a stable legal framework for the central bank’s functioning. 
Frequent changes to the legal framework may adversely affect the organisational and governance 
stability of an NCB and could therefore affect  its institutional independence.  
2.6 The ECB also has  concerns about measures which might  affect  the personal  independence of the 
Board members. To protect the CBC’s autonomy in staff matters, which is part of the principle of 
central bank independence under Article 130 of the Treaty, the Cypriot authorities have an obligation to ensure that any amendment to the legislative provisions on the remuneration of the 
CBC’s Board members is decided in cooperation with the CBC, taking due account of the CBC’s views
5. Furthermore, i n order t o comply with the Treaty requirements f or the personal 
independence of the members of an NCB’s decision -making bodies who are involved in the 
                                                 
4  For instance, Article 17 , as amended,  requires  the Board ’s approval  for decisions laying down and applying the CBC’s 
policy . 
5  See, paragraph 3.4 of ECB Opinion CON/2010/56.  All ECB opinions are published on the ECB’s website at 
www.ecb.europa.eu.  
ECB -PUBLIC  
4 performance of ESCB -related tasks, any adjustments  to salaries should not affect the terms under 
which the members concerned were appointed6. 
2.7 In ligh t of the above concerns, the ECB urges  the consulting authority to t ake appropriate steps in 
order to preserve the independence of the CBC and the  members of its  decision -making bodies 
involved in the performance of ESCB -related tasks.  
 
This opinion will b e published on the ECB’s website.  
  
Done at Frankfurt am Main, 5 June 2013.  
 
[signed]  
 
The President of the ECB  
Mario DRAGHI  
                                                 
6  See, for example, paragraph 3.5 of ECB Opinion CON/2010/56.