Opinion of the European Central Bank of 28 June 2006 at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law amending the Central Bank of Cyprus Laws of 2002 and 2003 (CON/2006/33)
Date: 2006-06-28
Institutions: European Central Bank
Subjects: Cyprus, audit, central bank, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 28 June 2006  

at the request of the Cypriot Ministry of Finance on a draft provision amending the draft law 

amending the Central Bank of Cyprus Laws of 2002 and 2003 

(CON/2006/33) 

Introduction and legal basis 

On  24  May  2005  the  European  Central  Bank  (ECB)  received  a  request  from  the  Cypriot  Ministry  of 

Finance  for  an  opinion  on  a  draft  provision  (hereinafter  the  ‘draft  provision’)  amending  the  draft  law 

amending the Central Bank of Cyprus Laws of 2002 and 2003 (hereinafter the ‘CBC Law’) in respect of 

the appointment of independent external auditors for the Central Bank of Cyprus (CBC).  

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article  105(4)  of  the  Treaty  establishing  the 

European Community 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 
provisions1,  as  the  draft  law  relates  to  a  national  central  bank.  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. 

Subject matter and background  

1.1  The  subject  matter  of  this  opinion  is  a  draft  provision,  the  purpose  of  which  is  to  resolve  the 

incompatibility  between  Section  60  of  the  CBC  Law,  which  deals  with  the  audit  of  the  annual 

financial statements of the CBC, and Article 27.1 of the Statute of the European System of Central 
Banks and of the European Central Bank2. In an earlier opinion on a draft law amending the CBC 
Law3,  the  ECB  commented  on  a  previous  draft  provision  to  amend  Section  60  of  the  CBC  Law, 

and emphasised the conditions for the correct application of Article 27.1 of the Statute.  

1  
2  
3  

OJ L 189, 3.7.1998, p. 42.  
This inconsistency was identified on p. 222 of the 2004 ECB Convergence Report. 
ECB Opinion CON/2006/4 of 27 January 2006 at the request of the Central Bank of Cyprus on a draft law amending the 
Central Bank of Cyprus Laws of 2002 and 2003. 

 
 
 
 
                                                      
1.2 

In  Opinion  CON/2006/4,  the  ECB  concluded  that,  notwithstanding  the  Auditor  General’s 
independence4  as  enshrined  in  the  Cypriot  Constitution5,  the  Audit  Office  of  which  the  Auditor 

General is the Head is not an external auditor within the meaning of Article 27.1 of the Statute and 
cannot, for that reason, be appointed as the CBC’s independent external auditor6.  

1.3  Reaffirming  its  view  on  this  matter7,  in  Opinion  CON/2006/4  the  ECB  also  concluded  that  the 

appointment of an independent external auditor, in accordance with Article 27.1 of the Statute, to 

audit the CBC’s annual financial statements once Cyprus has adopted the single currency, ‘will not 

prevent the Audit Office from continuing to perform a control function, provided that its auditing 

activities: (i) do not interfere with the review of European System of Central Banks (ESCB) related 

tasks of the CBC to be undertaken by the CBC’s independent external auditors to be approved by 

the  Council  of  the  European  Union  in  accordance  with  Article  27  of  the  Statute;  and  (ii)  do  not 
jeopardise the CBC’s independence’8. 

2. 

Assessment of the draft provision 

2.1 

In  line  with  the  previous  draft  law  amending  the  CBC  Law,  subsection  1  of  the  draft  provision 

provides that the financial statements of the CBC shall be audited in accordance with Article 27 of 

the Statute. The ECB welcomes this. 

2.2  However, there are still some elements that would need to be brought into line with the Statute as 

recommended in the previous ECB opinion. While subsection 1 of the draft provision provides that 

the financial statements of the CBC shall be audited in accordance with Article 27.1 of the Statute, 

subsection 2 gives the Cypriot Auditor General the power to conduct a full audit of the operational 

efficiency of the CBC as well as of its financial statements, in parallel with the audit conducted by 

the  independent  external  auditor  appointed  in  accordance  with  Article  27.1  of  the  Statute  and 

without providing for the necessary safeguards, referred to in the ECB’s earlier opinion, against the 

Auditor  General’s  interference  in  the  activities  of  the  CBC’s  independent  external  auditor. 

Similarly, subsection 3 of the draft provision fails to provide any limits to the Auditor General’s 

access to the CBC’s books and records. Finally, while subsection 4 of the draft provision provides 

that  the  Auditor  General  shall  not  question  the  merits  of  the  policy  objectives  of  the  CBC,  it 

4  

5  

6  
7  

8  

The  personal  independence  of  the  Auditor  General  is  guaranteed  under  Article  115.3  of  the  Cypriot  Constitution, 
according to which he or she is not to retire or to be removed from office except on the same grounds and in the same 
manner as a judge of the Supreme Court. 
Under Article 116(1) of the Cypriot Constitution, ‘[T]he Auditor General assisted by the Deputy Auditor-General shall, 
on behalf of the Republic, control all disbursements and receipts and audit and inspect all accounts of moneys and other 
assets  administered,  and  of  liabilities  incurred,  by  or  under  the  authority  of  the  Republic  and  for  this  purpose  he  shall 
have the right of access to all books, records and returns relating to such accounts and to places where such assets are 
kept’. 
Paragraphs 2.1. and 2.2 of Opinion CON/2006/4. 
As  expressed  in  paragraphs  5  to  7  of  ECB  Opinion  CON/2002/22  of  2  September  2002  at  the  request  of  the  Swedish 
Ministry of Finance on a draft legislative proposal establishing the National Audit, including proposed amendments to 
the Sveriges Riksbank Act (1988:1385).  
Paragraph 2.3. of Opinion CON/2006/4. 

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provides no safeguards against interference by the Auditor General in the activities of the CBC’s 

independent external auditor. 

2.3 

In order to bring the draft provision into line with the requirements of the Statute, as expressed in 

Opinion CON/2006/4, the scope of the control exercised by the Auditor General over the financial 

statements  of  the  CBC  should  be  clearly  defined  by  the  national  legal  framework  and  should  be 

without  prejudice  to  the  activities  of  the  CBC's  independent  external  auditor  as  laid  down  in 
Article 27.1  of  the  Statute9,  and  in  line  with  the  ECB’s  observations  in  paragraph  2.2.  of  this 

opinion. The ECB draws the consulting authority’s attention to its May 2006 Convergence Report, 

where  the  ECB  concluded  that  the  powers  of  auditors,  other  than  those  appointed  under 

Article 27.1  of  the  Statute,  are  compatible  with  central  bank  independence  when  the  necessary 
safeguards are in place10. Since neither the draft provision nor Cypriot law11 presently provide the 

requisite  safeguards,  the  ECB  notes  that  safeguards  in  line  with  the  conclusions  of  its  earlier 

opinion  should  be  introduced.  In  particular,  such  safeguards  should  include  guarantees  that  the 

Auditor  General  cannot  interfere  with  the  independent  external  auditor’s  control  of  the  ESCB-

related accounts of the CBC and that the Auditor General may not jeopardise the independence of 

the CBC. 

This opinion will be published on the ECB’s website. 

Done at Frankfurt am Main, 28 June 2006. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

9  
10  

11  

See ECB Convergence Report, May 2006, page 66, available at http://www.ecb.int/pub/pdf/conrep/cr2006en.pdf. 
Specific examples can be found at page 74 of the ECB Convergence Report of May 2006 (Appointment of Independent 
External Auditors),.ibid.  
The reference is to Article 116 (1) of the Cypriot Constitution, see footnote 7. 

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