Opinion of the European Central Bank of 26 October 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/2006/50)
Date: 2006-10-26
Institutions: European Central Bank
Subjects: Cyprus, audit, central bank, national law

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 26 October 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/2006/50) 

Introduction and legal basis 

On 13 October 2006 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 amending Section 60 of the CBC Law on the 

audit of the annual financial statements of the CBC in line with Article 27.1 of the Statute of the 
European  System  of  Central  Banks  and  of  the  European  Central  Bank2.  The  ECB  has  been 

consulted in the past on two earlier versions of draft provisions amending Section 60 of the CBC 
Law and refers to its previous opinions on these provisions3.  

1  
2  

3  

OJ L 189, 3.7.1998, p. 42.  
The  inconsistencies  of  Section  60  of  the  CBC  Law  with  the  Statute  are  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;  ECB  Opinion  CON/2006/33  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.  

 
 
 
 
                                                      
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. Reaffirming its 
view  on  this  matter7,  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. 

1.3 

In  Opinion  CON/2006/33,  the  ECB  reiterated  the  conclusions  reached  in  Opinion  CON/2006/4, 

also  drawing  attention  to  its  May  2006  Convergence  Report,  according  to  which  the  powers  of 

auditors, other than those appointed under Article 27.1 of the Statute, are compatible with central 
bank independence only when the necessary safeguards are in place9.  

2 

Assessment of the draft provision 

2.1   Subsection  1(a)  of  the  draft  provision  now  under  consideration  provides  that  the  financial 

statements  of  the  CBC  shall  be  audited  in  accordance  with  Article  27  of  the  Statute  and  that  the 

CBC  shall  provide  the  auditors  appointed  in  accordance  with  Article  27  with  full  information, 

books and other records that are necessary for the exercise of their duties. The ECB welcomes this 

subsection. 

2.2  Subsection  1(b)  of  the  draft  provision  provides  that  the  Auditor  General  may  carry  out  financial 

and  management  audits of  those  activities  of  the CBC  that  are  not  related  to  its  ESCB  tasks  and 

competences,  provided  that  his  reports  and  audit  activities  do  not  impinge  on  the  CBC’s 

4  

5  

6  
7  

8  
9  

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, ‘The 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. 
See, 
at: 
http://www.ecb.int/pub/pdf/conrep/cr2006en.pdf.  For  specific  examples  of  such  safeguards,  see  page  74  of  the  ECB 
Convergence Report of May 2006 (Appointment of Independent External Auditors), ibid. 

Convergence 

generally, 

available 

Report, 

2006, 

ECB 

page 

May 

66, 

2 

 
                                                      
independence.  The  ECB  also  welcomes  subsection  1(b)  and  the  draft  provision’s  definition  of 

management audit, which preclude any interference with the audit to be carried out by the CBC’s 

independent external auditors. 

2.3  The ECB thus considers the draft provision to be consistent with its earlier opinions in this matter 

and recommends (as an alternative to the initial wording on which the ECB was consulted by the 
CBC10)  its  incorporation  in  the  draft  law  amending  the  CBC  Law  as  the  appropriate  means  of 

adapting,  in  this  particular  case,  national  audit  arrangements  to  the  requirements  of  Article  27 of 

the Statute and, in particular, to the principle of central bank independence. 

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

Done at Frankfurt am Main, 26 October 2006. 

[signed] 

The President of the ECB 

Jean-Claude TRICHET 

10  

Opinion CON/2006/4. 

3