Opinion of the European Central Bank of 23 March 2011 on legislation related to covered bonds (CON/2011/27)
Date: 2011-03-23
Institutions: European Central Bank
Subjects: Cyprus, bond, cooperative, financial stability, liquidation, national law, payment system

EN 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 23 March 2011 

on legislation related to covered bonds 

(CON/2011/27) 

Introduction and legal basis 

On 2 February 2011, the European Central Bank (ECB) received a request from the Cypriot Ministry of 

Finance for an opinion on certain draft laws (hereinafter the ‘draft laws’) related to the Law on the issue 

of  covered  bonds  from  approved  institutions  and  the  business  of  covered  bonds  by  institutions  with 
covered bonds obligations (hereinafter the ‘Law on covered bonds’)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 on the fifth and sixth indents 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 laws relate to payment and settlement systems and to 

rules  applicable  to  financial  institutions  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 laws 

The  draft  laws  supplement  the  Law  on  covered  bonds  on  which  the  ECB  was  consulted  earlier3. 
Specifically,  they  amend:  (i)  the  Law  on  banking4;  (ii)  the  Law  on  the  transfer  of  banking  activities5; 
(iii) the  Law  on  Department  of  Lands  and  Surveys  (fees  and  charges)6;  (iv)  the  Law  on  immovable 
property (transfer and mortgage)7; (v) the Law on companies8; and (vi) the Law on cooperative societies9 

(hereinafter collectively referred to as the ‘basic laws’). The purpose of the proposed amendments is to 

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Law 130(I)/2010, Episimi Efimerida tis Dimokratias, Annex I(I), No 4266, 23.12.2010. 
OJ L 189, 3.7.1998, p. 42. 
See Opinion CON/2010/73; all ECB Opinions are published on the ECB’s website at www.ecb.europa.eu. 
Law 66(I)/1997, Episimi Efimerida tis Dimokratias, Annex I(I), No 3168, 18.7.1997. 
Law 64(I)/1997, Episimi Efimerida tis Dimokratias, Annex I(I), No 3168, 18.7.1997. 
Cap 219. 
Law 9(I)/1965, Episimi Efimerida tis Dimokratias, Annex I(I), No 393, 15.3.1965. 
Cap 113. 
Law 22(I)/1985, Episimi Efimerida tis Dimokratias, Annex I(I), No 2043, 29.3.1985. 

 
 
 
 
                                                 
bring  the  basic  laws  into  line  with  the  provisions  of  the  Law  on  covered  bonds,  so  as  to  facilitate  the 

application of its provisions.  

2.   General remarks  

In Opinion CON/2010/73, the ECB had expressly drawn the consulting authority’s attention to the need 

for the competent Cypriot authorities to consult the ECB on the draft laws as a prerequisite for a thorough 

assessment  of  the  parameters  relevant  to  the  application of  the  Law  on  covered  bonds,  as well  as  for  a 

comprehensive  evaluation  by  the  ECB  of  its  interplay  with  other  relevant  Cypriot  legislation  that  may 

have an impact on the rights of bondholders, in particular vis-à-vis of the issuers of Cypriot law-governed 
covered  bonds10.  The  ECB  understands  that  the  draft  laws  cover  the  amendments  to  be  made  to  all 

relevant  Cypriot  legislation  having  a  bearing  on  the issuance  of  covered  bonds  in  Cyprus.  It  also  notes 

that  it  was  consulted,  at  an  earlier  stage,  on  a  Directive  of  the  Central  Bank  of  Cyprus  intended  to 
complement  the  Law  on  covered  bonds,  and  which  has  since  been  adopted11.  The  ECB  welcomes  the 

present consultation request, which follows up on the advice conveyed in its earlier opinion. The ECB is 

satisfied that, subject to its specific comments, the draft laws supplement the Law on covered bonds in a 

manner  consistent  with  the  protection  of  the  interests  of  bond  holders  and  the  protection  of  financial 

stability. 

3.  

Specific remarks 

3.1   Article 48 of the Law on cooperative societies and the new Article 33N of the Law on banking are 

to  be  amended  and  introduced,  respectively,  so  that  cooperative  credit  societies  and  banks  with 

covered  bond  liabilities  cannot  be  dissolved,  despite  the  fact  that  their  business  has  been  fully 

wound  up,  before  the  cooperative  credit  societies’  Commissioner  or  the  Central  Bank  of  Cyprus 

have ‘terminated’ (‘τερματίσει’) the appointment of the covered bonds administrator, in accordance 

with Article 67 of the Law on covered bonds. The ECB understands that the reference in the draft 

law  to  the  ‘termination’  of  the  appointment  of  the  covered  bonds  administrator  is  intended  as  a 

reference  to  the  completion  of  the  process  leading  up  to  the  termination  of  the  administrator’s 

appointment,  rather  than  to  the  ‘termination’  of  the  administrator’s  mandate.  The  consulting 

authority may wish to consider a less equivocal formulation for both provisions.  

3.2   A new Article 298A is to be introduced into the Law on companies, to the effect that claims based 

on  covered  bonds  cannot  be  filed  by  their  holders  individually,  in  their  capacity  as  the  issuer’s 

creditors,  but  rather  by  the  covered  bonds  administrator,  who  shall  file  such  claims  collectively 

with  the  liquidator.  The  ECB  understands  that  the  purpose  of  this  new  provision  is  to  facilitate, 

procedurally,  the  verification  of  claims  where  an  institution  with  covered  bonds  obligations  is 

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See Opinion CON/2010/73, paragraph 2.3. 
Central  Bank  of  Cyprus  Directive  on  the  Issuance  of  Covered  Bonds  of  2010,  Episimi  Efimerida  tis  Dimokratias, 
Annex III(I), No 4468, of 23.12.2010. 

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wound-up.  The  ECB  also  understands  that  the  proposed  restriction  of  individual  claims  is  not 

intended to restrict the assertion, by bondholders, of their claims against the bonds’ issuer, where 

the  latter  is  in  the  process  of  being  wound-up,  but  rather  to  contribute  to  the  orderly  exercise  of 

such claims. 

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

Done at Frankfurt am Main, 23 March 2011. 

[signed] 

The Vice-President of the ECB 

Vítor CONSTÂNCIO 

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