Opinion of the European Central Bank of 5 June 2013 on changes to the governance of the Central Bank of Cyprus (CON/2013/41)
Date: 2013-06-05
Institutions: European Central Bank
Subjects: Cyprus, board of directors, central bank, institutional activity, national law

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/2013/41) 

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 further 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 

Functioning  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 provides 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  executive  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  directors’ 

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. 

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2  

Law 138(I)/2002 as amended and currently in force. 
OJ L 189, 3.7.1998, p. 42. 

 
 
 
 
                                                 
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1.5  Decisions relating to the CBC’s policy, including licensing of banking institutions 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 and 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  Committee  is  increased  from 

three to four members. 

1.8  An Audit Committee comprised of three members of the Board, appointed by the Board and who 

will  have  no  executive  powers, is  to  be established and its  functions  will  be to  audit  compliance 

with the corporate governance code, supervise the carrying out of internal administrative audits 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.  It  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,  raises  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  competences  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. 

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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 
powers4,  and  (c) the  position  of  the  proposed  executive  directors  in  the  CBC’s  organisational 

structure,  for  instance,  whether  or  not  CBC  staff  members  will  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 decision-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  invites  the 

consulting  authority  to  clarify  the  interplay  between  the  powers  newly  granted  to  two  of  the 

members of the Board and the proposed governance structure’s compliance with the requirements 

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 
views5.  Furthermore,  in  order  to  comply  with  the  Treaty  requirements  for  the  personal 

independence  of  the  members  of  an  NCB’s  decision-making  bodies  who  are  involved  in  the 

4  

5  

For instance, Article 17, as amended, requires the Board’s approval for decisions laying down and applying the CBC’s 
policy. 
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. 

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performance of ESCB-related tasks, any adjustments to salaries should not affect the terms under 
which the members concerned were appointed6. 

2.7 

In light of the above concerns, the ECB urges the consulting authority to take 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 be 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.  

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