Opinion of the European Central Bank of 23 July 2013 on the supervision of cooperative credit institutions (CON/2013/51)
Date: 2013-07-23
Institutions: European Central Bank
Subjects: Cyprus, banking supervision, cooperative, credit institution, financial stability, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 23 July 2013 

on the supervision of cooperative credit institutions 

(CON/2013/51) 

Introduction and legal basis 

On 25 June 2013, the European Central Bank (ECB) received a request from the Ministry of Finance of 

the Republic of Cyprus for an opinion on two draft laws (hereinafter the ‘draft laws’), which amend the 
Law on banking1 and the Law on cooperative societies2, respectively. 

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  the  third  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 provisions3, as the draft laws relate to the Central Bank of Cyprus (CBC) 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 

1.1   The draft laws’ aim is to authorise the CBC to issue binding instructions to the Commissioner of 

the  Co-operative  Societies’  Supervision  Authority  (CSSA),  which  is  currently  responsible  for 

supervising  the  cooperatives  sector,  thereby  enabling  the  CBC  to  order  the  Commissioner  to 

intervene at the level of individual cooperative credit institutions in regard to supervision. 

1.2   The Memorandum of Understanding on specific economic policy conditionality of 26 April 2013 
(hereinafter  the  ‘MoU’)4  required  Cypriot  authorities  to:  (a)  ensure  that  the  regulation  and 

supervision  of  cooperative  credit  institutions  is  in  line  with  that  of  commercial  banks;  (b)  take 

responsibility  for  supervising  cooperative  credit  institutions  from  the  Ministry  of  Commerce, 

Industry  and  Tourism,  and  transfer  this  responsibility  to  the  CBC  by  the  end  of  July  2013;  (c) 

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2  
3  
4  

Law 66(I) of 1997, as amended.  
Law 22(I) of 1985, as amended.  
OJ L 189, 3.7.1998, p. 42. 
Available on the European Commission’s website at www.ec.europa.eu. 

 
 
 
 
 
                                                 
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introduce, by the end of May 2013, legislation to authorise the CBC to instruct the Commissioner 
to intervene at the level of individual cooperative credit institutions in regard to supervision5. 

1.3   According to the draft laws: 

(a)  

the  CSSA  must  provide  all  necessary  data  and  information  concerning  cooperative  credit 

institutions to the CBC to ensure the stability of the financial system; 

(b)  

the CBC may issue binding instructions to the Commissioner, where the CBC considers that: 

(i)  

the  capital  adequacy,  liquidity  and  value  of  a  cooperative  credit  institution’s  assets 

have been impaired or adversely affected, or there is a risk that these will be impaired 

or adversely affected; 

(ii)  

there is a risk that the cooperative credit institution’s ability to meet its obligations in 

relation  to  its  depositors  or  creditors  may  be  impaired  or  it  is  necessary  to  take 

measures to safeguard interests of depositors or creditors; 

(iii)  

the cooperative credit institution fails to comply with its obligations under the law. 

1.4   Under the proposed amendments, the CBC may instruct the Commissioner to take, inter alia, the 

following specific measures in relation to a cooperative credit institution: 

(a) 

increase its share capital; 

(b) 

restore its funds to the required minimum level; 

(c)  make  adjustments  to  the  institution’s  corporate  governance  and  the  terms  of  its  business, 

operation or its licence. 

2. 

General observations on the draft laws 

The ECB welcomes transferring supervision of cooperative credit institutions to the CBC, in line with the 

terms and conditions of the MoU. The ECB notes that the draft laws are the first step agreed in the MoU 

towards the CBC assuming supervision of cooperative  credit institutions. In this respect, the consulting 

authority may wish to indicate the transitional nature of the draft laws, clarifying that their provisions are 

to  remain  in  force  until  the  new  supervisory  regime  for  cooperative  credit  institutions  has  been 

introduced,  at  which  time  supervision  of  cooperative  credit  institutions  will  be  fully  transferred  to  the 

CBC, in line with the MoU. 

5  

Paragraph 1.13 of the MoU. 

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3.  

Specific observations on the draft laws 

3.1   With  a  view  to  reinforcing  the  efficiency  of  the  draft  laws,  the  consulting  authority  may  wish  to 

consider  clarifying,  in  the  draft  law  amending  the  Law  on  cooperative  societies,  that  the 

Commissioner has a duty to fully comply with the CBC’s instructions with regard to the specific 

measures  to  be  applied  to  a  cooperative  credit  institution.  The  ECB  notes  that  the  corresponding 

amendment to the Law on banking is clear on this point. 

3.2   Under new Section 35(3) of the draft law amending the Law on banking, the CBC may, after taking 

into consideration whether the cooperative credit institution is licenced under section 41B(1)(a) of 

the  Law  on  cooperative  societies  or  through  affiliation  with  the  central  body  pursuant  to  section 

41B(1)(b) of that same law, issue binding instructions to the Commissioner to take the  measures 

specified by the CBC. Since the draft laws’ purpose is to allow the CBC to intervene at the level of 

individual  cooperative  credit  institutions  in  regard  to  supervision,  regardless  of  whether  they  are 

affiliated,  the  consulting  authority  may  wish  to  eliminate  the  above  distinction  made  in  the  draft 

law amending the Law on banking. 

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

Done at Frankfurt am Main, 23 July 2013 

[signed] 

The President of the ECB 

Mario DRAGHI 

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