Opinion of the European Central Bank of 22 July 2014 on the resolution of credit and other institutions (CON/2014/60)
Date: 2014-07-22
Institutions: European Central Bank
Subjects: Cyprus, banking supervision, central bank, company in difficulties, credit institution, financial stability, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 22 July 2014  

on the resolution of credit and other institutions 

(CON/2014/60) 

Introduction and legal basis 

On 23 May 2014, the European Central Bank (ECB) received a request from the Minister for Finance of 

the Republic of Cyprus for an opinion on a draft law (hereinafter the ‘draft law’) amending the Resolution 
of Credit and Other Institutions Laws of 2013 (hereinafter the ‘Law’)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 the  third  and  sixth indents  of  Article 2(1)  of  Council  Decision 
98/415/EC2,  as  the  draft  law  relates  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 law 

The draft law  amends certain provisions of the Law, with the overall aim of improving the operational 

effectiveness and efficiency of the CBC in its resolution tasks. More specifically, the draft law:   

(a) 

designates the CBC as the Resolution Authority (the CBC in its capacity as resolution authority is 

hereinafter referred to as the ‘Resolution Authority’);  

(b) 

establishes  the  Resolution  Committee  of  the  Resolution  Authority,  which  is  composed  of  the 

CBC’s  Governor  and  the  two  executive  members  of  the  CBC’s  Board  of  Directors  and  whose 

primary responsibilities are to implement the provisions of the Law and to take decisions and issue 

decrees; 

(c) 

establishes  a  resolution  unit  within  the  CBC,  the  main  duty  of  which  is  to  assist  the  Resolution 

Authority and the Resolution Committee in the exercise of their duties; 

(d) 

confers  on  the  CBC,  in  its  capacity  as  the  competent  supervisory  authority,  the  power  to  decide 

whether an institution is no longer viable or likely no longer to be viable, after consultation with the 

Resolution Committee; and 

1  
2  

Law 17(I)/2013, as amended.  
Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42). 

 
 
 
 
                                                 
 
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(e) 

inserts new sections into the Law, empowering the Resolution Authority to collect information and 

conduct investigations for the exercise of its responsibilities and to impose administrative fines in 

the event of breaches of the Law.  

2. 

General observations  

Directive  2014/59/EU  of  the  European  Parliament  and  of  the  Council  (hereinafter  the  ‘BRRD’)3  lays 

down  rules  and  procedures  that  must  be  transposed  by  the  Member  States  by  31  December  2014.  The 

ECB understands that the framework established under the Law, as amended by the draft law once it has 

been  adopted,  will  be  reviewed  in  due  course  in  order  to  ensure  full  transposition  of  the  BRRD  into 

Cypriot law. This  framework  will  also  be reviewed  to  ensure  full  consistency  with  all  developments  at 

Union  level,  such  as  the  provisions  of  the  proposed  regulation  on  the  Single  Resolution  Mechanism 
(hereinafter ‘the proposed SRM regulation’)4, when the latter has been adopted and enters into force.  

Once the  proposed  SRM regulation is applicable, the  Single Resolution Board of the  Single Resolution 

Mechanism (SRM) will be responsible for institutions: (a) that are considered significant under the terms 
of  Council  Regulation  (EU)  No  1024/20135;  (b)  in  relation  to  which  the  ECB  has  decided  to  exercise 

directly  itself  all  the  relevant  powers  in  accordance  with  Regulation  (EU)  No  1024/2013;  or  (c)  that 
constitute  other  cross-border  groups6.  However,  the  Resolution  Authority  will  still  retain  some  tasks  in 

relation to institutions under the responsibility of the Single Resolution Board. According to the proposed 

SRM regulation, national resolution authorities will be required to assist the Single Resolution Board in 

resolution  planning  and  in  preparing  resolution  decisions  for  institutions  under  the  Single  Resolution 

Board’s  responsibility.  The  national  resolution  authorities  should  implement  the  resolution  scheme 

established  by  the  Board  by  exercising  resolution  powers  and  tools  in  relation  to  the  institutions  in 

question.  

3.  

Appropriate time to consult the ECB 

The ECB received the consultation request on 23 May 2014. The ECB notes that the draft law has already 
been  enacted  and  was  published  in  the  Official  Gazette  of  the  Republic  on  30  June  20147.  The 

consultation  request  did  not  refer  to  such  timetable  and  did  not  indicate  a  deadline  for  preparing  the 

opinion. Pursuant to Article 4 of Decision 98/415/EC, the ECB must be consulted at an appropriate stage 

in the legislative process. This implies that the consultation should take place at a point in the legislative 

process  that  allows  the  ECB  sufficient  time  to  examine  the  draft  legislative  provisions  and  adopt  its 

3  

4  

5  

6   
7  

Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the 
recovery and resolution of credit institutions and investment firms (OJ L 173, 12.6.2014, p. 190). 
Proposal  for  a  regulation  of  the  European  Parliament  and  of  the  Council  establishing  uniform  rules  and  a  uniform 
procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution 
Mechanism and a Single Bank Resolution Fund (COM (2013) 520 final). See also Outcome of the European Parliament’s 
first reading, 23 April 2014, available on the Council’s website at www.consilium.europa.eu. 
Council  Regulation  (EU)  No  1024/2013  of  15 October  2013  conferring  specific  tasks  on  the  European  Central  Bank 
concerning policies relating to the prudential supervision of credit institutions (OJ L 287, 29.10.2013, p. 63). 
Article 6a of the proposed SRM regulation. 
Law 90(I)/2014, Episimi Efimerida tis Dimokratias, Annex. Ι(Ι), No. 4450, 30.6.2014 

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opinion, and the national authorities to take into account the ECB’s views in accordance with Decision 

98/415/EC.  Therefore,  the  ECB  would  appreciate  the  consulting  authority  honouring  its  obligation  to 

consult the ECB in good time in the future. 

4. 

Specific observations  

4.1  The Resolution Authority 

The  ECB  welcomes  the  draft  law  as  it  substantially  improves  the  operational  effectiveness  and 

efficiency  of  the  Resolution  Authority  and  allocates  sole  responsibility  to  the  CBC  for  the 

execution  of  tasks  which  are  broadly  consistent  with  the  CBC’s  financial  stability  role. 

Furthermore,  the  ECB  understands  that  these  tasks  do  not  interfere  with  the  performance  of  the 

CBC’s  Eurosystem-related  tasks  provided  for  in  the  Treaty  and  do  not  prejudice  the  financial 

means  necessary  for  carrying  out  the  CBC’s  Eurosystem-related  tasks.  Any  involvement  of  the 

CBC and the members of its decision-making bodies in measures to strengthen financial stability 

must be compatible with the Treaty and, consequently, with the  CBC’s institutional and financial 

independence,  as  well  as  with  the  personal  independence  of  the  members  of  its  decision-making 

bodies safeguarding the proper performance of their tasks under the Treaty and the Statute of the 
European System of Central Banks and of the European Central Bank8.   

4.2 

Separation and operational independence of supervisory and resolution tasks 

The draft law provides that the CBC must take all measures necessary to ensure: (a) the effective 

separation between its supervisory tasks pursuant to the Central Bank of Cyprus Laws of 2002 to 
(No 3) of 20139 and its resolution tasks laid down in the draft law; (b) operational independence of 

its supervisory tasks pursuant to the Central Bank of Cyprus Laws of 2002 to (No 3) of 2013 and 

its resolution tasks laid down in the draft law; and (c) adequate expertise, resources and operational 
capacity  to  apply  the  resolution  measures10.  The  draft  law  further  provides  that  the  Resolution 

Authority  must  have  access  to  all  information  in  the  possession  of  the  competent  supervisory 

authority that is necessary for the implementation of the resolution measures and the exercise of its 
tasks11.  

In accordance with the draft law, the CBC will also establish a resolution unit consisting of CBC 
staff members12. The staff of the resolution unit will be structurally separate from the staff involved 

in carrying out the CBC’s supervisory tasks and must report directly to the Resolution Committee. 

The  ECB  takes  note  of  the  solution  adopted  in  the  draft  law  which  is  one  of  the  organisational 

arrangements that can   ensure the effective separation and operational independence  between the 

CBC’s  supervisory  tasks  and  its  resolution  tasks,  as  well  as  the  expertise  and  the  operational 

capacity of the CBC to implement any of the Resolution Committee’s decisions. 

8  
9  
10  
11  
12  

See Opinion CON/2013/3, paragraph 3. All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 
Law 138(I)/2002. 
Section 5(6) of the draft law. 
Section 5(13) of the draft law. 
Section 5A(2) of the draft law. 

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The ECB welcomes this section of the draft law and reiterates that any resolution powers vested in 

the CBC need to be functionally separate from its supervisory and other tasks, in order to ensure 

independence and to avoid conflicts of interest. That separation should not prevent the exchange of 
information and close cooperation between the resolution function and the supervisory function13. 

4.3  Minister for Finance’s consent to the Resolution Committee’s decisions  

Under the draft law, the Resolution Committee, with the consent of the Minister for Finance, where 

required,  may  decide  to  adopt  some  of  the  resolution  measures  provided  for  in  the  Law.  The 

Minister  for  Finance’s  consent  is  required  in  order  to  apply  the  sale  of  operations  tool  without 
complying  with  the  associated  marketing  requirements14,  for  the  transfer  of  all  or  some  assets, 
rights or obligations of an institution under resolution to a bridge bank15, for the transfer of assets 
and rights to an asset management company16 and for the application of the bail-in tool17.  

The  ECB  understands  that  this  requirement  for  the  Minister’s  consent  to  the  Resolution 

Committee’s  decisions  is  limited  to  situations  where  a  resolution  measure  with  a  direct  fiscal 
impact or systemic implications is being applied18. If so, it would be preferable to make this clearer 

in section 7(1) of the Law. 

4.4  Powers of the Resolution Authority to collect information and conduct investigations  

4.4.1  The draft law includes  new sections empowering the Resolution Authority to collect information 

and conduct investigations for the exercise of its responsibilities and to impose administrative fines 
if  it  establishes  that  a  person  has  acted  in  breach  of  any  provision  of  the  Law19.  In  addition, 

criminal  offences  are introduced  for cases  where  a  person  makes  a  false,  misleading  or  deceitful 

statement  as  to  any  fact,  or  fails  to  submit  facts  in  the  course  of  providing  information  to  the 
Resolution Authority20.  

4.4.2  The  ECB  acknowledges  that  both  the  CBC’s  resolution  function  and  its  supervisory  function 

should  have  all  the  information-gathering  and  investigatory  powers  that  are  necessary  for  the 
exercise of their respective functions21. However, activities such as requesting information and on-

site  inspections  should  be  coordinated  to  avoid  duplication  of  tasks;  in  that  sense,  a  possible 

solution would be to require that these activities should primarily be conducted by the supervisory 

function,  which,  in  such  case,  would  be  the  main  provider  of  the  information  necessary  to  the 

Resolution Authority in order to prepare for the resolution of the institution.  

13   
14  
15  
16  
17  
18  
19  
20  
21  

See Opinion CON/2013/42, paragraph 2.2, and Opinion CON/2013/28, paragraph 2.4. See also Article 3(3) of the BRRD. 
Section 9(9) of the Law. 
Section 10 of the Law. 
Section 11 of the Law. 
Section 12 of the Law. 
In accordance with Article 3(6) of the BRRD.  
Sections 28A to 28D of the draft law. 
Sections 35 and 36 of the draft law. 
See Article 110(3) of the BRRD. 

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5. 

Credit institutions subject to resolution measures  

The  draft  law  provides  that  a  decision  of  the  Resolution  Committee  may  be  made  in  relation  to  a 
‘subsidiary’ of an affected institution, as well as in relation to the affected institution itself22. The ECB 

understands  that  the  term  ‘subsidiary’  may  include  companies  incorporated  in  countries  other  than  the 

Republic of Cyprus. Therefore, it must be assumed that the resolution measures contained in the draft law 

are intended also to apply to foreign incorporated subsidiaries of the affected institutions. The ECB notes 

that  these  measures  may  only  be  enforceable  against  such  foreign  legal  entities  to  the  extent  permitted 

under the foreign law applicable to them.  

6. 

Cooperation with the ECB 

6.1  According  to  the  Law,  the  supervisory  and  resolution  functions  of  the  CBC  will  cooperate  in  a 

number of instances: for example, in determining whether a credit institution is no longer viable or 

is  likely  no  longer  to  be  viable  for  the  purpose  of  taking  resolution  measures  in  relation  to  an 

affected institution.  

6.2   As  clarified  in  Section  2  above,  following  the  forthcoming  adoption  and  entry  into  force  of  the 

proposed  SRM  regulation  the  Resolution  Authority  will  only  be  competent  in  relation  to  the 

resolution of institutions that do not fall within the competence of the Single Resolution Board of 

the  SRM.  In  order  to  ensure  cooperation  between  the  competent  supervisory  authority  and  the 

Resolution  Authority  once  the  proposed  SRM  regulation  is  adopted  and  enters  into  force,  the 

competent supervisory authority should only exercise its supervisory tasks and, in turn, decide that 

the  affected  institution  is  no  longer  viable  or  is  likely  no  longer  to  be  viable  in  respect  of 

institutions for which both it and the Resolution Authority remain competent.  

6.3 

In  this  regard,  the  ECB  will  assume  the  supervisory  tasks  conferred  on  it  by  Regulation  (EU) 

No 1024/2013 on 4 November 2014. There is a need to ensure consistency during the period after 

which  the  ECB  has  assumed  its  tasks  under  Regulation  (EU)  No  1024/2013,  but  before  all  the 

provisions  of  the  proposed  SRM  regulation  are  applicable  (most  likely  from  1  January  2016). 

During  this  period,  elements  of  the  Law  will  apply  to  credit  institutions  under  ECB  supervision. 

Therefore, the Resolution Authority should also be obliged to cooperate closely with the ECB in 

accordance with Article 3 of Regulation (EU) No 1024/2013.  

6.4  The consulting authority is also requested to consider the provisions of the Law in order to ensure 

compatibility  with  the  exclusive  competence  of  the  ECB  to  authorise  credit  institutions  and  to 

withdraw  authorisations  of  credit  institutions  under  Regulation  (EU)  No  1024/2013.  Relevant 

procedures  for  conducting  those  tasks  are  provided  for  in  Regulation  (EU)  No  468/2014 
(ECB/2014/17)  of  the  European  Central  Bank23  (hereinafter  the  ‘SSM  Framework  Regulation’), 

which applies to public authorities and credit institutions. Both Regulation (EU) No 1024/2013 and 

22  
23  

Section 8 of the draft law. 
Regulation  (EU)  No  468/2014  (ECB/2014/17)  of  the  European  Central  Bank  of  16  April  2014  establishing  the 
framework  for  cooperation  between  the  European  Central  Bank  and  national  competent  authorities  and  with  national 
designated authorities (OJ L 141, 14.5.2014, p. 1). 

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the  SSM  Framework  Regulation  have  primacy  over  the  Law and the  draft  law, once the  latter  is 

adopted.  These  national  laws  must  therefore  be  read  and  applied  in  conjunction  with  the 

aforementioned Union-level regulations. 

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

Done at Frankfurt am Main, 22 July 2014. 

[signed] 

The President of the ECB 

Mario DRAGHI 

6