Opinion of the European Central Bank of 12 November 2015 on the regulation of companies acquiring credit (CON/2015/45)
Date: 2015-11-12
Institutions: European Central Bank
Subjects: Cyprus, central bank, competence of the institution, credit, credit institution, financial stability, financial supervision, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 12 November 2015 

on the regulation of companies acquiring credit 

(CON/2015/45) 

Introduction and legal basis 

On 5 November 2015 the European Central Bank (ECB) received a request from the Cypriot Minister for 

Finance for an  opinion  on  a draft law regulating  the activities of companies acquiring credit (hereinafter 

the ‘draft law’).  

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 (the ‘Treaty’) and the third and sixth indents of Article 2(1) of Council 
Decision  98/415/EC1,  as  the  draft  law  relates  to  the  Central  Bank  of  Cyprus  (CBC)  and  to  the  rules 

applicable  to  financial  institutions  insofar  as  they  materially  influence  the  financial  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 

1.1  The purpose of the draft law is to give the CBC the power to authorise, regulate and supervise the 

business  activity  of  acquiring  credit  facilities  that  have  been  granted  by  a  credit  institution  either: 

(1) incorporated in Cyprus and authorised under Cypriot law; or (2) operating through a branch in 
Cyprus 2.  These  powers  will  allow  the  CBC  to  ensure  that  the  activity  of  acquiring  and  managing 
credit facilities is carried out properly, and will also safeguard financial stability in Cyprus 3. For this 

purpose,  the  draft  law  includes,  in  the  definition  of  credit  facilities,  those  that  have  been  granted 

either  to:  (a)  natural  persons  where  the  total  balance  of  the  credit  facilities,  at  the  time  of  the 

transfer,  does  not  exceed  one  million  euro;  or  (b)  micro  and  small  enterprises  as  defined  under 

Union  law  where  the  total  balance  of  the  credit  facilities  to  that  enterprise  or  group  of  connected 
enterprises, at the time of the transfer, does not exceed one million euro4. Loans that do not meet 

these criteria can be sold to any legal entity without the CBC’s approval. 

1.2  The  draft  law  provides  that  only  certain  specified  legal  entities  are  permitted  to  acquire  credit 

facilities: (a) a credit-acquiring company incorporated in Cyprus and authorised by the CBC under 

1  

2  

3  
4  

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). 
In other words, a branch of a credit institution authorised and supervised in accordance with the law of a Union or 
European Economic Area (EEA) Member State.  
See Article 3(1) of the draft law. 
See Article 3(2) of the draft law. However, certain provisions under the draft law, e.g. those relating to obligations of 
selling institutions towards borrowers will apply to credit facilities exceeding those limits.  

 
 
 
 
                                                 
ECB-PUBLIC 

the draft law; (b) a credit institution incorporated in Cyprus and authorised under Cypriot law; (c) a 

credit  institution  authorised  and  supervised  by  the  competent  authority  of  another  Union/EEA 

Member  State  that  has  the  right  to  provide  services  or  establish  a  branch  in  Cyprus;  and  (d)  a 

financial institution that is a subsidiary of a credit institution incorporated in a Union/EEA Member 

State and that provides its services in Cyprus or operates in Cyprus through a  branch, under the 
relevant  provisions  of  Cypriot  law.5.  The  draft  law  further  stipulates  that  these  legal  entities  may 

subsequently sell the acquired credit facilities  to either other  legal entities referred to above  or to 

other entities that obtain the CBC’s prior written approval. 

1.3  The draft law sets out the application procedure that a company must go through in order to obtain 

authorisation from a credit-acquiring company incorporated in Cyprus, including the documentation 

that the applicant company must submit to the CBC, and stipulates that the CBC shall only grant an 

authorisation if a number of conditions are met. The CBC must be satisfied that the company: (a) is 

in  a position to fully comply  with the draft law; (b)  has shareholders  and directors of good repute 

and with sufficient expertise to carry out their responsibilities; (c) has the organisational structure to 

enable it to provide its services in accordance with the draft law; (d) operates in such a manner that 

there are no concerns as to whether its activities may adversely impact financial stability in Cyprus; 

and  (e)  has  no  close  links  through  professional  or  other  relationships  with  any  other  entity  or 
individual that, in the CBC‘s opinion, may prevent the CBC from carrying out effective supervision 6. 

There  are  also  provisions  requiring  persons  to  notify  the  CBC  of  changes  to  their  qualifying 
holdings in a credit-acquiring company7. 

1.4  The  draft  law  also  sets  out  the  CBC’s  supervisory  powers  over  credit-acquiring  companies  under 

the  draft  law,  and  other  supervisory  requirements  relating  to  minimum  capital  requirements,  the 

assessment of the company’s management body and key function holders, reporting to the CBC, 

the  CBC’s  access  to  the  company’s  books  and  records,  the  CBC’s  confidentiality  duties  and  the 
imposition of supervisory measures and sanctions 8. 

1.5  Without prejudice to the CBC’s duty to keep information obtained under the draft law confidential, 

the draft law authorises the CBC to use any of the information provided to it under the draft law for 
the publication of anonymous, aggregated statistical data, which the CBC may publish 9. 

1.6  The  draft  law  empowers  the  CBC,  pursuant  to  its  own  directives  or  guidelines,  to  regulate,  inter 

alia: (a) the procedures for granting, suspending and revoking authorisation; (b) the criteria for the 

fitness and probity of shareholders, directors and key function holders; (c) the internal organisation 

and  governance  of  the  credit-acquiring  company;  (d)  outsourcing;  and  (e)  the  process  for 
reviewing, managing and restructuring non-performing loans 10. 

5  
6  
7 
8 
9  
10  

See Article 4(1)(a) of the draft law. 
See Article 5(2) of the draft law.  

See Article 6(1) of the draft law, which sets out the relevant qualifying thresholds.  
See Articles 10 to 15 and 20 to 23 of the draft law.  
See Article 15(2) of the draft law. 

See Article 17(1) and (2) of the draft law. 

2 

                                                 
ECB-PUBLIC 

1.7  The draft law provides that credit-acquiring companies must pay an annual fee of three thousand 

euro to cover the costs that the CBC incurs while carrying out its supervisory functions 11.  

1.8  Finally,  the  draft  law  requires  a  credit  or  financial  institution  or  a  credit-acquiring  company  that 

decides to sell or  dispose  its portfolio of credit facilities to inform the borrower concerned.  All the 

transferor’s  rights  and  obligations,  including  with  respect  to  collateral  underpinning  the  credit 
facility, are automatically transferred to the acquirer 12.  

2. 

General observations  

2.1  As stressed in previous urgent ECB opinions, given the very short timeframe within which the ECB 

has been consulted on this legislation, it has not been possible to thoroughly assess all legal, policy 
and regulatory issues that the draft law raises 13. This opinion is based on the text of the draft law 

that  was  formally  sent  to  the  ECB  by  the  consulting  authority  and  does  not  address  substantive 

amendments introduced in the draft law during the legislative process. If, prior to the ECB adopting 

its opinion, amendments were made that fundamentally change the draft law in areas in which the 

ECB has a specific interest, the ECB expects the consulting authority to submit the amended draft 

legislative provision to it as soon as possible, so that the opinion can be based on the most recent 
text14. 

2.2  The  ECB  understands  that  the  adoption  of  the  draft  law  is  essential  as  it  will  enable  credit 

institutions  to  dispose  of  non-performing  loans,  of  which  there  are  currently  a  high  number  in 

Cyprus with the understanding that the loans are transferred at an appropriate price. Allowing these 

loans  to  be  disposed  of  would  be  beneficial  in  preserving  financial  stability  in  Cyprus,  on  the 
understanding that the loans are transferred at an appropriate price 15. 

2.3  The ECB understands that by giving the CBC specific regulatory and supervisory authority over the 

activity of acquiring and managing credit facilities, the draft law intends to ensure that this activity is 

properly  carried  out,  and  more  generally  that  the  stability  of  the  financial  system  in  Cyprus  is 

safeguarded.  

2.4  The  draft  law  extends  the  CBC’s  powers  to  the  regulation  and  supervision  of  credit-acquiring 

companies, thus complementing the CBC’s current responsibilities for supervising the activities of 

authorised  credit  institutions  and  the  macro  prudential  supervision  of  the  financial  system  to 

safeguard  financial  stability.  The  ECB  underlines  that,  in  the  context  of  a  proposed  conferral  of 

tasks on a central  bank  within the European System of Central  Banks (ESCB), it is necessary  to 

assess  such  a  conferral  against  the  prohibition  of  monetary  financing  under  Article  123  of  the 

Treaty. The ECB has developed the guidance set out in paragraphs 2.4.1 to 2.4.3 of this opinion, in 

the form of general and specific considerations, on the basis of which it may decide whether a new 

11  
12  
13  

14  
15  

See Article 16 of the draft law. 
See Articles 18, 19 and 24 of the draft law. 

See  paragraph  3.3  of  Opinion  CON/2010/92.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 
See, for example, paragraph 3 of Opinion CON/2004/16. 

It is noted that the draft law would be applicable to both performing and non-performing loans. 

3 

 
                                                 
ECB-PUBLIC 

task conferred on an ESCB national central bank (NCB) is to be considered a central banking task 

or  a  government  task  for  the  purposes  of  assessing  such  a  conferral  against  the  prohibition  of 
monetary  financing  under  Article  123  of  the  Treaty16.  The  concrete  assessment  of  whether  the 

CBC’s task of supervising credit acquiring companies is to be considered a central banking task or 

a government task is then undertaken in paragraph 3.1 of this opinion. 

2.4.1  General considerations 

First, genuinely  new tasks or those tasks that did not form an integral  part  of the central banking 

tasks  already  assigned  to  the  NCB  in  the  past  must  be  systematically  categorised  as  central 

banking  or  government  tasks.  In  recognition  of  the  different  Member  States’  legal  frameworks, 

central  banking  traditions  and  national  set-ups,  the  tasks  that  an  NCB  currently  carries  out  as 

central  banking  tasks  are  not  reviewed  and  re-categorised,  but  may  be  reassessed  if  they  are 

subject to substantial legislative amendments. 

Second, the principle of financial independence requires that the Member States may not put their 

NCBs  in  a  position  where  they  have  insufficient  financial  resources  to  carry  out  their  ESCB-  or 

Eurosystem-related tasks.  

Third, central banking tasks comprise in particular those tasks that are related to the tasks listed in 

Article 127(2), (5) and (6) of the Treaty. 

Fourth,  new tasks conferred on  an NCB  that are  atypical  of an NCB’s tasks, or which  are clearly 

discharged on behalf of and in the exclusive interest of the government or of other public entities, 

should be considered as government tasks. In that context, a distinction should be drawn between 

the  liquidity-  and  solvency-related  tasks  of  NCBs. Whereas  for  the  purposes  of  the  prohibition  of 

monetary  financing,  solvency  support  is  a  government  task,  liquidity-related  tasks  that  have  the 

ultimate objective of financing the economy are central banking tasks. 

2.4.2  Specific considerations 

Banking  supervision  and  macro-prudential  tasks  are  central  bank  tasks  when  carried  out  by  an 

NCB,  provided  they  do  not  undermine  its  independence  in  accordance  with  Article  130  of  the 

Treaty.  

An important criterion for qualifying a new task as a government task is the impact of the task on an 

NCB’s  institutional,  financial  and  personal  independence.  In  particular,  the  following  should  be 

taken into account. 

First,  it  should  be  assessed  whether  the  performance  of  the  new  task  will  create  conflicts  of 

interests with existing central banking tasks, and whether the new task actually complements those 

existing central banking tasks. If a conflict of interest arises between existing and new tasks, there 

should  be  sufficient  mitigation  measures 

in  place 

to  adequately  address 

that  conflict. 

Complementarity between the new task and existing central banking tasks should not, however, be 

interpreted  extensively,  so  as  to  lead  to  an  indefinite  chain  of  ancillary  tasks  being  created. 

Complementarity should also be examined in terms of how those tasks are financed. 

16  

See Opinion CON/2015/22. 

4 

                                                 
ECB-PUBLIC 

Second,  it  should  be  assessed  whether  the  NCB’s  financial  and  organisation  capacity  is 

disproportionate to the amount of time and resources it will need to  perform the new task without 

additional financial resources and whether this could have a negative impact on the NCB’s capacity 

to properly perform its existing central banking tasks. 

Third,  it  should  be  assessed  whether  the  performance  of  the  new  task  fits  into  the  NCB’s 

institutional set-up when considering central bank independence and accountability. 

Fourth,  it  should  be  assessed  whether  there  are  substantial  financial  risks  inherent  in  the 

performance of the new task. 

Fifth, it should be assessed whether the performance of the new task exposes the members of the 

NCB’s decision-making bodies to political risks that: (a) are disproportionate, (b) could also have an 

impact  on  their  personal  independence;  and  in  particular,  (c)  could  possibly  jeopardise  the 

guarantee of their term of office under Article 14.2 of the Statute of the European System of Central 

Banks and of the European Central Bank. 

2.4.3  Any  final  assessment  on  the  qualification  of  a  task  given  to  an  NCB  as  either  falling  within  the 

scope of a central banking task or a government task should be guided by the objective of ensuring 

that  the  prohibition  of  monetary  financing  within  the  Eurosystem  and  the  ESCB  is  consistently 

applied, to the extent that it applies to its members. 

3. 

Specific observations 

3.1  Conferral on the CBC of the task of supervising credit acquiring companies 

The draft law designates the CBC as the supervisory authority for credit-acquiring companies, thus 

broadening  its  current  functions  and  activities.  In  the  light  of  the  guidance  set  out  in 

paragraphs 2.4.1 to 2.4.3, it must be assessed whether the CBC’s new tasks constitute a breach of 

the prohibition of monetary financing.  

3.1.1  Principle of financial independence  

The  principle  of  financial  independence  requires  NCBs  to  have  sufficient  means  to  carry  out  not 

only their ESCB-related tasks from an operational and financial point of view, but also their national 
tasks17.  In  this  regard  the  draft  law  provides  that  credit-acquiring  companies  must  pay  an  annual 

fee,  which  is  fixed  at  a  level  specified  in  the  law,  in  order  to  cover  the  CBC’s  costs  incurred  in 
carrying out its supervisory functions 18. As the impact of these new tasks on the financial position 

of the CBC is not clear at this stage, a more flexible mechanism for the determining the fee level 

would be more appropriate, with a view to safeguarding CBC’s financial independence. 

3.1.2  Links to tasks listed in Article 127(5) of the Treaty  

Supervision over credit-acquiring companies can be considered a task related to those referred to 

in  Article  127(5)  of  the  Treaty,  based  on  the  understanding  that  it  is  complementary  to  the 

supervisory  tasks  exercised  by  the  NCB,  particularly  where,  as  in  this  case,  the  CBC  already 

17  
18  

See the ECB’s 2014 Convergence Report, p. 25. 

See Article 16 of the draft law.  

5 

 
                                                 
ECB-PUBLIC 

carries out supervision of credit  institutions,  including  asset management activities19, and has the 
task of ensuring the stability of the financial system20. The purchase of problematic loan portfolios 

by  entities  specialised  in  asset  management  can  be  a  useful  and  effective  tool  that  financial 

institutions can use to deal with non-performing loans on their balance sheets. Member States are 

not  required  to  have  a  legal  framework  for  supervising  credit-acquiring  activities  under  Directive 
2013/36/EU21. However, point 11 of Annex 1 to Directive 2013/36/EU lists portfolio management as 

an  activity  that  is  subject  to  mutual  recognition.  To  the  extent  that  portfolio  management  covers 

credit  acquisition  and  management  activities,  credit  institutions  authorised  and  supervised  by  the 

competent  authorities  of  another  Member  State  may  carry  these  out  in  other  Member  States, 

provided  that  the  appropriate  credit  institution  has  given  the  relevant  authorisation  for  such 

activities.  

3.1.3  Atypical tasks 

The  purchase  and  sale  of  assets  such  as  loan  portfolios  typically  forms  a  significant  part  of  the 

business of an authorised credit institution or other specialised financial institutions, including, e.g., 

an  asset  management  company.  Generally,  the  ECB  has  accepted  the  fact  that  NCBs  are 

allocated  financial  supervisory  tasks  related  to  specific  areas,  provided  they  do  not  interfere  with 
the performance of the NCB’s ESCB-related tasks22. An NCB’s tasks with regard to the supervision 

of  credit-acquiring  companies  can  therefore  be  regarded  as  typical  tasks  of  a  central  bank, 

particularly  if,  as  in  the  CBC’s  case,  it  has  a  statutory  responsibility  for  bank  supervision  and 
financial stability23. Moreover, the complementarity between the supervisory tasks already  carried 

out  by  the  CBC  and  the  new  task  of  supervising  such  companies  is  reflected  in  the  common 

system of financing the CBC’s supervisory tasks through contributions from the supervised entities. 

3.1.4  Discharge of tasks on behalf of and in the exclusive interest of the Government or of other public 

entities 

The CBC is designated as the sole supervisory authority for credit-acquiring companies in its own 

name  and  not  on  behalf  of  any  other  authority.  There  is  no  indication  that,  in  carrying  out  its 

supervisory function, the CBC acts exclusively in the interests of another public entity. 

3.1.5  Extent to which conflicts of interests with existing CBC tasks are addressed and the performance of 

tasks  fits  into  the  CBC’s  institutional  set-up  in  the  light  of  central  bank  independence  and 

accountability 

The conferral of these tasks on the CBC does not, at first glance, raise any issues with regard to 

conflict of interest. The performance of these tasks fits into the CBC’s institutional set-up, and does 

not raise any issues as regards central bank independence and accountability. 

19  

20  
21  

22  

23  

In accordance with  Article 6(2)(d) of the Laws of 2002 to  2007 on the Central Bank of Cyprus, the CBC exercises 
supervision of banks. Banks are allowed to provide asset management services by virtue of item 11 in Annex IV to 
the Laws of 1997 to 2015 on the business of credit institutions. 

Article 6(2)(e) of the Laws of 2002 to 2007 on the Central Bank of Cyprus.  
Directive  2013/36/EU  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  access  to  the  activity  of 
firms,  amending 
credit 
Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 338). 
See Opinion CON/2009/57. 

the  prudential  supervision  of  credit 

institutions  and 

institutions  and 

investment 

See Article 6(2)(d) and (e) of the Central Bank of Cyprus Laws of 2002 to 2007.  

6 

                                                 
ECB-PUBLIC 

3.1.6  Extent  to  which  the  performance  of  tasks  is  proportionate  to  the  CBC’s  financial  and  operational 

capacity and its ability to perform its ESCB-related tasks 

As  noted  above,  in  order  to  remain  financially  independent,  NCBs  must  have  sufficient  means  to 

carry out not only their ESCB-related tasks from an operational and financial point of view, but also 

their national tasks. In this regard the ECB  welcomes the fact that the draft law  provides that the 

CBC’s  costs  for  supervising  credit-acquiring  companies  will  be  covered  by  such  companies. 

However,  as  mentioned  above,  the  ECB  considers  a  more  flexible  mechanism  for  the 

determination  of  the  fee  level  to  be  more  appropriate  in  order  to  safeguard  the  CBC’s  financial 

independence. For example, it may be useful to include a provision in the draft law that will allow 

the fees to be increased, if needed.  

3.1.7  Extent to which the performance of tasks harbours substantial financial risks 

The  draft  law  is  silent  on  the  issue  of  the  CBC’s  liability  with  regard  to  its  supervision  of  credit-

acquiring companies. The draft law does not contain any provisions excluding or limiting the liability 

of  the  CBC  as  the  authority  responsible  for  the  supervision  of  credit  acquiring  companies.  In 

contrast, the CBC’s liability with regard to its supervision over credit institutions is excluded, unless 

it  is  shown  that  the  act  or  omission  was  not  done  in  good  faith  or  was  the  result  of  gross 
negligence 24. The ECB considers that it would be useful to align the CBC’s liability under the draft 

law  with  its  liability  concerning  its  supervision  of  credit  institutions,  given  that  potential  liability 

issues could represent financial risks for the CBC. 

3.1.8  Conclusion and summary regarding conferral on the CBC of the task of supervising credit acquiring 

companies 

The  ECB  considers  that  there  are  grounds  for  regarding  the  CBC’s  task  of  supervising  credit-

acquiring companies as a central banking task in the sense that it complements the CBC’s existing 

bank supervisory functions. The fact that the performance of the new supervisory function  will be 

financed  by  supervised  entities  has  a  positive  impact  on  the  CBC’s  financial  capacity  to  assume 

those tasks. However, the ECB considers that the draft law potentially creates financial risks for the 

CBC because it does not limit the CBC’s liability as a public authority, for damages caused in the 

course  of  the  exercise  of  its  new  supervisory  powers,  in  ways  similar  to  the  CBC’s  liability  in 

connection with its bank supervisory tasks. It would be useful to align the CBC’s liability under the 

draft  law  with  its  liability  when  conducting  its  supervisory  powers  over  credit  institutions. 

Additionally, the ECB considers that a more flexible mechanism for determining the fee level would 

be  more  appropriate  with  a  view  to  safeguarding  CBC’s  financial  independence.  For  example,  it 

may be useful to include a provision in the draft law that allows an increase in the level of fees, if 

needed.  

3.2  Free movement of capital 

In  the  case  of  credit-acquiring  companies  that  are  not  credit  or  financial  institutions  as  defined  in 

the  draft  law,  the  acquiring  company  would  be  required  not  only  to  obtain  CBC  authorisation  for 

24  

Article 32(1) of the Laws of 1997 to 2015 on business institutions. See also Principle 2 of the principles established 
by  the  Bank  for  International  Settlements,  setting  out  that  the  supervisor  and  its  staff  should  be  protected  against 
lawsuits for actions taken and/or omissions made while discharging their duties in good faith. 

7 

                                                 
ECB-PUBLIC 

such activity but also to be incorporated in Cyprus 25.  To the extent that a credit acquiring company 

incorporated  in  a  Member  State  other  than  Cyprus  seeks  to  carry  on  credit  acquiring  activities  in 

Cyprus, the consulting authority is invited to consider, subject to the competences of the European 

Commission,  whether  this  additional  requirement  is  in  line  with  the  provisions  on  the  free 
movement of capital under the Treaty. 26 

3.3  Concerns over a level playing field and opportunities for regulatory arbitrage  

The  draft  law  subjects  credit-acquiring  companies  to  notional  minimum  capital  requirements,  as 

well as other regulatory requirements. The ECB understands that the Cypriot authorities opted not 

to impose express limits on leverage and liquidity requirements at this stage, in order to offer wider 

opportunities  for  new  companies  entering  the  market  for  such  services,  with  a  view  to  facilitating 

private debt restructuring.  

3.4  Credit institutions directly supervised by the ECB 

With  regard  to  credit  institutions  directly  supervised  by  the  ECB,  the  powers  given  to  the  CBC 
should be in line with the ECB’s competence under Council Regulation (EU) No 1024/201327. 

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

Done at Frankfurt am Main, 12 November 2015. 

[signed] 

The President of the ECB 

Mario DRAGHI 

25  
26  
27  

See Article 4(1)(a) of the draft law. 
Articles 63-65 of the Treaty 
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). 

8