Opinion of the European Central Bank of 1 February 2016 on the recovery and resolution of credit institutions and investment firms (CON/2016/5)
Date: 2016-02-01
Institutions: European Central Bank
Subjects: Cyprus, bank deposit, banking supervision, credit guarantee, credit institution, financial stability, financial supervision, investment company, investment protection

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 1 February 2016 

on the recovery and resolution of credit institutions and investment firms  

(CON/2016/5) 

Introduction and legal basis 

On 22 December 2015, the European Central Bank (ECB) received a request from the Cypriot Ministry of 

Finance  for  an  opinion  on  three  draft  laws.  The  first  relates  to  the  resolution  of  credit  institutions  and 

investment  firms  (hereinafter  the  ‘draft  Law  on  resolution’).  The  second  concerns  a  draft  law  on  the 

business  of  credit  and  other  institutions  (hereinafter  the  ‘draft  Law  on  credit  institutions’)  and  the  third 

relates  to  a  draft  law  on  a  deposit  guarantee  scheme  and  the  resolution  of  credit  and  other  institutions 

(the ‘draft Law on a deposit guarantee scheme’) (hereinafter collectively referred to as the ‘draft laws’).  

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/EC1, as the draft laws relate to the Central Bank of Cyprus (CBC) and 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  purpose  of  the  draft  laws  is  to  implement  Directive  2014/59/EU  of  the  European  Parliament 
and of the Council2 and some provisions of Directive 2014/49/EU of the European Parliament and 
of the Council3 into Cypriot law, which will provide a new framework for the recovery and resolution 

of certain types of entities active in financial markets, including credit institutions, investment firms, 

and  financial  holding  companies  established  in  Cyprus.  Such  an  implementation  will  ensure  that 

Cypriot  law  is  consistent  with  existing  Union  legislation  in  this  field.  The  draft  laws  regulate  the 

procedures to be applied by the authorities in relation to the recovery and resolution of credit and 

financial institutions at both individual and group level.  

1  

2  

3  

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). 
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 and amending Council Directive 82/891/EEC, 
and  Directives  2001/24/EC,  2002/47/EC,  2004/25/EC,  2005/56/EC,  2007/36/EC,  2011/35/EU,  2012/30/EU  and 
2013/36/EU,  and  Regulations  (EU)  No  1093/2010  and  (EU)  No  648/2012  of  the  European  Parliament  and  of  the 
Council (OJ L 173, 12.6.2014, p. 190).  

Directive 2014/49/EU of the European Parliament and of the Council of 16 April 2014 on deposit guarantee schemes 
(OJ L 173, 12.6.2014, p. 149). 

 
 
 
 
                                                 
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1.2  Cyprus  had  already  established  a  comprehensive  framework  of  this  type  in  2013,  on  which 

framework  and 

its  subsequent  amendments 

the  ECB  had  been  consulted4  prior 

to 

Directive 2014/59/EU  and  Directive  2014/49/EU  being  adopted.  After  Directive  2014/59/EU  was 

adopted as the new European framework for the recovery and resolution of credit institutions and 

investment  firms,  it  became  necessary  to  replace  some  of  the  existing  Cypriot  legislation  with  a 

new  framework  that  uniformly  addresses  all  the  issues  associated  with  the  potential  failure  of 

entities in the financial sector. Therefore, the draft laws propose to repeal two existing laws in this 
field, i.e. the Law on the resolution of credit and other institutions of 2013 and 20145 and the Law 

on  the  establishment  and  operation  of  a  deposit  protection  and  resolution  of  credit  and  other 
institutions scheme6. According to the draft Law on resolution, all the resolution measures that are 

still  in  force,  which  were  taken  on  the  basis  of  the  Law  on  the  resolution  of  credit  and  other 

institutions  of  2013  and  2014,  will  be  considered  as  measures  adopted  on  the  basis  of  the  draft 

Law  on  resolution  upon  its  adoption,  and  will  continue  to  be  in  force  until  they  are  completed, 
repealed or cancelled7.  

1.3  The  CBC  is  the  competent  authority  for  the  supervision  of  credit  institutions  in  Cyprus  and  was 

designated  as  the  national  resolution  authority  for  those  institutions  under  the  above  legislative 

framework.  Pursuant  to  the  draft  Law  on  resolution  the  CBC  will  be  also  designated  as  the 

resolution  authority  for  investment  firms,  which  are  supervised  by  the  Cyprus  Securities  and 

Exchange Commission. 

1.4  The tools available to the CBC include preparatory measures, early intervention measures and the 

possibility  to  write  down  or  convert  capital  instruments.  The  resolution  tools  may  be  applied, 

mutatis mutandis, to both credit institutions and investment firms. 

 

Preparatory  measures  include  recovery  plans  and  group  financial  support  agreements. 

Credit  and  financial  institutions  are  required  to  draw  up  recovery  plans,  which  are  then 

reviewed and assessed by the CBC. The CBC may also require these recovery plans to be 
updated8.  The  resolution  authority  for  each  institution  that  is  not  part  of  a  group  subject  to 

consolidated supervision is responsible for drawing up resolution plans for these institutions. 

These  institutions,  as  well  as  the  groups  themselves,  are  subject  to  resolvability 

assessments by the resolution authority. 

 

 

Early  intervention  measures  include  updating  and  implementing  recovery  plans,  requesting 

that management be removed and special administration.  

Capital  write-down  measures  concern  the  power  to  write  down  or  convert  to  equity  the 

capital  instruments  of  a  distressed  institution  that  would  otherwise  be  non-viable,  either 
outside of or as part of a resolution. These powers are vested in the CBC9. 

4  

5  

6  

7    

8  
9  

See  Opinions  CON/2013/10  and  CON/2014/60.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu.  
Law  on  the  resolution  of  credit  and  other  institutions  2013  and  2014  (L.17(Ι)/2013,  L.38(Ι)/2013,  L.97(Ι)/2013  and 
L.90(I)/2014). 

Law on the establishment and operation of a deposit protection and resolution of credit and other institutions scheme 
(L.16(I) 2013). 
Article 115(1) of the draft Law on resolution. 

See Article 23A of the draft Law on credit institutions. 
Article 30(1) of the draft Law on resolution and Article 32D of the draft Law on credit institutions. 

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 

Regarding resolution measures, institutions that are failing or likely to fail and meet the other 

resolution  conditions  are  put 

into  resolution  whereby:  (a) 

their  shares,  ownership 

instruments, assets, rights or liabilities may be transferred to a purchaser; (b) their shares or 

other  ownership  instruments  may  be  transferred  to  a  bridge  institution;  (c)  their  assets, 

rights, or liabilities may be transferred to an asset management vehicle company; and/or (d) 
they  may  be  subject  to  bail-in10.  Subject  to  Regulation  (ΕU)  No  806/2014  of  the  European 
Parliament and of the Council11 the CBC’s decision to place an institution into resolution or 

take  other  resolution  action  is  subject  to  the  prior  approval  of  the  Minister  for  Finance  in 
cases where the decision has a direct fiscal impact or systemic implications12. The CBC may 

require  institutions  to  pay  all  operating  expenditures  and  costs  incurred  during  the 

performance  of  its  responsibilities  and  powers,  such  as  administrative  and  operating 
expenditures, the costs of legal and consultancy services and any outsourcing costs13. 

1.5  A resolution fund will be available in order to achieve resolution objectives. Under the draft Law on 

a deposit guarantee scheme, there will be a fund for the resolution of credit and other institutions 

(hereinafter the ‘resolution fund’), which is one of the funds managed under the scheme for deposit 

guarantee  and  resolution  of  credit  and  other  institutions  operating  in  Cyprus  (hereinafter  the 
‘DGS’)14. From 1 January 2016, the contributions that credit institutions established in Cyprus make 

to  the  resolution  fund  have  been  transferred  to  the  Union’s  single  resolution  fund  in  accordance 

with  the  provisions  of  the  Agreement  on  transfer  and  mutualisation  of  contributions  to  the  single 
resolution  fund15.  The  DGS,  which  is  a  separate  legal  entity,  administers  the  resolution  fund,  the 

deposit guarantee fund for credit institutions and the deposit guarantee fund for credit cooperatives. 

The  funds  are  managed  by  an  independent  commission  of  five  members  that  includes  the  CBC 

Governor, who chairs the Commission, two CBC employees and two employees from the Ministry 
of  Finance16.  The  funds  are  financed  by:  (a)  ordinary  ex  ante  and  extraordinary  ex  post 

contributions levied on institutions licensed in Cyprus; (b) loans or other types of financial support 

from  credit  institutions,  financial  institutions  or  other  third  parties,  in  the  event  that  the  amounts 

collected  are not sufficient to cover  losses and  resolution costs; and  (c) proceeds from  sanctions 

and the liquidation of assets. 

10  
11  

12  
13  
14  

15  

16  

Article 42 of the draft Law on resolution. 

Regulation (ΕU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 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 Resolution Fund and amending Regulation (EU) No 1093/2010 (OJ L 
225, 30.7.2014, p. 1). 
Article 4 of the draft Law on resolution. 
Article 8 of the draft Law on resolution. 

Pursuant to Article 4(1)(b) of the draft Law on a deposit guarantee scheme, one of the DGS’ objectives is ‘financing 
through the Resolution Fund, the adoption of resolution measures as provided in this Law and the Law on resolution 
of credit and other institutions’. The Cypriot DGS was set up under the Law on the establishment and operation of a 
deposit  protection  and  resolution  of  credit  and  other  institutions  scheme  (L.16(I)/2013)  and  other  related  laws  and 
regulations. For a summary description of the DGS see paragraph 1.4 of Opinion CON/2013/10. The draft Law on a 
deposit  guarantee  scheme  aims  to  amend  that  legal  framework  in  order  to  implement  Directive  2014/59/EU  and 
Directive 2014/49/EU in Cyprus. 
Article 11(2) of the draft Law on a deposit guarantee scheme. The Agreement can be found on the Council’s website 
at www.consilium.europa.eu. 
Article 6(2) and Part III of the draft Law on a deposit guarantee scheme.  

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1.6 

In accordance with the ‘no creditor worse off’ principle, shareholders or creditors that have incurred 

greater  losses  in  a  resolution  than  they  would  have  incurred  in  a  winding-up  under  normal 
insolvency proceedings are entitled to the payment of the difference from the resolution fund17. The 

CBC  is  required  to  undertake  a  separate  independent  assessment  for  this  purpose  as  soon  as 
possible after the resolution action is taken18. 

1.7  Procedural  requirements  ensure  that  resolution  measures  are  properly  notified  and  that  the 

authorities involved in resolution and their staff are subject to a confidentiality regime. The CBC, as 

resolution  authority,  and  other  competent  authorities  are  required  to  cooperate  with  each  other. 

Additionally, all competent authorities involved in a resolution are required to provide one another, 

upon  request,  with  all  the  relevant  information  to  carry  out  their  tasks.  The  CBC  is  authorised  to 

impose  administrative  measures  and  administrative  sanctions  for  violation  of  the  draft  Law  on 
resolution and measures taken thereunder19. 

1.8  The  liability  of  the  CBC  Governor,  the  Minister  of  Finance,  the  members  of  the  CBC  Board  of 

Directors  and  CBC  staff  is  limited  to  actions  conducted  in  bad  faith,  gross  negligence  and  wilful 
misconduct20. The liability of the Board of Directors members and senior managers of entities that 

results  from  the  application  of  resolution  tools,  e.g.  a  bridge  institution  or  asset  management 

company, as well as the liability of any other person authorised to act for the CBC under the draft 
Law on resolution, is also limited to gross negligence, bad faith and wilful misconduct21. 

2. 

General observations 

2.1  The  ECB  welcomes  the  draft  laws,  as  they  strengthen  the  tools  and  procedures  available  to  the 

CBC  to  carry  out  effective  preventive  measures,  early  intervention  and  effective  resolution  in  line 

with  the  common  framework  of  intervention  powers,  rules  and  procedures  laid  down  in 

Directive 2014/59/EU. 

2.2  The ECB stresses, however, that it does not opine on whether the draft laws effectively implement 

Directive  2014/59/EU  and  Directive  2014/49/EU  into  Cypriot  law.  The  ECB  focuses  instead  on 

those  provisions  that  may  impact  on  the  roles  and  tasks  of  the  CBC  as  a  central  bank  and  as  a 

member of the European System of Central Banks (ESCB), as well as those provisions that may 
impact the specific tasks conferred on the ECB by Council Regulation (ΕU) No 1024/201322. 

2.3  The  ECB  underlines  that  it  has  developed  guidance,  set  out  in  paragraphs  2.5.1  to  2.5.3,  on  the 

basis  of  which  it  may  decide  whether  a  new  task  conferred  on  an  ESCB  national  central  bank 

(NCB)  is  to  be  considered  a  central  banking  task  or  a  governmental  task  for  the  purposes  of 

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

17  
18  
19  
20  
21  

22  

Article 77 of the draft Law on resolution. 
Article 76(1) (a) of the draft Law on resolution. 
Article 108 of the draft Law on resolution. 

Article 111 of the draft Law on resolution. 
Article  112  of  the  draft  Law  on  resolution.  This  limitation  of  liability  continues  to  apply  after  the  end  of  such  an 
appointment or the accomplishment of such a task. 

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). 

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Treaty23. This guidance applies to genuinely new tasks that either did not exist in the past or did not 

form  an  integral  part  of  the  central  banking  tasks  previously  assigned  to  the  NCB.  The  tasks 

currently discharged by an NCB as central banking tasks are not reviewed and re-categorised, but 

may be reassessed if they are subject to substantive legislative amendments.  

2.4 

In  this  regard,  the  ECB  notes  that  the  CBC  has  had  extensive  powers  to  take  specific  resolution 
measures in relation to credit institutions since 201324. The ECB also notes that the draft Law on a 

deposit guarantee scheme does not confer new tasks on CBC in connection with the operation of 

the  deposit  guarantee  fund  for  credit  institutions  and  the  deposit  guarantee  fund  for  credit 

cooperatives.  The  draft  Law  on  resolution  extends  the  existing  powers  and  responsibilities  of  the 

CBC as the resolution authority for credit institutions, and complements the CBC’s responsibilities 

by also designating it as the resolution authority for investment firms. Whilst the CBC has powerful 

tools  to  intervene  in  distressed  financial  institutions,  such  as  credit  institutions  and  credit 

cooperatives,  which  pose  a  risk  to  financial  stability,  principally  in  the  form  of  a  special 

administration regime, the draft Law on resolution extends the resolution tools, such as the bail-in, 

bridge  institution  and  asset  management  vehicle  tools,  to  investment  firms.  The  draft  Law  on 

resolution should therefore be assessed in the light of the prohibition of monetary financing.  

2.5  The  concrete  assessment  of  whether  the  CBC’s  task  of  acting  as  a  resolution  authority  for 

investment  firms  is  to  be  considered  a  central  banking  task  or  a  governmental  task  is  then 

undertaken in paragraph 3.4 of this opinion. 

2.5.1  General considerations 

First,  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.  

Second, 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. 

Third,  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  governmental  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  governmental  task;  liquidity-related  tasks 

that have the ultimate objective of financing the economy are central banking tasks. 

2.5.2  Specific considerations 

Resolution tasks can be considered central banking tasks, provided that they do not undermine an 

NCB’s independence in accordance with Article 130 of the Treaty. However, the discharge of these 

tasks  by  central  banks  may  not  extend  to  the  financing  of  resolution  funds  or  other  resolution 
financial  arrangements  as  these  are  governmental  tasks25.  This  is  without  prejudice  to  the 

possibility that: (a) central banks may provide short-term financing to deposit guarantee schemes 

23  
24  
25  

See paragraph 2.3 of Opinion CON/2015/22.  

See Opinion CON/2013/10.  
See paragraph 2.3.2 of Opinion CON/2015/22. 

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under  certain  conditions;  and  (b)  NCBs  may  provide  emergency  liquidity  assistance  to  solvent 

credit institutions. 

An important  criterion for qualifying a new task as a governmental task is therefore the impact of 

the  task  on  the  institutional,  financial  and  personal  independence  of  the  NCB.  In  particular,  the 

following should be taken into account. 

First,  it  should  be  assessed  whether  the  performance  of  the  new  task  creates  inadequately 

addressed  conflicts  of  interests  with  existing  central  banking  tasks,  and  does  not  necessarily 

complement  those  existing  central  banking  tasks.  If  a  conflict  of  interest  arises  between  existing 

and  new  tasks,  there  should  be  sufficient  mitigation  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  the  creation  of  an  indefinite  chain  of  ancillary  tasks. 

Complementarity should also be examined from the point of view of the financing of those tasks. 

Second,  it  should  be  assessed  whether  without  new  financial  resources  the  performance  of  the 

new  task  is  disproportionate  to  the  financial  or  organisational  capacity  of  the  NCB  and  may 

negatively impact on its capacity to properly perform existing central banking tasks. 

Third, it should be assessed whether the performance of the new task fits into the institutional set-

up of the NCB in the light of central bank independence and accountability considerations. 

Fourth,  it  should  be  assessed  whether  the  performance  of  the  new  task  harbours  substantial 

financial risks. 

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 which are disproportionate and may also impact on 

their  personal  independence  and,  in  particular,  the  guarantee  of  the  term  of  office  under 

Article 14.2 of the Statute of the European System of Central Banks and of the European Central 

Bank. 

2.5.3  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 governmental task will be guided by the objective of ensuring 

the  consistent  application  of  the  prohibition  of  monetary  financing  within  the  Eurosystem  and  the 

ESCB to the extent that it applies to its members. 

3. 

Specific Observations 

3.1   Role of Minister for Finance in decision making on resolution 

The  draft  Law  on  resolution  provides  that  subject  to  Regulation  (ΕU)  No  806/2014,  the  CBC’s 

decision to place an institution into resolution or take other resolution action is subject to the prior 

approval  of  the  Minister  for  Finance  in  cases  where  the  decision  has  a  direct  fiscal  impact  or 
systemic implications26. The draft Law on resolution also stipulates that the CBC Board of Directors 

shall  have  the  authority  to  exercise  the  responsibilities  and  powers  of  the  resolution  authority  in 

26     See footnote 12. 

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accordance with this Law and Regulation (ΕU) No 806/201427. The ECB understands therefore that 

the Minister’s prior approval may only be required before the resolution authority takes a resolution 

action which has a direct fiscal impact or systemic implications and not when the Single Resolution 

Board  takes  a  resolution  decision  in  accordance  with  Regulation  (ΕU)  No  806/2014.  Accordingly, 

national  ministerial  approval  should  in  no  event  delay  or  hinder  effective  resolution  action  by  the 

Single Resolution Board.  

3.2   Topping up the funds managed under the DGS 

The  draft  Law  on  a  deposit  guarantee  scheme  provides  that  the  funds  can  be  financed  through 

loans and other forms of financial support in the event that ordinary ex ante and extraordinary ex 
post  contributions  are  not  immediately  accessible  or  sufficient28.  However,  the  draft  Law  on  a 

deposit guarantee scheme does not further specify: (a) the financial institutions or the third parties 

that  are  allowed  to  provide  financial  support;  (b)  the  nature  of  eligible  financial  support 

arrangements;  or  (c)  the  terms  and  conditions  of  any  such  arrangements.  As  the  ECB  has 

repeatedly  stated  in  the  past,  in  line  with  the  prohibition  of  monetary  financing,  an  NCB  may  not 

finance  any  resolution  fund.  Where  an  NCB  acts  as  resolution  authority,  it  should  in  no  event 
assume  or  finance  any  obligation  of  either  a  bridge  institution  or  asset  management  vehicle29.  In 

the same vein, any national legislation that provides for a deposit guarantee scheme to be financed 

by an ESCB NCB would only be compatible with the prohibition of monetary financing under Article 

123  of  the  Treaty  where  certain  restrictive  conditions  are  met,  i.e.  such  financing  is  short-term,  it 

addresses urgent situations, systemic stability issues are at stake and  decisions are made at the 
NCB’s  discretion30.  The  ECB  expects  these  conditions  to  be  fulfilled  with  regard  to  any  potential 

involvement by the CBC in the alternative funding arrangements of the DGS. 

3.3  Structural arrangements within the CBC to ensure operational independence and avoid conflicts of 

interests 

In  observance  of  the  principle  of  organisational  autonomy,  the  CBC  is  expected  to  implement 

measures  to  ensure  operational  independence  between  the  tasks  related  to  crisis  management 

and its other tasks as well as to establish mechanisms for cooperation and coordination between 

the different structures and authorities involved. 

3.4   Conferral of new resolution tasks on the CBC  

In addition to expanding the CBC’s existing resolution powers in respect of credit institutions in line 

with  Directive  2014/59/EU,  the  draft  Law  on  resolution  designates  the  CBC  as  the  resolution 

authority for investment firms, broadening its existing responsibilities so as to include the power to 

propose placing investment firms into resolution and to take resolution measures in respect of such 

entities.  In  the  light  of  the  guidance  set  out  in  paragraphs  2.5.1  to  2.5.3,  it  must  be  assessed 

27     Article 4(1) of the draft Law on resolution. 
28  

See Article 15(b) of the draft Law on a deposit guarantee scheme. In the case of a group resolution, Article 13(2) of 
that  draft  law  provides  that  the  DGS  may  enter  into  loan  agreements,  or  receive  other  forms  of  support  from 
institutions or other third parties, or guarantee any loans entered into through financial arrangements at group level.  

29     See the ECB’s 2014 Convergence Report, p. 30. 
30 

See the ECB’s 2014 Convergence Report, p. 30. See also paragraph 3.2 of Opinion CON/2015/40; paragraph 4.1 of 
Opinion CON/2015/17; paragraph 2.2 of Opinion CON/2014/86; and paragraph 3.1.3 of Opinion CON/2011/76. 

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whether  the  CBC’s  new  tasks  and  responsibilities  in  this  field  could  constitute  a  breach  of  the 

prohibition of monetary financing.  

3.4.1  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 
tasks31. In this respect the ECB notes that the provisions of the draft laws authorise the CBC in its 

capacity  as  a  resolution  authority  to  require  institutions  to  pay  all  the  operating  expenditures  and 

costs incurred during the performance of its responsibilities and powers in order to safeguard the 
CBC’s financial independence32.  

3.4.2  Links to tasks listed in Article 127(2), (5) and (6) of the Treaty  

Administrative resolution tasks are considered tasks related to those referred to in Article 127(5) of 

the Treaty, based on the understanding that administrative resolution tasks and supervisory tasks 

complement each other. In the case of the extension of CBC’s responsibility to resolution tasks in 

respect  of  investment  firms,  such  new  tasks  may  also  be  considered  related  to  tasks  under 

Article 127(5)  of  the  Treaty  by  analogy  with  the  complementarity  of  the  CBC’s  resolution  tasks  in 

respect of credit institutions and credit cooperative institutions with that of its existing supervisory 

and financial stability tasks. 

3.4.3  Atypical tasks 

A  number  of  Member  States  have  conferred  on  their  NCBs  a  significant  role  in  the  resolution  of 

credit and financial institutions, whether as the resolution authority or as a competent authority, in 

the  decision-making  process  for  resolution.  The  ECB  has  generally  welcomed  the  allocation  of 

such  tasks  to  NCBs  provided  they  do  not  interfere  financially  and  operationally  with  the 
performance of the NCB’s ESCB-related tasks33. The new resolution tasks of the CBC in respect of 

investment  firms  can  therefore  be  regarded  as  being  tasks  not  atypical  of  a  central  bank, 

particularly  if,  as  in  the  case  of  the  CBC,  it  already  had  tools  to  intervene  in  distressed  financial 

institutions that pose a risk to financial stability. 

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

entities 

Whilst the CBC is designated as the sole resolution authority and takes resolution measures acting 

as an administrative authority in the exercise of public functions in its own name, and not on behalf 

of any other authority, it is required, before placing a credit or financial institution into resolution or 

taking  other  resolution  action  to  obtain  the  prior  approval  of  the  Minister  for  Finance  where  the 

decision has a direct fiscal impact or systemic implications. This provision implements Article 3(6) 

of Directive 2014/59/EU and ensures that the CBC has ultimate control over any decision related to 

a resolution matter that could affect the CBC’s financial independence. There is no indication that 

31     See the ECB’s Convergence Report, 2014, p. 25. 
32   
See Article 8 of the draft Law on resolution.  
33  

See  paragraphs  2.1,  2.3  and  paragraph  3.2.4  of  Opinion  CON/2015/22,  paragraph  4.1  of  Opinion  CON/2014/60, 
paragraph  2.1  of  Opinion  CON/2013/73,  paragraph  2.3  of  Opinion  CON/2011/72,  paragraph 2.2  of  Opinion 
CON/2011/83, and paragraph 2.2 of Opinion CON/2011/39.  

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in  discharging  its  resolution  function  the  CBC  acts  exclusively  in  the  interest  of  another  public 

entity.  

3.4.5  Extent to which conflict of interests with existing tasks are addressed 

Pursuant to existing law and the draft Law on resolution34, the CBC will adopt and publish all the 

relevant internal rules in order to ensure that there is no conflict of interest and that the operational 

and  organisational  independence  of  the  department  carrying  out  resolution  functions  from  the 

CBC’s other tasks is respected. The ECB expects the CBC’s internal rules to adequately address 

potential conflicts of interest between the resolution function and the CBC’s other tasks, particularly 

in connection with the resolution of credit institutions. With regard to the CBC’s resolution functions 

in respect of investment firms, conflicts of interest should be avoided when the Cyprus Securities 

and Exchange Commission is the supervisory authority for investment firms.  

3.4.6  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 

The  conferral  of  these  tasks  on  the  CBC  raises  questions  concerning  the  operational  capacity  of 

the CBC. The CBC will need to ensure that there are the necessary resources, including adequate 

staff  and  skills,  which  are  essential  for  the  performance  of  its  new  functions  as  the  resolution 

authority for investment firms. The CBC should ensure that its capacity to perform its ESCB-related 

tasks and existing supervisory functions will not be affected by the assumption of these new tasks. 

3.4.7  Extent to which the performance of tasks involves substantial financial risks 

The  draft  Law  on  resolution  provides  that  the  liability  of  the  CBC’s  Governor,  the  Minister  of 

Finance, the members of the CBC Board of Directors and CBC staff is limited to actions conducted 
in  bad  faith,  gross  negligence  and  to  wilful  misconduct.35  The  draft  Law  on  resolution,  however, 

does not set out the CBC’s liability regime. This could result in financial risks for the CBC due to 

potential  liability  issues.  The  ECB  considers  that  it  would  be  useful  to  align  the  CBC’s  liability 

regime with the liability regime relating to these individuals under the draft Law on resolution. 

3.4.8  Conclusion 

The ECB considers that there are grounds for regarding the CBC’s expanded resolution tasks as 

central  banking  tasks,  in  the  sense  that  they  complement  the  CBC’s  existing  supervisory  and 

resolution  functions.  The  fact  that  the  CBC  may  require  institutions  to  pay  all  the  operating 

expenditures  and  costs  incurred  during  the  performance  of  its  responsibilities  safeguards  the 

CBC’s  financial  independence.  However,  the  CBC  will  need  to  ensure  that  the  extension  of  its 

tasks  to  cover  the  resolution  of  investment  firms  will  not  affect  its  capacity  to  perform  its  ESCB-

related and supervisory tasks and that there are adequate resources and staff for the performance 

of its new responsibilities. In addition, the CBC’s liability regime should be aligned with the liability 

regime of the Governor, the Minister of Finance, the members of the CBC Board of Directors and 

CBC staff in order to limit potential liability issues that could present financial risks for the CBC. 

34  
35  

Article 6(3)(b) of the draft Law on resolution. 
Article 111 of the draft Law on resolution. 

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3.5   Cooperation  and  exchange  of  information  between  the  resolution  authority  and  other  relevant   

authorities, including the Cyprus Securities and Exchange Commission. 

The draft Law on resolution provides for cooperation and the exchange of information between the 

CBC  and  the  competent  supervisory  authorities,  including  the  Cyprus  Securities  and  Exchange 

Commission,  in  order  to  perform  their  respective  tasks,  each  keeping  in  mind  the  impact  of  their 
performance on the other36. The ECB welcomes these provisions as they will enable the relevant 

authorities to perform their statutory tasks in a coordinated fashion.  

3.6  Resolution planning  

The  draft  Law  on  resolution  stipulates  that  when  the  CBC  evaluates  resolution  plans  for  specific 

institutions,  it  must  not  assume  that  extraordinary  public  financial  support  will  be  granted,  other 

than  the  use  of  resources  from  the  resolution  fund.  There  shall  be  no  assumption  that  general 

central  bank  emergency  liquidity  assistance  or  specific  central  bank  liquidity  assistance  provided 
under  non-standard  collateralisation,  tenor  and  interest  rates  terms  will  be  granted37.  While  this 

appears  to  be  in  line  with  the  requirements  of  Directive  2014/59/EU,  the  ECB  emphasises  that 

these provisions do not in any way affect the competence of central banks to decide independently 

and  in  their  full  discretion  on  the  provision  of  central  bank  liquidity  to  solvent  institutions,  both 

through standard monetary policy operations and emergency liquidity  assistance, within the limits 
imposed by the prohibition of monetary financing under the Treaty38. 

3.7  Establishment of a bridge institution 

Pursuant  to  the  draft  Law  on  resolution,  the  CBC  approves  a  bridge  institution’s  (or  asset 

management  vehicle  company’s)  memorandum  of  association  and  articles  of  association,  the 

appointment  of  the  members  of  its  management  and  supervisory  bodies,  their  remuneration  and 

any conferral of delegations, and may impose restrictions on its activity to ensure compliance with 

applicable legislation on State aid. In this respect, the ECB underlines that under Regulation (ΕU) 

No 1024/2013’s provisions on the ECB’s responsibilities with regard to the authorisation of a credit 
institution to be established in a participating Member State39, the ECB is the only authority with the 

power to grant the banking licence necessary for the bridge institution to have access to the activity 

of credit institutions, irrespective of the context and the size of the institution which is being created. 

Additionally,  if  the  bridge  institution  is  not  able  to  comply  with  the  requirements  for  authorisation 

from  the  intended  start  of  its  operations,  then  the  resolution  authority  shall  request  a  temporary 

exemption from some or all of these requirements. As the competent authority, the ECB will assess 

the request and if it decides to grant such an authorisation, it will indicate the period for which the 
bridge institution is waived from complying with the relevant requirements40. 

36  
37   
38  
39  
40  

See Article 84, Article 85(4) to (5) and Article 89 of the draft Law on resolution.  
Articles 10(3)(b) and 18(1)(a) of the draft Law on resolution. 
See paragraph 3.2 of Opinion CON/2012/99 and paragraph 3.3 of Opinion CON/2014/67. 

See Articles 4 and 14 of Regulation (EU) No 1024/2013. 
See Article 41(1) of Directive 2014/59/EU. 

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3.8  Determination of failing or likely to fail  

The draft Law on resolution stipulates that the CBC, acting as resolution authority, will have to be 

consulted on the determination of whether an institution is failing or likely to fail in the event of the 

national competent authority (NCA) making a determination in line with the first alternative listed in 
Article 32(1)(a)  of Directive 2014/59/EU41. Directive 2014/59/EU  assigns the failing  or likely to fail 

assessment, as a  rule,  to  the  respective  supervisory authority, i.e. the ECB  or  NCAs, in  line  with 

the  distribution  of  competences  under  Regulation  (ΕU)  No  1024/2013.  Additionally,  pursuant  to 

Article  9(1)(2),  Article  4(1)(e)  and  Article  4(3)  of  Regulation  (EU)  No 1024/2013  and 
Article 104(1)(b) of Directive 2013/36/EU of the European Parliament and of the Council42, the ECB 

shall have all the powers of the competent and designated authorities under the applicable Union 
law to ensure compliance with these Union law requirements by significant institutions43. According 

to Article 18(1), read in conjunction with Article 7(2), (4)(b) and (5) of Regulation (EU) No 806/2014, 

it is the ECB, after consulting the Single Resolution Board (SRB), which shall make the failure or 

likely  to  fail  assessment  for  credit  institutions  falling  within  the  competence  of  the  SRB  for  the 

adoption of a resolution scheme from 1 January 2016.  

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

Done at Frankfurt am Main, 1 February 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

41  
42  

43  

See Article 42(1)(a) of the draft Law on resolution. 
Directive 2013/36/EU of 26  June 2013 of  the European Parliament and of  the Council on access  to the activity  of 
credit  institutions  and  the  prudential  supervision  of  credit  institutions  and  investment  firms,  amending  Directive 
2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC (OJ L 176, 27.6.2013, p. 138). 
See paragraph 3.3 of Opinion CON/2015/19.  

11