Opinion of the European Central Bank of 17 March 2016 on the establishment and operation of immovable property conveyancing organisations (CON/2016/16)
Date: 2016-03-17
Institutions: European Central Bank
Subjects: Cyprus, financial stability, financial supervision, property market, real estate business, real estate market, real property, transfer of property

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17  March 2016 

on the establishment and operation of immovable property conveyancing organisations 

(CON/2016/16) 

Introduction and legal basis 

On 5 February 2016 the European Central Bank (ECB) received a request from the Cypriot Minister for 

Finance for an opinion on a draft law establishing and regulating how immovable property conveyancing 

organisations operate (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 and the third indent of Article 2(1) of Council Decision 98/415/EC1, 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 

1.1  The purpose of the draft law is to create a new category of institution (‘escrow institutions’) whose 

aim  is  to  safeguard  the  interests  of  immovable  property  buyers.  The  draft  law  requires  any 

immovable property transfer to be carried out through an escrow institution that provides contract 

management and immovable property transfer services pursuant to the provisions of the draft law. 

As  noted  in  the  explanatory  memorandum  accompanying  the  draft  law,  escrow  institutions  will 

ensure  that  immovable  property  transfers  will  take  place  as  soon  as  the  buyer  has  fulfilled  his 

contractual  obligations.  The  draft  law  regulates  the  terms  and  conditions  governing  the  licensing 

and  operation  of  the  escrow  institutions  providing  these  services.  It  also  entrusts  the  CBC  with 

authorising, regulating and supervising these institutions.  

1.2  The  draft  law  addresses  the  need  in  Cyprus  for  title  deeds  to  be  issued  more  quickly,  an  issue 

which is being addressed in the framework of the economic adjustment programme for Cyprus.  

1.3  Under  the  draft  law,  only  escrow  institutions  that  are  incorporated  in  Cyprus  and  licensed  by  the 
CBC may provide contract management and immovable property transfer services2. In addition, the 

draft  law  sets  out  the  types  of  activities  that  escrow  institutions  will  carry  out,  as  well  as  the 
obligations  they  must  meet  during  the  performance  of  their  duties3.  Furthermore,  the  draft  law 

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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). 

See Article 8(1) and 8(2) of the draft law. 
See Article 7 and 21 of the draft law. 

 
 
 
 
                                                 
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defines the CBC’s supervisory and regulatory powers with respect to escrow institutions, including 

the  power  to  take  enforcement  measures  and  impose  sanctions,  and  puts  in  place  a 

comprehensive legal framework that regulates these institutions and the services they provide. 

1.4  The  draft  law  sets  out  the  application  procedure  that  an  escrow  institution  must  go  through  to 

obtain  authorisation,  including  the  documentation  that  the  applicant  institution  must  submit  to  the 

CBC. It also stipulates that the CBC will only grant an authorisation if specific conditions are met. In 

particular, the CBC must be satisfied that the escrow institution: (a) is in a position to fully comply 

with  the  draft  law  and  the  CBC  directives  adopted  on  the  basis  of  the  draft  law;  (b)  has 

shareholders  with  the  capacity  to  ensure  the  organisation’s  sound  and  prudent  management; 

(c) has  members  of  its  administrative  body  in  good  standing  with  sufficient  knowledge, 

qualifications and experience to carry out their duties; and (d) has no close professional or personal 

links  with  any  other  entity  or  individual  that,  in  the  CBC‘s  opinion,  could  prevent  the  CBC  from 
carrying out effective supervision4. There are also provisions requiring individuals to notify the CBC 
of any changes to their special holdings in escrow institutions5, which will have to be approved by 

the CBC. In cases where an individual fails to follow the notification procedure set out in the draft 

law,  the  CBC  Governor  may  impose  administrative  fines  of  up  to  one  million  euro.  If  the 

infringement  continues,  the  Governor  may  impose  administrative  fines  ranging  from  200  to 
100 000 euro for each day that the infringement continues6. 

1.5  The  draft  law  also  sets  out:  (a)  the  CBC’s  supervisory  powers  over  escrow  institutions  and  other 

supervisory  requirements  relating  to  minimum  capital  requirements;,  (b)  the  assessment  of  the 

company’s management body and key function holders; (c) the procedure for reporting to the CBC; 

(d) the CBC’s access to a company’s books and records; (e) the CBC’s confidentiality duties; and 
(f) the imposition of supervisory measures and sanctions by the CBC 7. 

1.6  The draft law gives the CBC the power, pursuant to its own directives and guidelines, to: (a) set out 
procedures  to  grant,  suspend  and  revoke  authorisation  for  institutions8;  (b)  determine  the  criteria 
for  measuring  the  fitness  and  probity  of  shareholders,  directors  and  key  function  holders9; 
(c) regulate the internal organisation and governance of escrow institutions10 and the fees charged 

by the institutions for the services they provide pursuant to the draft law and the Law on immovable 
property contracts and conveyancing11; and (d) to determine the sum insured and the method for 

determining  the  sum  insured  under  professional  liability  insurance  as  well  as  the  amount  of  the 
guarantee against liability as a result of professional negligence12. 

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See Article 8(5) of the draft law. 
See  Article  16  of  the  draft  law,  which  sets  out  the  relevant  qualifying  thresholds  and  the  procedure  for  the  CBC’s 
approval. 

See Article 16(5) of the draft law. 
See Articles 18 to 23 and 29 to 32 of the draft law. 

See Article 12 of the draft law and Article 31(a) of the draft law. 
See Article 31(b) of the draft law. 
See Article 31(c) of the draft law. 

See Article 31(d) of the draft law. 
See Article 31(e) of the draft law. 

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1.7  Finally, the draft law provides that the CBC has the power to require escrow institutions to pay all 

licensing and supervision costs in accordance with the CBC’s directives13. 

2. 

General observations 

2.1  The ECB notes that the aim of the draft law is to provide legal certainty and confidence with regard 

to  the  transparency  and  safety  of  the  sales  process  in  the  Cypriot  real  estate  market.  These 

measures will have an impact on the payment of arrears that affect bank balance sheets in Cyprus, 

which may be indirectly beneficial to preserving financial stability in Cyprus. 

2.2  By giving the CBC specific regulatory and supervisory authority over escrow institutions, the draft 

law  is  primarily  aimed  at  ensuring  that  these  institutions  carry  out  their  activities  properly  that 

individuals and organisations that purchase real estate in Cyprus are adequately protected.  

2.3  The ECB underlines that, as regards conferring new 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 Treaty14. The ECB has developed the guidance set 

out in paragraphs 2.3.1 to 2.3.3 of this Opinion, in the form of general and specific considerations, 

on the basis of which it may determine whether a new 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 the 

monetary financing prohibition. The concrete assessment of whether the CBC’s task of supervising 

escrow institutions should be considered a central banking task or a government task is addressed 

in paragraph 3.1 of this opinion. 

2.3.1  General considerations 

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

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

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

central  banking  traditions  and  national  set-ups,  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 legislative amendments of substance. 

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 ones listed in 

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

Fourth,  new  tasks  conferred  on  an  NCB  that  are  atypical  of  NCBs’  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.  

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14  

See Article 8(7) of the draft law. 

See  paragraph  2.3  of  Opinion  CON/2015/22.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

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2.3.2  Specific considerations 

An important criterion for qualifying a new task as a government tasks 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  inadequately 

addressed  conflicts  of 

interests  with  existing  central  banking 

tasks,  without  necessarily 

complementing  the  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 broadly, as this could lead to the creation of an indefinite chain of ancillary 

tasks.  The  assessment  of  the  complementarity  of  a  new  task  should  also  take  into  account  the 

financing of that task. 

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

new task places a disproportionate burden on the financial or organisational capacity of the NCB 

concerned,  and  may  negatively  impact  its  capacity  to  properly  perform  existing  central  banking 

tasks.   

Third,  it  should  be  assessed  whether  the  performance  of  the  new  task  is  aligned  with  the 

institutional  set-up  of  the  NCB,  in  particular  as  regards  central  bank  independence  and 

accountability considerations. 

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

risks. 

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

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

impact on their personal independence, including, 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. 

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

scope of  central banking tasks or government tasks 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  Conferring the task of supervising escrow institutions on the CBC 

The  draft  law  designates  the  CBC  as  the  supervisory  authority  for  escrow  institutions.  This 

broadens its current functions and activities, which include supervising the activities of authorised 
credit  institutions,  including  asset  management  activities15  and  other  financial  institutions,  and 

15  

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. 

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ensuring  the  stability  of  the  financial  system16.  In  the  light  of  the  guidance  set  out  in 

paragraphs 2.3.1 to 2.3.3, it must be assessed whether the CBC’s new task constitutes 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,  but  also  their  national  tasks,  from  an  operational  and  financial 
perspective17.  Further,  when  allocating  specific  non-ESCB-related  tasks  to  the  NCBs,  additional 

staff  and  financial  resources  must  also  be  allocated  so  that  these  tasks  can  be  carried  out  in  a 
manner that will not affect the NCBs’ operational capacity to perform their ESCB-related tasks18. In 

this  regard,  the  draft  law  provides  that  the  CBC  has  the  power  to  require  that  escrow  institutions 
pay all the costs related to their licensing and supervision in accordance with the CBC directives19, 

so as to safeguard the CBC’s financial independence.  

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

Supervision over escrow institutions can be considered a task that is primarily designed to provide 

legal  certainty  and confidence  with  regard to the transparency  and safety of the  sales  process in 

the  Cypriot  real  estate  market.  Escrow  institutions  can  further  improve  the  payment  of  arrears  of 

buyers  and  sellers  of  immovable  properties,  thus  affecting  the  balance  sheets  of  banks,  which 

could  indirectly  assist  in  preserving  financial  stability  in  Cyprus.  However  ,  the  ECB  does  not 

consider that the CBC’s tasks of supervising escrow institutions is related to the financial stability 

and prudential supervisory tasks referred to in Article 127 (5) of the Treaty, or that it complements 

the  CBC’s  supervision  of  financial  institutions  or  the  CBC’s  task  of  ensuring  the  stability  of  the 
financial system20.  

3.1.3  Atypical tasks 

Currently, escrow institutions do not exist in other Member States; as such, the supervision of such 

institutions  is not assigned to any  other ESCB  member.  The  ECB  considers  this  new  task to be 

completely atypical for an NCB.  

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 of escrow institutions. Ensuring that these 

institutions  carry  out  their  functions  properly  and  that  immovable/real  property  buyers  are 

adequately protected are public policy objectives which do not fall within the objectives of a central 

bank. As such, the draft law is considered as conferring on the CBC a task that is exercised in the 

exclusive interest of the government and of other public entities. The performance of this task by 

the CBC raises issues of central bank independence and accountability, in particular with regard to 

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Article 6(2)(e) of the Laws of 2002 to 2007 on the Central Bank of Cyprus.  
See the ECB’s 2014 Convergence Report, p. 25. 
See, for example, paragraph 3.1.2 of Opinion CON/2016/6. 

See Article 8(7) of the draft law. 
Article 6(2)(e) of the Laws of 2002 to 2014 on the Central Bank of Cyprus. 

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the  CBC  assuming  accountability  in  the  governance  of  the  sometimes  contentious  area  of  real 

estate transactions.  

3.1.5  Extent to which the performance of the new task is aligned with the institutional set-up of the CBC 

The task conferred on the CBC by the draft law does not appear to fit into the institutional set-up of 

the CBC. The different nature of this new task, compared to those that are currently exercised by 

the CBC, means that it could not be readily assimilated into any of the CBC’s existing departments. 

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  in  paragraph  3.1.1,  the  draft  law  provides  for  the  CBC’s  costs  for  licensing  and 

supervising escrow institutions to be covered by such institutions. However, conferring this task on 

the  CBC  raises  questions  concerning  the  CBC’s  operational  capacity.  The  CBC  would  need  to 

ensure  that  it  has  the  necessary  staff with  the  appropriate  skills that  are  considered  essential  for 

the  supervision  of  these  institutions.  The  CBC  would  also  need  to  ensure  that  its  capacity  to 

perform  its  ESCB-related  tasks  and  existing  supervisory  functions  would  not  be  affected  by  the 

assumption of these new tasks. 

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

The draft law contains provisions excluding or limiting the CBC’s liability, as well as the liability of 

any CBC director or officer, for any act or omission committed during the exercise of powers and 

responsibilities  vested  in  the  CBC  –  either  as  a  result  of  the  draft  law  or  as  a  result  of  any 

regulations issued pursuant to the draft law – unless such an act or omission was not carried out in 
good faith or was the result of gross negligence21. The CBC’s liability under the draft law is aligned 

with the liability concerning its supervision of credit institutions.  

3.1.8  Conclusion 

The  new 

task  of  supervising  escrow 

institutions,  and 

thereby  protecting  purchasers  of 

immovable/real property, serves public policy objectives that fall outside the objectives of a central 

bank. This task is also atypical for an ESCB member and does not complement the CBC’s existing 

supervisory  or  financial  stability  functions.  For  these  reasons,  this  task  is  not  considered  by  the 

ECB to be a central banking task, and its conferral on the CBC thus raises issues of central bank 

independence  and  accountability,  particularly  since  the  task  concerns  the  sometimes  contentious 

nature of real estate transactions. 

It  is  acknowledged  that  requiring  supervised  escrow  institutions  to  finance  the  new  supervisory 

function  will  have  a  positive  impact  on  the  CBC’s  financial  capacity  to  assume  the  new  task.  In 

addition, it appears that no substantial financial risks are presented since the CBC’s liability under 

the  draft  law  is  aligned  with  its  liability  concerning  its  supervision  of  credit  institutions.  However, 

conferring the new task on the CBC raises questions regarding the CBC’s operational capacity to 

perform the task. The CBC would need to ensure that it has the necessary staff, with appropriate 

21  

See  Article  30  of  the  draft  law.  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. 

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skills,  to  supervise  escrow  institutions  and  ensure  that  its  capacity  to  perform  its  ESCB-related 

tasks and existing supervisory functions would not be affected. In view of these considerations, the 

ECB  wishes  to  express  considerable  concern  about  the  proposed  assignment  of  this  task  to  the 

CBC. 

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

Done at Frankfurt am Main, 17 March 2016. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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