Opinion of the European Central Bank of 17 February 2017 on conferring new mortgage credit-related tasks on the Central Bank of Cyprus (CON/2017/3)
Date: 2017-02-17
Institutions: European Central Bank
Subjects: Cyprus, banking supervision, central bank, consumer credit, consumer information, national law, real estate credit

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 17 February 2017 

on conferring new mortgage credit-related tasks on the Central Bank of Cyprus 

(CON/2017/3) 

Introduction and legal basis 

On 27  January  2017 the  European Central  Bank (ECB) received a  request from the Cypriot Ministry of 

Finance  for  an  opinion  on  a  draft  law  on  credit  agreements  for  consumers  relating  to  residential 

immovable property (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 transpose Directive 2014/17/EU of the European Parliament and 
of  the  Council2  into  Cypriot  law,  with  a  view  to  enhancing  consumer  protection  in  respect  of 

consumer  loans  for  the  acquisition  of  real  estate  or  which  are  secured  by  residential  immovable 

property.  Under  the  Directive,  Member  States  must  designate  a  national  competent  authority  to 

ensure  the  application  and  enforcement  of  its  provisions.  Such  competent  authorities  must  either 

be  public  authorities  or  entities  recognised  by  national  law  or  by  public  authorities  expressly 

empowered  for  that  purpose  by  national  law.  Such  competent  authorities  may  not  be  creditors, 
credit intermediaries or appointed representatives3.  

1.2. 

In  the  draft  law,  the  CBC  is  designated  as  a  competent  authority,  together  with  the  Consumer 

Protection  Service  of  the  Republic  of  Cyprus  (hereinafter  the  ‘Service’),  responsible  for  the 

application  and  enforcement  of  certain  of  the  rules  that  implement  Directive  2014/17/EU  into 

national legislation. More specifically, the CBC and the Service are jointly responsible for: (a) the 

adoption  of  criteria  determining  a  representative  example  in  relation  to  certain  information  to  be 

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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). 

Directive  2014/17/EU  of  the  European  Parliament  and  the  Council  of  4  February  2014  on  credit  agreements  for 
consumers  relating  to  residential  immovable  property  and  amending  Directives  2008/48/EC  and  2013/36/EU  and 
Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, p. 34). 

See Article 5(1) of Directive 2014/17/EU. 

 
 
 
 
                                                 
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included  in  advertising  concerning  credit  agreements;  (b)  the  provision  of  general  information, 

including warnings, and adequate explanations to consumers on credit agreements; (c) the use of 

the terms ‘independent advice’ and ‘independent advisor’ in the course of the provision of advisory 

services by creditors; (d) the use by the parties to a credit agreement of clear, accessible, objective 

and verifiable indexes or reference rates to calculate the borrowing rate; and (e) cooperation with 

the competent authorities of other Member States.  

While  the  Service  is  designated  as  the  competent  authority  for  certain  matters  (i.e.  the  financial 

education of consumers, the requirements to be met in advertising and marketing communications, 

pre-contractual  information,  the  requirement  to  inform  consumers  of  the  procedure  for  internal 

registration  of  complaints  about  credit  intermediaries  and  the  means  of  recourse  to  out-of-court 

complaint  and  redress  procedures,  certain  matters  related  to  foreign  currency  loans,  and  early 

repayment),  all  remaining  requirements  not  specifically  attributed  to  the  Service  or  jointly  to  the 

Service  and  the  CBC  fall  within  the  exclusive  competence  of  the  CBC.  These  include  the 

monitoring of conduct of business obligations by creditors and credit intermediaries when providing 

credit  to  consumers,  as  well  as  the  knowledge  and  competence  requirements  for  their  staff, 

ensuring  that  relevant  information  is  provided  free  of  charge  to  consumers,  the  calculation  of  the 

annual  percentage  rate  of  charge,  the  assessment  of  consumers’  creditworthiness,  ensuring 

access  for  all  creditors  of  all  Member  States  to  the  databases  used  in  Cyprus,  the  provision  of 

advisory services by creditors and credit intermediaries, certain matters related to foreign currency 

loans,  and  certain  requirements  on  the  sound  execution  of  credit  agreements  and  related  rights 

including matters related to arrears and foreclosure. 

1.3.  Furthermore,  the  draft  law  designates  the  CBC  as  the  competent  authority  for  the  licensing  and 

supervision  of  credit  intermediaries  and  of  non-credit  institutions  which  intend  to  provide  credit 
under the draft law. In particular, the CBC will be responsible for: (a) licensing credit intermediaries 

and  non-credit  institutions;  (b)  ensuring  that  all  licensed  credit  intermediaries  and  non-credit 

institutions  comply  with  the  professional  requirements  set  out  in  the  draft  law;  (c)  refusing  or 

withdrawing the license of credit intermediaries and non-credit institutions; (d) imposing sanctions 

in  case  of  infringements;  (e)  carrying  out  supervisory  controls;  and  (f)  carrying  out  notification 

procedures which allow licensed credit intermediaries to operate throughout the Union. 

2. 

Observations 

2.1.  General observations 

2.1.1. This  opinion  does not  address  whether the  draft law  effectively implements Directive 2014/17/EU 

into Cypriot law. The ECB will only assess those provisions of the draft law that may impact on the 

role  and  tasks  of  the  CBC  as  a  central  bank,  national  supervisory  authority  and  member  of  the 

Eurosystem and the European System of Central Banks (ESCB).  

2.1.2. The draft law broadens the CBC’s current supervisory functions by assigning to it responsibility for 

the supervision and regulation of the market for credit agreements relating to residential immovable 

property.  To  this  end,  the  draft  law  expands  the  categories  of  entities  over  which  the  CBC 

exercises prudential supervision to include credit intermediaries which in the course of their trade, 

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business  or  profession  present  or  offer  credit  agreements  to  consumers,  assist  consumers  by 

undertaking  preparatory  work  in  respect  of  credit  agreements  or  conclude  such  agreements  on 

behalf  of  creditors,  as  well  as  non-credit  institutions  which  intend  to  grant  credit  pursuant  to  the 

draft law.  

2.1.3. With  respect  to  the  competences  entrusted  to  the  Service  by  the  draft  law,  it  is  noted  that  they 

result  in  certain  powers  that  parallel  those  of  the  CBC.  In  this  regard,  the  ECB  understands  that 

national  authorities  shall  closely  cooperate  in  exercising  their  powers  without  adversely  affecting 
their respective supervisory responsibilities4. 

2.2.  Conferral of new tasks on the CBC 

2.2.1  The ECB underlines that, in the context of a proposed conferral of tasks on a national central bank 

(NCB)  in  the  ESCB,  it  is  necessary  to  assess such conferral  against  the  prohibition  on  monetary 

financing under Article 123 of the Treaty. For the purposes of that prohibition, Article 1(1)(b)(ii) of 
Council  Regulation  (EC)  No  3603/935  defines  ‘other  type  of  credit  facility’,  inter  alia,  as  ‘any 

financing of the public sector’s obligations vis-à-vis third parties’.  

As  the  objective  of  the  monetary  financing  prohibition  of  maintaining  a  sound  budgetary  policy  of 

Member States may not be circumvented, the task of financing measures which are normally the 

responsibility of the Member States, and financed from their budgetary sources rather than by the 

NCBs,  must  not  be  entrusted  to  NCBs  by  law.  In  order  to  decide  what  constitutes  a  form  of 

financing of the  public sector’s obligations vis-à-vis third parties –  which can be translated  as the 

provision of central bank financing outside the scope of the central bank tasks – an assessment of 

whether the task to be undertaken by an NCB is a central bank task or a government task, i.e. a 

task  within  the  responsibility  of  the  Member  States,  needs  to  be  carried  out  on  a  case-by-case 

basis. In other words, sufficient safeguards must be in place to ensure that circumventions of the 

objective of the monetary financing prohibition of maintaining a sound budgetary policy of Member 

States do not take place. 

2.2.2  As part of its discretion in the exercise of its duty, on the basis of Article 271(d) of the Treaty and 

Article 35.6 of the Statute of the European System of Central Banks and of the European Central 

Bank (Statute of the ESCB), to ensure that NCBs honour the obligations laid down by the Treaty, 

the Governing Council has endorsed safeguards of that kind in the form of criteria for determining 

what may be seen as falling within the scope of a public sector’s obligation within the meaning of 

Article 1(1)(b)(ii) of Regulation (EC) No 3603/93 or, in other words, constitute a government task as 

follows:  

First, central bank tasks are in particular those tasks that are  related to the tasks that have been 

conferred upon the ECB and the NCBs by the Treaty and the Statute of the ESCB. These tasks are 

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5  

See  paragraph  2  of  Opinion  CON/2016/23.  All  ECB  opinions  are  published  on  the  ECB’s  website  at 
www.ecb.europa.eu. 

Council  Regulation  (EC)  No  3603/93  of  13  December  1993  specifying  definitions  for  the  application  of  the 
prohibitions referred to in Articles 104 and 104b(1) of the Treaty (OJ L332, 31.12.1993, p. 1). 

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mainly defined in Article 127(2), (5) and (6) and Article 128(1) of the Treaty, as well as Article 22 

and Article 25.1 of the Statute of the ESCB.  

Second, as Article 14.4 of the Statute of the ESCB allows NCBs to perform ‘other functions’, new 

tasks, i.e. tasks that are not related to tasks that have been conferred upon the ECB and the NCBs, 

are  not  precluded  per  se.  However,  new  tasks  that  are  undertaken  by  an  NCB  and  which  are 

atypical of NCB tasks or which are clearly discharged on behalf of and in the exclusive interest of 

the government or of other public sector entities should be considered government tasks.  

Third, an important criterion for qualifying a new task as atypical of an NCB task or as being clearly 

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

entities  is  the  impact  of  the  task  on  the  institutional,  financial  and  personal  independence  of  that 

NCB.  

In particular, the following aspects should be taken into account:  

(a)  Whether  the  performance  of  the  new  task  creates  conflicts  of  interest  with  existing  central 

bank tasks which are not adequately addressed and does not necessarily complement those 

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

sufficient  safeguards  to  mitigate  that  conflict  should  be  in  place.  The  complementarity 

between a new task and the existing central bank tasks should not be interpreted broadly, so 

as  to  lead  to  the  creation  of  an  indefinite  chain  of  ancillary  tasks.  Such  complementarity 

should be examined also in relation to the financing of those tasks.  

(b)  Whether without new financial resources the performance of the new task is disproportionate 

to the NCB’s financial or organisational capacity and may negatively impact on the capacity 

to perform properly the existing central bank tasks. 

(c)  Whether the performance of the new task fits into the institutional set-up of the NCB in light 

of central bank independence and accountability considerations.  

(d)  Whether the performance of the new task harbours substantial financial risks.  

(e)  Whether  the  performance  of  the  new  task  exposes  the  members  of  the  NCB  decision-

making  bodies  to  political  risks  which  are  disproportionate  and  may  also  impact  on  their 

personal independence and, in particular, on the guarantee of term of office set out in Article 

14.2 of the Statute of the ESCB.  

2.3  Specific observations 

On the basis of the criteria set out above, the following paragraphs assess whether the CBC’s new 

tasks are in line with the monetary financing prohibition.  

2.3.1  Tasks related to the tasks conferred upon the ECB and the NCBs by the Treaty and the Statute of 

the ESCB 

The authorisation and supervision of credit intermediaries and non-credit institutions, as well as the 

oversight  and  regulation  of  the  market  for  credit  agreements  relating  to  residential  immovable 

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property, can be considered as tasks related to those referred to in Article 127(5) of the Treaty, to 
the extent that these complement the supervisory tasks exercised by an NCB6, particularly where 
that  NCB  already  exercises  tasks  of  a  similar  nature7.  In  this  respect,  it  is  noted  that  the  CBC 

already  supervises  credit  institutions  and  other  financing  institutions,  such  as  credit  acquiring 
companies8 and financial leasing companies9.  

2.3.2  Tasks which are atypical of NCB tasks 

A  number  of  Member  States  have  conferred  on  their  NCBs  supervisory  tasks  related  to  the 
provision  of  consumer  credit10.  In  addition,  without  prejudice  to  Article  14.4  of  the  Statute  of  the 

ESCB,  the  ECB  has  generally  accepted  the  allocation  of  consumer  protection-related  tasks  to 

NCBs based on the understanding that such tasks complement existing supervisory powers (and 
might be linked to the NCB’s overall responsibility for supervision of the financial market11) and thus 

contribute  to  the  soundness  of  the  financial  market  and  the  preservation  of  confidence  in  the 
marketplace12. It follows that, as regards their nature, the new tasks conferred upon the CBC by the 

draft law cannot be regarded as atypical of a central bank, nor as being discharged in the exclusive 

interest of the government.  

2.3.3  Extent to which performance of the new task creates conflicts of interest with existing central bank 

tasks 

The ECB notes that under the draft law the CBC will be responsible for supervising the conduct of 

creditors and credit intermediaries towards consumers, including their policies in respect of arrears 

and foreclosure. While these tasks seem to be broadly of the same nature as the supervisory tasks 

already performed by the CBC, the ECB notes that conflicts of interest may arise. As the national 

authority responsible for supervising the financial markets, the CBC will be required to mitigate any 

potential  conflict  of  interest  between  its  new  consumer  protection  tasks  and  its  supervision  and 

financial  stability  mandates.  The  ECB  recommends  that  sufficient  mitigation  measures  are  put  in 
place in this respect13. 

2.3.4  Extent  to  which  performance  of  the  new  task  is  disproportionate  to  the  CBC’s  financial  or 

organisational capacity 

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 not only their ESCB-related 

tasks,  but  also  their  national  tasks,  both  from  an  operational  and  financial  perspective. 

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7 
8  

9 
10  
11  
12 

13  

See paragraph 4.3 of Opinion CON/2016/34. 
See parapraph 3.3 of Opinion CON/2016/31 and paragraph 3.1.2 of Opinion CON/2015/45. 
See the Law on the regulation of companies acquiring credit and related matters of 2015 (169(Ι)/2015) and Opinion 
CON/2015/45. 
See the Law on the regulation of financial leasing of 2016 (72(I)/2016) and Opinion CON/2015/37. 

See paragraph 3.4 of Opinion CON/2015/54. 
See paragraph 2.3 of Opinion CON/2007/29. 

See  in  this  regard  paragraph  4.4  of  Opinion  CON/2016/34,  paragraph  2.2.2  of  Opinion  CON/2016/31,  paragraphs 
2.1  and  2.2  of  Opinion  CON/2006/47,  paragraph  2.3  of  Opinion  CON/2007/29,  and  paragraph  2  of  Opinion 
CON/2009/71. 

See paragraph 4.8 of Opinion CON/2016/34 and paragraph 2.2.2 of Opinion CON/2016/31. 

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Furthermore,  when  allocating  specific  non-ESCB-related  tasks  to  the  NCBs,  additional  personnel 

and financial resources must also be allocated so that these tasks may be carried out in a manner 
that will not affect the NCBs’ operational or financial capacity to perform their ESCB-related tasks14. 

In this regard, notwithstanding a provision that the administrative fines imposed by the CBC in case 

of infringements of the draft law will be added to its revenue, it is noted that the draft law does not 

specify how the costs related to the supervision of credit intermediaries and non-credit institutions 

by  the  CBC  are  to  be  financed.  The  ECB  therefore  invites  the  consulting  authority  to  consider 

establishing a cost recovery regime, e.g. requiring credit intermediaries and non-credit institutions 

to pay to the CBC an authorisation fee or an annual fee to cover the actual costs incurred by the 
CBC in the performance of its new supervisory tasks15. Once a cost recovery regime is established, 

the  CBC  would  then  need  to arrange for the  additional  necessary  staff  with the appropriate  skills 

that  are  considered  essential  for  the  supervision  of  these  entities  and  institutions,  in  view  of  the 

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 tasks16.  

2.3.5  Extent  to  which  performance  of  the  new  task  fits  into  the  CBC’s  institutional  set-up,  in  light  of 

central bank independence and accountability considerations 

Given  the  complementarity  of  the  new  tasks  with  the  CBC’s  existing  supervisory  powers,  in 

particular  in  the  field  of  supervision  of  credit  institutions  and  other  financial  institutions,  the  new 

tasks would fit into the CBC’s institutional set-up. 

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

The draft law does not contain any specific provisions on liability for the performance of supervisory 

tasks. The CBC’s liability with regard to the supervision of credit institutions, and of any director or 
officer of the CBC, is excluded, unless it is proven that any act or omission in the discharge of their 
relevant functions and responsibilities was done in bad faith or was the result of gross negligence17. 

Given that liability issues could give rise to substantial financial risks for the CBC, the ECB invites 

the  consulting  authority to consider  aligning the  CBC’s liability  under the draft law  with  its liability 

concerning the supervision of credit institutions. 

2.3.7  Extent  to  which  performance  of  the  new  task  exposes  members  of  the  CBC’s  decision-making 

bodies to disproportionate political risks and impacts on their personal independence 

The  performance  of  the  tasks  conferred  under  the  draft  law  does  not  appear  to  be  exposing  the 

CBC’s  decision-making  bodies  to  any  disproportionate  political  risk  or  to  impact  their  personal 
independence.  In  this  respect,  it  is  noted  that  the  supervisory  functions  exercised  by  the  CBC 

already include the supervision of credit institutions and other financing institutions, such as credit 
acquiring companies and financial leasing companies18. 

14  
15  
16  
17  
18  

See paragraph 3.1.6 of Opinion CON/2016/16. 
See paragraph 4.2 of Opinion CON/2016/34. 

See paragraph 3.1.6 of Opinion CON/2016/16 and paragraph 3.4 of Opinion CON/2016/31. 
See Article 32(1) of the Law on the business of credit institutions of 1997 (66(I)/1997) as amended. 

See paragraph 2.3.1 above. 

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2.3.8  Conclusion 

Considering  their  nature,  the  CBC’s  new  tasks  of  supervising  and  regulating  the  market  for 

consumer credit agreements, as well as authorising and supervising credit intermediaries and non-

credit institutions, can in principle be regarded as central bank tasks, in the sense that they would 

complement  the  CBC’s  existing  supervisory  functions.  However,  in  addition  to  the  foregoing,  it  is 

essential that the new role assigned to the CBC by the draft law does not have a negative impact 

on the institutional and financial independence of the CBC and that it does not adversely affect its 

capacity  to  carry  out  its  ESCB-  or  Eurosystem-related  tasks  or  to  perform  its  other  functions.  To 

this end, it must be ensured that the supervisory costs incurred by the CBC in relation to its new 

tasks  are  adequately  covered  and  that  the  CBC  can  avail  itself  of  sufficient  resources,  including 

personnel, for the performance of its new tasks. Furthermore, it should be considered to align the 

CBC’s  liability  under  the  draft  law  with  its  liability  concerning  its  supervision  of  credit  institutions, 

given  that  liability  issues  could  give  rise  to  substantial  financial  risks  for  the  CBC.  Finally,  it  is 

important  to  ensure  that  sufficient  mitigation  measures  are  in  place  to  adequately  address  any 

potential  conflict  of  interest  between  the  CBC’s  new  consumer  protection  tasks  and  its  existing 

supervision and financial stability mandates. Consequently, the ECB invites the Cypriot authorities 

to consider in more depth the abovementioned aspects before the draft law is adopted. 

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

Done at Frankfurt am Main, 17 February 2017. 

[signed] 

The President of the ECB 

Mario DRAGHI  

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