Opinion of the European Central Bank of 4 April 2018 on the creation of a securitisation framework (CON/2018/16)
Date: 2018-04-04
Institutions: European Central Bank
Subjects: Cyprus, credit institution, credit policy, financial solvency, financial stability, loan, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 4 April 2018  

on the creation of a securitisation framework 

(CON/2018/16) 

Introduction and legal basis 

On 3 January 2018 the European Central Bank (ECB) received a request from the Ministry of Finance of 

Cyprus for an opinion on a draft securitisation law (hereinafter the ‘draft law’). On 22 February 2018, the 

Ministry of Finance submitted a new request for an opinion on a revised version of 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  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  rules  applicable  to 

financial institutions insofar as they materially influence the stability of financial institutions and markets. 

In  accordance  with  the  first  sentence  of  Article 17.5  of  the  Rules  of  Procedure  of  the  European  Central 

Bank, the Governing Council has adopted this opinion. 

1. 

Purpose of the draft law 

1.1 

The purpose of the draft law is to establish a framework for securitisations in Cyprus to facilitate 

the secondary market for loans which may in turn support the reduction of the high level of non-

performing loans (NPLs) of Cypriot banks. The draft law vests in the CBC the power to regulate 

and  supervise  securitisations  in  order  to  safeguard  the  proper  functioning  of  the  securitisation 

market in Cyprus.  

1.2 

In  particular,  the  draft  law  establishes  the  procedure  that  an  originator  would  need  to  follow  in 

order to notify the CBC that it intends to carry out a securitisation. The draft law provides that a 

securitisation  special  purpose  entity  (SSPE)  set  up  by  an  originator  may  not  commence  its 

activities  as  a  securitisation  vehicle,  unless  the  originator  has  notified  the  CBC  in  writing  of  its 

intention to carry out one or more securitisation transactions and has furnished the CBC with the 

necessary information required under the draft law.  

1.3 

In the case of a traditional securitisation, the notification must be accompanied by the information 

that the originator needs to supply to the CBC in order to enable the CBC to assess whether the 

servicer of the SSPE has sufficient resources to carry out its activities and whether a sound and 

prudent management of the SSPE is achieved. The information required includes the amount and 

type of credit facilities to be securitised, the structure of the securitisation and the terms on which 

1  

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

 
 
 
 
                                                 
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the  SSPE  will  issue  the  financial  instruments.  In  the  case  of  a  synthetic  securitisation,  the 

notification to the CBC must be accompanied by such information as required under the draft law 

or any directives issued by the CBC under the draft law.  

1.4 

The  CBC  will  evaluate  the  information  received  on  the  basis  of  the  smooth  functioning  of  the 

securitisation  market  in  Cyprus  and  compliance  with  the  provisions  of  the  draft  law  and  any 

directives or guidelines issued under the draft law. It must inform the originator within 20 days of 

receipt of the notification of its decision to oppose or not oppose the securitisation. An SSPE that 

fails to commence its activities within 24 months of the date on which the CBC adopts its decision 

must begin the notification procedure again and resubmit all necessary information. 

1.5 

For the purposes of the draft law, only credit institutions, financial institutions and credit acquiring 
companies 2 can act as originators. According to the draft law, originators are required to notify the 

underlying debtors, collateral providers and guarantors at least 45 days in advance of the transfer 

of exposures to an SSPE.  

1.6  Where  the  originator  is  a  credit  institution  and  a  right  of  set-off  in  respect  of  the  underlying 

exposures of the securitisation against credit balances held by the underlying borrower with that 

credit institution exists or is created during the securitisation, the draft law provides that the terms 

of  the  securitisation  shall  include  provisions  pertaining  to  such  right.  The  draft  law  sets  out  a 

number of mitigating actions that should be taken in cases where such a right of set-off exists or is 

created  during  the  securitisation.  In  addition,  the  draft  law  provides  that  an  SSPE  will  be 

subrogated  to  all  rights  of  the  originator  to  collateral  held  by  it  for  the  purposes  of  securing  the 

repayment of the exposures and this subrogation will take place simultaneously with the transfer 

of exposures to the SSPE. The SSPE will assume all the rights and obligations of the originator 

and its ranking in respect of both the exposures and the related collateral.  

1.7 

The draft law contains provisions on the true sale of the exposures to the SSPE. In particular, it 

provides that the method of transfer of exposures is to be agreed between the originator and the 

SSPE  and  that  the  transfer  becomes  final,  irrevocable  and  binding  once  the  terms  of  such  an 

agreement  have  been  satisfied.  The  draft  law  allows  for  the  possibility  for  originators  to  transfer 

the  exposures  using  a  trust  and  clarifies  that  an  insolvency  procedure  against  the  originator  will 

have no impact on an SSPE, its rights or exposures.  

1.8 

The draft law grants SSPEs both the right to borrow  under credit facilities and the right to issue 

financial instruments. The financial instruments may be offered to professional clients or admitted 

to trading on a regulated market or on a multilateral trading facility.  

1.9 

The draft law stipulates that an SSPE shall appoint a servicer for the day-to-day management of 

the securitised exposures under the terms of a management agreement. Prior to undertaking the 

servicing  of  the  securitised  exposures,  the  servicer  may  obtain  from  the  originator  such 

information  as  it  deems  necessary  to  properly  evaluate  the  securitised  exposures.  The 

appointment of a servicer which is not the originator would need to be notified to the underlying 

borrowers and guarantors no more than five business days after the date of appointment. The role 

2  

For  the  purposes  oft  he  draft  law,  a  credit  acquiring  company  is  a  company  incorporated  in  Cyprus  and  granted 
authorisation by the CBC pursuant to Law 169(I)/2015 on the sale of credit facilities and related issues. 

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of  servicer  can  be  undertaken  by  credit  institutions,  financial  institutions,  credit  acquiring 

companies or limited liability companies established in Cyprus. Limited liability companies need to 

apply  to  the  CBC  for  authorisation  in  accordance  with  the  draft  law.  The  draft  law  sets  out  the 

application  procedure  for  the  licensing  of  limited  liability  companies  as  servicers,  as  well  as  the 

procedures for the suspension and termination of such a licence. Any material changes that affect 

the information or documents submitted to the CBC as part of that procedure, the appointment of 

any member of management of authorised servicers and any increase or decrease of any special 

participation  rights  in  the  ownership  structure  of  authorised  servicers  would  each  need  to  be 

notified to and, where appropriate, approved by the CBC. 

1.10  The draft law grants the CBC the power to supervise the activities of SSPEs and servicers. It sets 

out  a  number  of  requirements  relating  to  the  assessment  of  the  management  and  key  function 

holders  of  a  servicer;  the  requirement  for  SSPEs  and  servicers  to  report  audited  financial 

statements  to  the  CBC;  the  CBC’s  right  to  conduct  on-site  investigations  and  have  access  to 

SSPEs’  and  servicers’  books  and  records;  the  CBC’s  confidentiality  duties;  and  the  supervisory 

measures and sanctions that may be imposed in relation to SSPEs and servicers.  

1.11  The  draft  law  provides  for  the  involvement  of  the  CBC  in  the  liquidation  of  an  SSPE  by 

establishing a requirement for the CBC’s prior consent in the case of a voluntary liquidation of an 

SSPE  and  by  entitling  the  CBC  to  initiate  liquidation  procedures  and  appoint  a  liquidator  for  an 

SSPE in certain circumstances.  

1.12  The draft law empowers the CBC to issue directives and guidelines and to regulate, inter alia: (a) 

the  procedure  for  granting  a  licence  to  servicers;  (b)  the  criteria  for  the  aptitude  and  fitness  of 

shareholders,  directors  and  key  function  holders  of  servicers  and  SSPEs;  (c)  the  internal 

organisation and governance of servicers; (d) the supervisory fee and other charges that the CBC 

may  impose  from  time  to  time;  and  (e)  the  information  required  for  the  purpose  of  synthetic 

securitisations. 

1.13  The  scope  of  the  draft  law  is  limited  to  the  securitisation  of  credit  facilities  or  other  forms  of 

receivables and/or exposures originated or acquired by credit institutions, financial institutions or 

credit  acquiring  companies,  provided  that  the  institution  or  company  is  an  entity  subject  to 

supervision by a competent authority. For this purpose, a competent authority includes the CBC 

and,  in  the  case  of  branches  of  credit  institutions  or  financial  institutions  established  in  another 

Member State, the competent authority of the home Member State. 

2. 

Scope of the opinion  

This  opinion  focuses  on:  (1)  specific  aspects  of  the  newly  established  securitisation  framework 

(paragraph  3.1);  and  (2)  the  new  tasks  conferred  on  the  CBC  in  to  the  context  of  the  prohibition  of 

monetary financing under Article 123 of the Treaty (paragraph 3.2). 

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3. 

Observations  

3.1 

Specific aspects of the newly established securitisation framework  

3.1.1  The ECB has a strong interest in the sustainable revival of the European securitisation market. As 

a  form  of  asset-based  financing  with  the  capacity  both  to  channel  flows  of  credit  to  the  real 

economy  and  to  transfer  risk,  securitisation  has  particular  significance  for  the  transmission 

mechanism  of  monetary  policy.  A  healthy  European  securitisation  market  is  important  for  well-

functioning capital markets in the Union. Particularly  where credit institutions’ capacity to lend to 

the real economy is constrained, securitisation can act as a fresh source of funding and free up 

capital  for  lending.  The  ECB  has  significant  experience  in  the  field  of  securitisation  through  the 

Eurosystem’s  monetary  policy  operations.  Considering  the  ECB’s  monetary  policy  and  macro-

prudential tasks, the ECB has participated actively in the public debate on regulatory initiatives on 

securitisation  during  which  it  has  highlighted  the  benefits  of  sound  securitisation  markets, 

recommended  differentiated  capital  treatment  of  securitisations  and  supported  a  prudent  Union 
framework for simple, transparent and standardised (STS) securitisations 3. 

3.1.2  The  ECB  welcomes  the  establishment  of  the  framework  for  securitisation  in  Cyprus  as  it  may 

enable  the  efficient  transfer  of  non-performing  loans  (NPLs)  off  the  balance  sheet  of  credit 

institutions. From a financial stability point of view, the presence of significant volumes of NPLs on 

credit institutions’ balance sheets reduces their ability to fulfil their function as providers of credit 

to the real economy and hampers operational flexibility and overall profitability essential to a well-

functioning banking sector. As such, the draft law may have a positive effect on financial stability 

to the extent that it would result in the transfer of the risks of NPLs off credit institutions’ balance 
sheets 4.  In  addition,  by  granting  the  CBC  regulatory  and  supervisory  authority  over  the 

securitisation activity of originators, servicers and SSPEs, the draft law intends to ensure that this 

activity  is  properly  carried  out  and,  more  generally,  to  safeguard  the  proper  functioning  of  the 

securitisation market in Cyprus. 

3.1.3  The ECB takes note of the provisions of the draft law requiring originators to notify securitisations 
to  the  CBC.5  It  would  be  worth  clarifying  whether  the  notification  obligation  would  be  equally 

applicable in cases where the SSPE has been set up by a person other than the originator which 

intends to carry out securitisation. 

3.1.4  The ECB wishes to express its concerns as regards the power granted to the CBC to oppose a 

securitisation in advance, noting that such a power would be unusual in European securitisation 

markets and the justification for having such a power is not clear. In particular, the provision of the 

draft  law  requiring  the  CBC  to  consider  whether  the  securitisation  will  affect  the  smooth 

functioning  of  the  securitisation  market  in  Cyprus  appears  to  be  rather  vague  and  it  would  be 

helpful to clarify exactly what is meant by it. The ECB also notes that the disclosure provisions of 

the  draft  law  may  be  intended  to  facilitate  the  CBC’s  assessment  of  compliance  as  regards 

specific  entities  regulated  under  the  draft  law,  such  as  SSPEs  and  servicers,  with  the  relevant 

regulatory  requirements.  If  this  is  the  intention,  then  the  ECB  suggests  that  the  draft  law  clarify 

3  
4  
5  

See paragraphs 2.1-2.3 of Opinion CON/2016/11. 
See paragraph 3.2.1 of Opinion CON/2016/17 and paragraph 2.2 of Opinion CON/2015/45.  

See Articles 5, 6 and 7 of the draft law.  

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that  the  submission  of  documentation  relates  to  these  regulatory  requirements  and  that  non-

compliance  with  the  disclosure  provisions  may  result  in  the  CBC’s  refusal  to  authorise  these 

entities  to  act  in  a  particular  securitisation.  This  clarification  would  reduce  the  possibility  of  a 

vague evaluation of the merits of individual securitisations. In case this provision is retained, and 

since the draft law would also apply to securitisations established by credit institutions which are 

directly  supervised  by  the  ECB,  it  is  necessary  to  avoid  any  overlap  between  the  supervisory 

competences of the ECB and the CBC. The ECB understands that the intention of the consulting 

authority is indeed to confine the role of the CBC under the draft law to matters falling out of the 

scope of the ECB’s competences. It should therefore be clarified that the criterion in respect of the 

smooth functioning of the securitisation market in Cyprus does not overlap with the provisions of 
Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council6  as  regards,  for 

example, the assessment of whether a reduction in a risk-weighted exposure, through the means 

of securitisation, is justified by the transfer of credit risk to third parties. 

The  consulting  authority  may  wish  to  further  consider  the  practical  aspects  of  granting  such  a 

power to the CBC in order to ensure that the provision does not discourage securitisation activity. 

For  instance,  as  currently  drafted,  the  draft  law  implies  that  an  originator  would  have  already 

embarked  on  the  process  of  setting  up  a  securitisation  and  would  have  borne  all  relevant  legal 

and  advisory  costs,  before  notifying  the  CBC  of  its  intention  to  carry  out  a  securitisation  and 

furnishing  the  CBC  with  the  required  information.  Furthermore,  the  requirement  for  the  CBC  to 

assess  the  ability  of  the  servicer  to  carry  out  its  activities  under  Article  5(2)  of  the  draft  law 

appears  redundant  given  that  other  provisions  of  the  draft  law  require  the  authorisation  of  the 

servicer  by  the  CBC.  It  is  therefore  not  clear  what  additional  standard  would  be  applied  under 

Article 5 of the draft law to assess the servicer’s capacity.  

3.1.5  The requirement imposed on originators to provide underlying borrowers, collateral providers and 

guarantors  with  45  days’  prior  notice  of  the  proposed  transfer  of  loans  to  an  SSPE  raises 
concerns7. It is noted that requiring the prior notification of borrowers is inconsistent with the usual 

practice for true sale securitisations of performing assets in  Member States  with  which the  ECB 

has  experience.  Performing  assets  securitised  by  way  of  true  sale  are,  by  definition,  freely 

transferrable and their transfer is, in the ECB’s experience, ‘silent’, in the sense that the transfer is 

not notified to borrowers. Primarily, this is due to the fact that much of a securitisation’s efficiency 

lies  in  the  possibility  of  transferring  large  portfolios  of  exposures,  often  relating  to  thousands  of 

borrowers, without the administrative costs of preparing letters to notify each borrower in order for 

the  transfer  to  take  effect  legally.  Notification  of  a  borrower  usually  only  takes  place  when  an 

originator  becomes  insolvent  or  suffers  another  serious  credit  event.  The  introduction  of  such  a 

notice  requirement  would  create  an  unjustifiably  heavy  burden  for  originators,  as  regards  both 

their operations and their resources, and may run the risk of creating an obstacle to the smooth 

execution of securitisations. 

6  

7  

Regulation  (EU)  No  575/2013  of  the  European  Parliament  and  of  the  Council  of  26  June  2013  on  prudential 
requirements  for  credit  institutions  and  investment  firms  and  amending  Regulation  (EU)  No  648/2012  (OJ  L  176, 
27.6.2013, p. 1). 
See Article 16(1) of the draft law.  

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The ECB understands that the intention of including this requirement in the draft law is to reflect a 

similar provision which exists in Cypriot Law 169(I)/2015 on the sale of credit facilities and related 
issues8,  whereby, in contrast to the  draft law, borrowers and  guarantors are explicitly  entitled to 

submit  a  counterproposal  for  the  acquisitions  of  the  credit  facilities.  In  any  case,  where  the 

borrowers of loans being securitised wish to rearrange their financial transactions because of the 

securitisation, including  to  repay  their loans early,  this could, in principle,  also take place, to the 

extent  permitted  under  their  loan  contracts  after  the  securitisation  has  been  established. 

Therefore a shorter notice period or even a general ex-post notification done through a publication 

in  the  official  gazette  of  Cyprus,  as  is  the  case,  for  example,  under  the  Italian  Law  of  1999  on 
securitisation,  in  particular  Article  4(2)  of  that  law9,  could  be  an  alternative.  This  could  be 

combined with a right for any borrower to receive the information listed in Article 16(2) of the draft 

law upon request.  

3.1.6 

In addition to the above, a shorter notice period or an ex post notification requirement would also 

better  serve  the  securitisation  of  credit  card  receivables  and  trade  receivables,  which  typically 

have  a  maturity  of  less  than  30  days.  The  45  days’  notice  period,  currently  foreseen  under  the 

draft law, risks excluding the possibility of securitising real economy linked assets with short-term 

maturities since the claims would already have been repaid before the notice period has expired. 

3.1.7  Furthermore, it is suggested that the assurances to be provided by originators to borrowers under 

Article 16(2) of the draft law could simply be enshrined as guarantees with the force of law in the 

draft  law  itself  without  the  need  for  originators  to  provide  these  legal  assurances  separately  to 

each individual borrower. In addition, it is noted that Article 16 of the draft law seems to concern 

true sale securitisations. Therefore, Article 16 of the draft law should be revisited to take account 

of the fact that there is no transfer or delivery of exposures in the case of synthetic or trust-based 

securitisations and thus some of the legal assurances are not applicable to securitisations of this 

kind. 

3.1.8  With  regard  to  the  provisions  of  the  draft  law  on  true  sale  in  traditional  securitisations 10,  the 

protection of the true sale is very comprehensive. While robust true sale protection is a welcome 

part of the draft law, even jurisdictions with strong true sale protections may allow a limited period 

to challenge asset transfers in the event of fraud, bad faith or an intention to defraud creditors. 

3.1.9 

It is noted that there is a provision in the draft law that the transfer of underlying loans and related 

collateral  may  be  recorded  with,  and  registered  by,  inter  alia,  το  Τμήμα Κτηματολογίου  και 

Χωρομετρίας  (the  Department  of  Lands  and  Surveys)  and  το  Τμήμα  Εφόρου  Εταιρειών  και 

Επίσημου Παραλήπτη (the Department of the Registrar of Companies and Official Receiver) free 
of charge11. While there is merit in ensuring that such formalities will not incur any additional costs 

for  the  originator  or  the  SSPE,  it  is  not  clear  whether  other  entities  would  have  to  bear  these 

8  
9  

10   
11  

Ο περί Αγοραπωλησίας Πιστωτικών Διευκολύνσεων και για Συναφή Θέματα Νόμος του 2015 (169(I)/2015). 

Legge  130/1999 sulla cartolarizzazione  dei crediti. See Article 4(2) of Law 130/1999  on securitisation and covered 
bonds. 
See Article 21 of the draft law. 
See Article 19 of the draft law.  

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costs,  or  whether  costs  would  be  waived  for  all  entities.  The  consulting  authority  may  wish  to 

revisit the draft law to clarify this point. 

3.1.10  The ECB understands that it is quite common for Cypriot credit institutions to use the same asset, 

which in most cases is immovable property, as collateral for more than one facility granted by a 

credit institution to the same borrower (so called cross-collateralisation). However, in cases where 

the  originator  intends  to  securitise  only  part  of  its  exposure  towards  certain  debtors,  a  situation 

may occur where the originator will share legal rights over the same collateral with the SSPE. It is 

suggested  to  avoid  disputes,  delays  and  standstill  situations  between  the  two  parties  in  such 

situations  if,  for  instance,  the  originator  and  the  SSPE  have  a  different  recovery  strategy.  The 

smooth functioning of securitisations affected by cross-collateralisation can be ensured by either 

(a) the draft law providing for rules to address such conflicts in enforcement or (b) the securitising 

parties addressing these risks at the outset of the securitisation using contractual solutions.  

3.1.11  According  to  the  draft  law  limited  liability  companies  which  the  CBC  may  authorise  as  servicers 
need to be incorporated in Cyprus. 12 The ECB understands that the reason for not expanding the 

scope  of  this  provision  to  cover  companies  incorporated  in  other  Member  States  is  the  lack  of 
harmonisation of the rules on authorisation of servicers across the Union. 13 Servicers established 

in other Member States would therefore need to incorporate a limited liability company in Cyprus 

in order to carry out servicing activities in Cyprus. The decision of servicing companies to do so 

may depend also on the requirement imposed by the draft law on such authorised companies to 

notify the CBC of any direct or indirect changes to their qualifying holdings and by the ability of the 
CBC  to  then  permit  or  prohibit  direct  or  indirect  acquisitions  of  shareholdings14.  It  is  therefore 

suggested that the criteria on the basis of which the CBC may decide to prohibit an acquisition be 

elaborated  in  the  draft  law  and  that  it  should  be  clarified  what  is  meant  by  an  evaluation  of  the 

suitability of the new shareholders.  

3.1.12  Furthermore,  it  is  noted  that  the  draft  law  contains  potential  safeguards  against  the  potential 
reduction in the assets of the SSPE which might arise due to a debtor’s right of set-off15. The draft 

law  provides  that  the  negative  impact  that  a  debtor’s  right  to  set-off  the  credit  balances  it  holds 

with the originator against the debtor’s exposures included in a securitisation shall be mitigated by 

the originator by creating blocked assets of at least equal value to the amount of that set off right 

for the benefit of the SSPE. The ECB understands that while exercising the set-off constitutes a 

right, and not an obligation, of the debtor, if this right exists in respect of exposures transferred in 

a securitisation, it is the obligation of the servicer to take the necessary mitigating measures once 

a set-off right is created or maintained  in a securitisation. The obligation to fully  collateralise the 

liability arising out of such set-off risk, as prescribed in the draft law, would cause securitisations 

to  be  highly  inefficient  for  originators,  thereby  reducing  the  incentives  to  use  securitisation  as  a 

financing tool. The assets blocked to meet such set-off risk would serve only to make whole the 

12  
13  

14  
15  

See Article 8 of the draft law.  
The  consulting  authority  may  wish  to  closely  monitor  the  developments  regarding  the  European  Commission’s 
proposal for a Directive of the European Parliament and of the Council on credit servicers, credit purchasers and the 
recovery of collateral (COM(2018)135). 
See Article 12 of the draft law.  

See Article 17 of the draft law.  

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noteholders  of  the  securitisation,  and  have  no  impact  on  the  rights  or  position  of  underlying 

debtors.  They  therefore  create  additional  protection  for  the  investors  of  the  securitisation. 

However, this could be so costly that the securitisation is not economical for either originators or 

investors.  In  other  Member  States,  this  type  of  protection  is  usually  a  commercial  compromise 

provided  for  by  way  of  a  partial  reserve,  which  is  accounted  for  in  the  overall  rating  and  risk 

premium, i.e. the interest rate of the notes issued by the SSPE. While mitigation measures may 

be necessary to protect noteholders, it is more efficient to leave originators and investors free to 

come to commercial agreements on the appropriate level of protection from set-off risk needed for 

each  transaction,  without  prejudicing  the  economics  of  securitisation  as  a  whole  in  the  Cypriot 

market.  It  is  therefore  suggested  to  remove  paragraph  (2)  of  Article  17  on  the  obligation  of  the 

originator to collateralise the liability in respect of the set off right for the benefit of the SSPE from 

the draft law.  

Nevertheless, the ECB recommends that if it is commercially agreed in a securitisation to include 

the  provision  of  additional  collateral  by  the  originator,  then  the  effectiveness  of  the  collateral 

arrangement should be protected from the effects of the default, insolvency or restructuring of the 

originator. This would help facilitating that the securitised exposures are put beyond the reach of 
the originator institution and its creditors, including in bankruptcy and receivership 16.  

3.1.13  Finally,  in  relation  to  the  structure  of  the  SSPE  and  the  ring-fencing  of  its  assets,  it  could  be 

considered to address the possibility of multiple securitisations by a single SSPE. The draft law, 

possibly  in  conjunction  with  amendments  in  other  pieces  of  legislation,  could  provide  statutory 

protection for distinct asset portfolios securitised and held by the same SSPE in order to reduce 

the  legal,  administrative  and  accounting  costs  of  establishing  a  new  SSPE  for  each  individual 

securitisation.  This  type  of  protection  is  found,  for  example,  in  the  compartment  feature  of  the 
Luxembourgish Law of 2004 on securitisation, in particular Articles 5, 8, 33 and 62 of that law17.  

3.2 

Conferral of new tasks on the CBC 

3.2.1  As noted in paragraph 1, the draft law confers new tasks on the CBC. The ECB underlines that a 

proposed conferral of tasks on a national central bank (NCB) in the European System of Central 

Banks (ESCB) must be assessed 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 3603/9318 defines ‘other type of credit facility’, inter alia, as ‘any financing of the public sector’s 

obligations vis-à-vis third parties’. 

Ensuring that Member States implement a sound budgetary policy is one of the key objectives of 
the  monetary  financing  prohibition,  which  may  not  be  circumvented. 19  Therefore,  the  task  of 

financing  measures  which  are  normally  the  responsibility  of  the  Member  States,  and  which  are 

financed from their budgetary sources rather than by the NCBs, must not be entrusted to NCBs. 

In order to decide what constitutes a form of financing of the public sector’s obligations vis-à-vis 

16  
17  
18  

19  

See Article 243(5)(b) of Regulation (EU) No 575/2013. 
Loi du 22 mars 2004 relative à la titrisation.  

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) oft he Treaty (OJ L 332, 31.12.1993, p. 1).  
Article  123  of  the  Treaty  also  serves  the  objective  of  maintaining  price  stability  and  reinforces  central  bank 
independence.  

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third parties, which can be translated as the provision of central bank financing outside the scope 

of the central bank tasks, it is necessary to carry out, on a case-by-case basis, 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. In other words, adequate 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. 

3.2.2  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  (hereinafter  the  ‘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,  what 

constitutes 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  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 and financial independence of that NCB 

and the personal independence of the members of that NCB’s decision-making bodies.  

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  have  a 

negative 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 the 

light of central bank independence and accountability considerations; 

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(d) 

(e) 

whether the performance of the new task harbours substantial financial risks;  

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 have an 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. 

3.2.3  On the basis of the criteria set out above, the following paragraphs assess whether the new tasks 

of the CBC are in line with the monetary financing prohibition. 

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

the ESCB 

The powers conferred on the CBC by the draft law cannot be considered as tasks conferred upon 

the ECB and the NCBs by virtue of the Treaty. The draft law provides that the powers conferred 

on the CBC to supervise the activities of SSPEs and servicers aim to safeguard financial stability 
in Cyprus 20. These tasks are generally related to the ESCB’s contribution to the smooth conduct 

of  policies  pursued  by  the  competent  authorities  relating  to  the  stability  of  the  financial  system 
pursuant  to  Article  127(5)  of  the  Treaty.  Moreover,  as  previously  noted  by  the  ECB 21, 

Article 127(6) of the Treaty only permits the conferral of tasks on the ECB in policy areas relating 

to  the  prudential  supervision  of  credit  institutions.  Accordingly,  Council  Regulation  (EU) 
No 1024/201322  assigns  to  the  ECB,  for  prudential  supervisory  purposes,  the  task  of  ensuring 

compliance  by  significant  credit  institutions  with  the  relevant  Union  law  that  imposes  prudential 

requirements  in  the  area  of  securitisation.  The  conferral  of  supervisory  tasks  in  the  area  of 

securitisation which are not primarily prudential in nature, but rather relate to product markets or 

investor  protection,  do  not  fall  within  the  scope  of  Article  127(6)  of  the  Treaty.  The  supervisory 

tasks  conferred  on  the  CBC  under  the  draft  law  are  not  related,  as  such,  to  the  prudential 

supervision of credit institutions, but rather to the securitisation market in Cyprus. 

3.2.3.2 Tasks which are atypical of NCB tasks 

The conferral of the power to oppose, regulate and supervise the activity of securitisations can be 

considered to be uncommon tasks for central banks in the Union. Only one other Member State 
has  conferred  such  powers  on  its  central  bank 23.  However,  the  ECB  understands  that  the 

underlying  reason  for  allocating  the  new  tasks  to  the  CBC  is  linked  to  the  CBC’s  overall  set  of 

responsibilities for financial supervision in Cyprus. In this context, the ECB considers that the new 

tasks  complement  the  CBC’s  existing  supervisory  powers  over  credit  institutions,  financial 

institutions and credit acquiring companies and thus contribute to the soundness of the financial 

20  
21  
22  

23  

See Article 31 of the draft law.  
See paragraph 3 of Opinion CON/2016/11.  

See  Article  4(1)(d)  of  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).  
This is the case in Hungary. In Ireland, the central bank is responsible for the authorisation and supervision of credit 
servicing  firms  and  in  Portugal  the  central  bank  is  responsible  for  the  authorisation  and  supervision  of  credit 
securitisation fund management companies.  

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market and the preservation of confidence in the marketplace. 24 As such they are not atypical for 

an NCB of the ESCB. 

3.2.3.3 Tasks clearly discharged on behalf of and in the exclusive interest of the government 

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

SSPEs and servicers and their compliance with their obligations under the draft law. The CBC is 

already  the  competent  authority  responsible  for  the  authorisation  and  supervision  of  credit  and 

financial  institutions  and  of  credit  acquiring  companies.  The  CBC’s  new  tasks  as  the  competent 

authority for the implementation and enforcement of the draft law therefore seem to complement 

its  existing  tasks,  and  have  not  been  conferred  on  the  CBC  in  the  exclusive  interest  of  the 

government or of other public entities. 

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

tasks 

Carrying  out  the  new  tasks  conferred  upon  the  CBC  by  the  draft  law  does  not  appear  to  create 

conflicts of interest with other central bank tasks performed by the CBC. 

3.2.3.5 Extent to which performance of the new task is disproportionate to the financial or organisational 

capacity of the CBC 

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. 

Furthermore, when allocating specific new 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 tasks25. It is noted 

that the draft law provides that the CBC may issue directives, inter alia, on the annual supervision 
fee or any other fee that the CBC may impose from time to time.26 The CBC would also need to 

arrange for the necessary staff with the appropriate skills that are essential for the authorisation of 

securitisation  activity,  the  supervision  of  the  SSPEs  and  servicers  and  the  enforcement  of  the 

draft  law  in  order  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 tasks27.  

3.2.3.6 Extent  to  which  performance  of  the  new  task  fits  into  the  institutional  set-up  of  the  CBC,  in  the 

light of central bank independence and accountability considerations 

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

field of supervision of credit institutions, financial institutions and credit acquiring companies, the 

new tasks appear to be aligned with the CBC’s institutional set-up. In addition, the performance of 

the new tasks does not appear to raise accountability or personal and institutional independence 

concerns. 

24  
25  
26  
27  

See paragraph 2.3.2 of Opinion CON/2017/3.  
See paragraphs 2.1 and 2.2 of Opinion CON/2011/30.  
See Article 37(2) oft he draft law.  

See paragraphs 2.1 and 2.2 of Opinion CON/2011/30.  

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

The draft law provides that the CBC and its advisors or officers shall not be subject to any liability 

in case of any legal action or other legal proceeding for damages in relation to any act or omission 

in  the  performance  of  their  duties  related  to  the  tasks  conferred  by  the  draft  law  or  directives 

issued  pursuant  to  the  draft  law,  unless  it  is  proven  that  such  act  or  omission  was  done  in  bad 

faith  or  is  a  result  of  gross  negligence.  The  performance  of  the  new  tasks  would  not,  therefore, 

appear to harbour undue financial risks for the CBC. 

3.2.3.8 Extent to which performance of the new task exposes members of the decision-making bodies of 

the CBC to disproportionate political risks and impacts on their personal independence 

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

decision-making bodies of the CBC to any disproportionate political risk or to impact the personal 

independence of the members of its decision-making bodies. 

3.2.4  Conclusion regarding the compatibility of the draft law with the prohibition on monetary financing 

The  ECB  considers  that  the  tasks  conferred  on  the  CBC  under  the  draft  law  are  new  tasks. 

Nonetheless, the ECB understands that these tasks have been conferred on the CBC due to its 

overall  set  of  responsibilities  for  financial  supervision  in  Cyprus  and  that  they  appear  to 

complement its existing supervisory powers over credit institutions, financial institutions and credit 

acquiring companies. The CBC’s financing of the new tasks is in principle in compliance with the 

prohibition of monetary financing under Article 123 of the Treaty. It is, however, important that the 

Cypriot authorities ensure that the CBC can avail itself of sufficient resources for the performance 

of these new tasks so that its capacity to perform its ESCB-related tasks is not affected. 

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

Done at Frankfurt am Main, 4 April 2018. 

[signed] 

The President of the ECB 

Mario DRAGHI 

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