Opinion of the European Central Bank of 21 June 2019 on the governance and financial independence of the Central Bank of Cyprus and on amendments to the Constitution regarding the Central Bank of Cyprus (CON/2019/24)
Date: 2019-06-21
Institutions: European Central Bank
Subjects: Cyprus, banking supervision, central bank, dismissal, institutional activity, national law

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 21 June 2019  

on the governance and financial independence of the Central Bank of Cyprus and  

on amendments to the Constitution regarding the Central Bank of Cyprus  

(CON/2019/24) 

Introduction and legal basis 

On 20 May 2019 the European Central Bank (ECB) received a request from the Ministry of Finance of the 

Republic  of  Cyprus  for  an  opinion  on  a  draft  law  amending  the  Law  of  2002  on  the  Central  Bank  of 
Cyprus1 (hereinafter the ‘draft law’) and a draft amendment to the Constitution of the Republic of Cyprus2 

(hereinafter  the  ‘draft  amendment  to  the  Constitution’).  The  ECB  was  already  consulted  on  an  earlier 
version of the draft law and provided its observations in Opinion CON/2018/233.  

This opinion focuses on the amendments to the Law of 2002 on the Central Bank of Cyprus (hereinafter 

referred to as the ‘Law on the CBC’) that differ from the earlier version of the draft law on which the ECB 

provided  its  observations  in  Opinion  CON/2018/23  and  also  considers  the  draft  amendment  to  the 

Constitution. 

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/EC4, as 

the draft law and the draft amendment to the Constitution relate 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 and the draft amendment to the Constitution  

1.1 

Purpose of the draft law 

1.1.1 

The  draft  law  introduces  amendments  to  the  Law  on  the  CBC  in  respect  of  the  CBC’s 

governance structure, the independence of the CBC’s directors, and the CBC’s capital and its 

alteration.  

1.1.2 

The Law on the CBC lists the licensing and supervision of authorised credit institutions as one 
of  the  CBC’s  basic  tasks,  without  prejudice  to  the  Law  on  the  business  of  credit  institutions5. 

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Ο περί της Κεντρικής Τράπεζας της Κύπρου Νόμος του 2002 (138(I)/2002). 
Το Σύνταγμα της Κυπριακής ∆ημοκρατίας. 
All ECB opinions are published on the ECB’s website at www.ecb.europa.eu. 

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). 
Ο Περί Εργασιών Πιστωτικών Ιδρυμάτων Νόμος (66(I)/1997). 

 
 
 
 
                                                 
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The  draft law removes the licensing of  credit  institutions as one  of the CBC’s basic tasks and 
makes reference to Council Regulation (EU) No 1024/20136.  

1.1.3 

The  draft  law  removes  a  provision  on  which  the  ECB  provided  its  observations  in  Opinion 

CON/2018/23 that provided for different terms of office for the members of the board of directors 

during  a  transitional  period.  More  specifically,  this  provision  set  out  that  three  out  of  the  five 

directors appointed for the first time after the entry into force of that draft law would have terms 

of office of three years. The terms of office of the other two directors would be four years. The 

draft  law  also  removes  the  prerequisite  that  executive  and  non-executive  directors  must  be 
citizens of the Republic of Cyprus in order to be appointed7. In addition, the draft law has been 

revised to provide that two members of the executive committee constitute a quorum at any of 
its meetings8.  

1.1.4 

The  draft  law  revises  the  grounds  for  dismissal  of  directors9.  The  position  of  an  executive 

director  may  become  vacant  for  the  following  reasons:  (a)  in  the  case  of  his  or  her  death;  (b) 

upon a director’s written resignation; (c) if the director no longer fulfils the conditions required for 

the  performance  of  his  or  her  duties;  (d)  if the  director  has  been  guilty  of  serious  misconduct. 

The  position  of  a  non-executive  director  may  become  vacant  for  the  same  grounds  as  for  an 

executive  director,  as  well  as  in  the  case  of  one  of  the  events  taking  place  that  are  listed  in 

Article  14  of  the  Law  on  the  CBC.  Article  14  of  the  Law  on  the  CBC  provides  that  a  person 

cannot be appointed as a director if he or she already holds a position that may create a conflict 

of interest with his or her capacity as a director, and sets out a number of specific events where 

such a conflict of interest exists.  

1.1.5 

In addition, the draft law provides that ‘with the exception of the governor and deputy governor’, 

both executive and non-executive directors may be dismissed by a council that is chaired by the 

president of the Supreme Court and that has been established in accordance with Article 153(8) 
of  the  Constitution  at  the  motion  (προσφυγή)  of  the  Council  of  Ministers10.  The  grounds  for 

dismissal of the  governor and deputy governor set out in Article 18(4) of the  Law  on the  CBC 
have not been changed11.  

1.1.6 

The  draft  law  removes  a  provision  on  which  the  ECB  provided  its  observations  in  Opinion 

CON/2018/23,  which  empowered  the  Council  of  Ministers  to  dismiss  any  CBC  director  who 

acquires an interest in or holds a position in a financial institution during the course of his or her 

term of office with the CBC.  

1.1.7 

In  the  provision  conferring  upon  the  board  of  directors  the  power  to  adopt  CBC  accounting 

policies  and  procedures  in  accordance  with  international  accounting  standards,  the  draft  law 

makes  reference  to  the  accounting  standards  that  apply  to  the  European  System  of  Central 

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  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). See Article 6(2)(d) of the Law on the CBC, as amended by Article 3 of the draft law. 
See Article 13(1) and (5) of the Law on the CBC, as amended by Article 5(c) and (d) of the draft law, respectively. 
See Article 17A(6) of the Law on the CBC, as amended by Article 11(b) of the draft law. 
See Article 13(4) and (5) of the Law on the CBC, as amended by Article 5(a) and (c) of the draft law, respectively. 
Ibid. 
There is no need for a motion from the Council of Ministers in this case. 

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Banks  (ESCB)  and  to  the  ECB’s  Guidelines12.  In  addition,  the  provision  of  the  draft  law 

concerning  the  appointment  of  an  alternate  as  a  member  of  the  Governing  Council  has  been 
revised to refer to the Rules of Procedure of the European Central Bank13. 

1.1.8 

According to the draft law, the executive committee members have no voting rights at meetings 

of the board of directors when matters connected with the executive committee’s management 
of the CBC are reviewed14. This provision has been redrafted to clarify that this limitation only 

applies in relation to specific tasks undertaken by the executive committee, namely the carrying 

out of the CBC’s day-to-day activities and the management of its work, the performance of the 
CBC’s objectives and mission as set out in Articles 5, 5A and 6 of the Law on the CBC15, and 

the  appointment,  suspension  and  dismissal  of  employees.  The  draft  law  clarifies  that  the 

oversight  of  the  executive  committee’s  actions  in  relation  to  the  performance  of  the  CBC’s 

objectives  and  mission  should  not  concern  matters  which  fall  within  the  ESCB’s  fields  of 

competence, the ECB’s competences pursuant to Council Regulation (EU) No  1024/2013 and 

the  Single  Resolution  Board’s  competences  pursuant  to  Regulation  (EU)  No  806/2014  of  the 
European Parliament and of the Council16. Additionally, this provision is without prejudice to the 

executive  committee’s  independence  and  competence  in  the  performance  of  its ESCB-related 

and other duties. 

1.1.9 

The draft law introduces a qualification to the provision regarding the legal costs to be paid by 
the  CBC  as  regards  acts  of  the  governor,  deputy  governor  and/or  members  of  the  board  of 

directors. This qualification stipulates that the CBC will not pay the legal costs incurred and/or 

damages  awarded  in  connection  with  any  act  or  omission  of  the  governor  and/or  deputy 

governor and/or members of the board of directors during the exercise of their powers in cases 

where  such  an  act  or  omission  was  committed  in  bad  faith,  or  constituted  fraud  or  gross 
negligence17. 

1.1.10  As  regards  the  CBC’s  capital,  the  draft  law  removes  a  draft  provision  that  the  CBC’s  general 

reserve should not exceed twice its capital and corrects the amount of the capital by setting it at 
EUR 150 million18.  

1.2 

Purpose of the draft amendment to the Constitution 

1.2.1 

The draft amendment to the Constitution modifies two Articles concerning the CBC.  

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See Article 15(1)(k) of the Law on the CBC, as amended by Article 7 of the draft law. 
See Article 20(3) of the Law on the CBC, as amended by Article 14 of the draft law. 
See Article 17(4) of Law on the CBC, as amended by Article 10 of the draft law. 

Article 5 of the Law on the CBC sets out the CBC’s primary objective which is to maintain price stability and, without 
prejudice to this objective, to support the general economic policies of the State. Article 5A provides that the CBC 
forms part of and contributes to the performance of the tasks of the ESCB and that it acts within the ESCB’s fields of 
competence. Article 6 provides that the CBC is to perform all tasks required for the achievement of its objectives and 
lists, without prejudice to the beforementioned, the basic tasks that the CBC may exercise.  

Regulation (EU) 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). 
See Article 22 of the Law on the CBC, as amended by Article 15 of the draft law. 
See Article 56(1) of the Law on the CBC, as amended by Article 17 of the draft law. 

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1.2.2 

The  first  modification  relates  to  Article  118(4)  of  the  Constitution,  which  provides  for  the 

dismissal of the CBC’s governor and deputy governor. In this respect, the CBC’s governor and 

deputy governor may be dismissed by a council established in accordance with Article 153(8) of 

the  Constitution  and  chaired  by  the  president  of  the  Supreme  Court.  The  draft  amendment  to 

the  Constitution  extends  the  scope  of  Article  118(4)  to  the  remaining  members  of  the  CBC’s 

executive  committee  and  of  the  board  of  directors  (i.e.  the  executive  and  non-executive 

directors).  

1.2.3 

The second modification inserts the words ‘unless otherwise determined by law’ into paragraphs 

1, 2, and 3 of Article 119 of the Constitution, which describe the powers and tasks of the CBC’s 

governor  and  which,  more  specifically,  provide  that  the  governor  is  responsible  for  the  CBC’s 

management and exercises all powers and performs all functions and duties within the scope of 

the CBC’s competences, assisted by the deputy governor. 

2. 

2.1 

Observations  

The  ECB  welcomes  the  amendments  introduced  by  the  draft  law,  which  reflect  a  number  of 
suggestions  provided  by  the  ECB  in  Opinion  CON/2018/2319.  The  ECB  wishes  to  make  the 

following additional observations in relation to the draft law.  

2.2 

The  ECB  welcomes  the  revisions  introduced  as  regards  the  grounds  for  dismissal  of  the 

members of the executive committee as these are now aligned with Article 14.2 of the Statute of 

the  ESCB  and  reinforce  the  independence  of  these  members.  As  noted  in  the  ECB 
Convergence  Reports20,  NCB  statutes  must  ensure  that  governors  are  not  dismissed  for 

reasons other than those mentioned in Article 14.2 of the Statute of the ESCB, i.e. where they 

no longer fulfil the conditions required for the performance of their duties or have been guilty of 

serious  misconduct.  This  principle  also  applies  to  other  members  of  NCB  decision-making 

bodies involved in the performance of ESCB-related tasks, especially where a governor is ‘first 

among equals’ with colleagues with equivalent voting rights, or where other such members are 
involved in the performance of ESCB-related tasks21. The ECB also notes that these revisions 

go  a  step  further  by  providing  that  the  same  procedure  for  the  dismissal  of  the  governor  and 

deputy  governor  also  applies  with  regard  to  the  dismissal  of  non-executive  directors.  From  a 

technical  drafting  perspective,  the  added  wording  referred  to  in  paragraph  1.1.5  seems 

redundant as the governor and deputy governor cannot be considered to be executive or non-

executive directors.   

2.3 

The ECB understands the deletion of the provision stipulating that the acquisition of an interest 

or holding of a position by a director in a financial institution during the course of his or her term 

would  result  in  his  or  her  dismissal  by  the  Council  of  Ministers  to  be  a  technical  amendment, 

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21 

See paragraphs 2.3, 2.4, 2.7, 2.8, 3.1.2, 3.1.3, 3.1.6 and 3.1.7 of Opinion CON/2018/23. 
See for example the ECB’s Convergence Report of May 2018, page 24. 

See paragraph 2.2 of Opinion CON/2014/51. 

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which  has  been  introduced  in  view  of  the  introduction  of  a  conflict  of  interest  as  a  ground  for 
dismissal for the non-executive directors22. 

2.4 

The ECB welcomes the amendment to the provision that limits the voting rights of the members 

of  the  executive  committee  at  the  meetings  of  the  board  of  directors.  This  provision  aims  to 

clarify the matters over which such a limitation would apply. It might also be useful to clarify the 

basis  on  which  the  board  of  directors  may  exercise  oversight  (ανασκόπηση)  of  the  executive 

committee’s  performance  by  identifying  which  of  the  tasks  of  the  board  of  directors  set  out  in 
Article 15 of the Law on the CBC23 capture the task of oversight (ανασκόπηση) of the executive 
committee’s  performance  referred  to  in  Article  17(4)  of  the  Law  on  the  CBC24.  The  ECB  also 

welcomes  the  added  qualification  that  this  provision  is  without  prejudice  to  the  independence 

and competence of the executive committee in the performance of its ESCB-related and other 

duties. 

2.5 

In  relation  to  the  amendments  introduced  regarding  the  CBC’s  capital  and  its  alteration,  the 

ECB reiterates its understanding that according to the draft law, the CBC will be entitled to be 

automatically recapitalised up to the level of the prescribed capital referred to in the Law on the 
CBC as amended by the draft law25.  

2.6 

The ECB welcomes the provision of the draft law conferring powers on the board of directors to 

determine  the  level  of  ‘maximum  provisions  and  reserves’  that  the  CBC  can  maintain  in  the 
medium term26. In this respect, the ECB reiterates its understanding that this provision intends 
to address financial buffers comprising general reserves, capital and financial risk provisions27. 

The  ECB  furthermore  reiterates  its  understanding  that  the  ‘maximum  provisions  and  reserves’ 

exclude: (a) specific provisions against already incurred losses; and (b) any amounts recorded 

by  the  CBC  on  revaluation  accounts,  and  that  the  profit  to  be  distributed  by  the  CBC  to  the 

general government account is determined following the establishment of adequate ‘maximum 

provisions and reserves’.  

2.7 

Finally,  the  ECB  welcomes  the  objective  of  the  draft  amendment  to  the  Constitution  to 

guarantee  legal  certainty  by  ensuring  that  the  draft  law  is  in  line  with  the  provisions  of  the 

Constitution. In particular, the ECB welcomes the extension of the scope of Article 118(4) of the 

Constitution on the grounds of dismissal to cover the CBC’s executive directors, putting them on 
an equal footing with the governor and deputy governor, and notes that the draft amendment to 
the  Constitution goes  a  step further by  providing  that  the same  procedure for the  dismissal of 

the  governor  and  deputy  governor  also  applies  with  regard  to  the  dismissal  of  non-executive 

directors. As regards the modifications to Article 119 of the Constitution, the ECB understands 

that these modifications aim to bring legal certainty as regards the performance of the powers 

22 
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25 

26 
27 

See paragraphs 1.1.4 and 1.1.6. 
See Article 7 of the draft law. 
See Article 10 of the draft law. 
See Article 56(2) and (3) of the Law on the CBC as amended by Article 17 of the draft law and paragraph 3.1.8 of 
Opinion CON/2018/23. 
See Article 59 of the Law on the CBC, as amended by Article 18 of the draft law. 
See paragraph 3.1.9 of Opinion CON/2018/23. 

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and tasks of the  executive committee, which  would  otherwise be inconsistent with the  powers 

and tasks of the governor, assisted by the deputy governor. 

ECB-PUBLIC 

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

Done at Frankfurt am Main, 21 June 2019 

[signed] 

The President of the ECB 

Mario DRAGHI 

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