Opinion of the European Central Bank of 16 August 2019 on the sale and purchase of credit facilities (CON/2019/30)
Date: 2019-08-16
Institutions: European Central Bank
Subjects: Cyprus, credit, financial stability, financial supervision, national law, purchase, sale

EN 

ECB-PUBLIC 

OPINION OF THE EUROPEAN CENTRAL BANK 

of 16 August 2019  

on the sale and purchase of credit facilities 

(CON/2019/30) 

Introduction and legal basis 

On  6  June  2019  the  European  Central  Bank  (ECB)  received  a  request  from  the  Ministry  of  Finance  of 

Cyprus  for  an  opinion  on  a  draft  law  amending  the  Law  on  the  sale  and  purchase  of credit  facilities  of 
2015 1 (hereinafter the ‘draft law’). On 9 July 2019 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/EC 2, as the draft law relates to the Central Bank of Cyprus (CBC) and rules applicable to financial 

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

tasks  conferred  on  the  ECB  pursuant  to  Article  127(6)  of  the  Treaty  concerning  policies  relating  to  the 

prudential  supervision  of  credit  institutions.  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 aim of the draft law is to improve certain aspects of the Law on the sale and purchase of credit 

facilities  of 2015 (hereinafter the ‘Law’). In brief, the  Law governs the sale and purchase of credit 

facilities in Cyprus and grants the CBC the power to authorise, regulate and supervise entities that 

wish to engage in transactions for the acquisition and sale of credit facilities. 

1.2  The  Law  currently  applies  to  credit  facilities  afforded  to  an  individual  or  to  a  small  or  micro 

enterprise  or  group  of  affiliated  enterprises  the  total  balance  of  which  does  not  exceed  EUR  1 

million, above which threshold the Law is not applicable. The draft law abolishes this threshold and 

provides  for  exemptions  from  the  Law’s  scope  of  application  in  respect  of  transactions  that  are 
subject  to  foreign  law,  the  Law  on  securitisation  of  2018 3  or  the  Law  on  transfer  of  banking 
activities  of  19974.  The  draft  law  also  removes  existing  exemptions  from  the  Law’s  scope  of 

application  with  respect  to  credit  facilities  that  (a)  have  been  granted  by  a  credit  institution  or  a 

branch of a credit institution to a  natural person  not permanently domiciled in Cyprus or to a legal 

1  
2  

3  
4  

Ο περί Αγοραπωλησίας Πιστωτικών Διευκολύνσεων και για Συναφή Θέματα Νόμος του 2015 (Ν. 169(I)/2015). 
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 Τιτλοποιήσεων Νόμος του 2018 (N. 88(I)/2018). 
Ο περί της Μεταβίβασης Τραπεζικών Εργασιών και Εξασφαλίσεων Νόμος του 1997 (Ν. 64(I)/1997). 

 
 
 
  
                                                 
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entity  not registered in Cyprus; or (b) concern activities or  investments outside  Cyprus; or (c) are 

secured by a mortgage on an immovable property or an encumbrance located outside Cyprus.  

1.3  The draft law also  expands the list of  legal persons entitled to purchase credit facilities  under the 

Law, by adding institutions that engage in immovable property transactions in accordance with the 
Law  on  credit  agreements  for  consumers  relating  to  residential  immovable  property  of  20175  and 

legal entities that have secured the prior written consent of the CBC following a substantiated and 

duly  justified  application  that  explains  why  they  are  not  required  to  apply  for  authorisation  as  a 

credit  acquiring  company.  The  Law  currently  provides  that  a  seller  of  credit  facilities  needs  to  be 

one of the entities eligible to purchase credit facilities or any other legal entity that has secured the 

CBC’s  prior  written  consent  for  this  purpose.  The  draft  law  removes  this  requirement  and  simply 

allows eligible purchasers to acquire credit facilities from any non-authorised entity in possession of 

such credit facilities. 

1.4  Furthermore, the draft law establishes a framework for the licensing of credit servicers by the CBC 

and  brings  credit  services  under  the  CBC’s  supervisory  scope.  The  draft  law  sets  out  the 

application  procedure  for  the  licensing  of  servicers  and  the  procedures  for  the  suspension  and 

termination  of  these  licences.  It  provides  that  any  material  changes  that  affect  the  information  or 

documents submitted to the CBC as part of that procedure, the appointment of any member of the 

management  of  an  authorised  servicer  and  any  increase  or  decrease  in  any  special  participation 

rights in the ownership structure of authorised servicers must be notified to and, where appropriate, 

approved by the CBC. The draft law also sets out the rules as regards the appointment of servicers 

by  entities  authorised  to  carry  out  credit  activities  in  accordance  with  the  Law,  which  include  the 

requirement  to  enter  into  a  written  agreement  with  these  entities  governing  the  servicing  of  the 

credit  facilities  portfolio.  The  CBC  may  determine  the  minimum  terms  and  requirements  of  such 

agreements by way of issuing directives. 

1.5  The  draft  law  also  allows  credit  servicers  that  engage  in  the  collection  and  recovery  of  debt 

collection  and  the renegotiation  with  borrowers  of  the  terms  of  credit  facilities  to obtain  access  to 

data  related  to  serviced  credit  facilities.  In  particular, credit  servicers  may  submit  requests  to  the 

CBC for access to the CBC’s credit registry as regards the credit facilities they are to manage, and 

the  CBC  may  accept  or  reject  such  requests.  A  request  may  only  be  granted  for  the  purpose  of 

servicing  the  credit  facilities  in  accordance  with  the  relevant  outsourcing  agreement  and  on  the 

basis of the criteria and terms and conditions laid down by the CBC by way of issuing directives or 

in  any  other  manner.  If  the  CBC  approves  a  request,  the  servicer  will  also  be  entitled  to  have 

access to the database of the  Department of  Lands  and  Surveys. The  explanatory memorandum 

notes 

that  such  access 

to  data  will  enable  credit  servicers 

to  assess 

the  borrowers’ 

creditworthiness,  resulting  in  a  more  effective  evaluation  of  their  repayment  ability  and  in 

improvement of the proposed restructuring solutions, and that this is in compliance with Regulation 
(EU) 2016/679 of the European Parliament and of the Council 6. 

5  

6  

Ο περί Συμβάσεων Πίστωσης για Καταναλωτές σε σχέση με Ακίνητα που προορίζονται για Κατοικία Νόμος του 2017 
(Ν. 41(I)/2017). 
Regulation  (EU)  2016/679  of  the  European  Parliament  and  of  the  Council  of  27  April  2016  on  the  protection  of 
natural  persons  with  regard  to  the  processing  of  personal  data  and  on  the  free  movement  of  such  data,  and  
repealing Directive 95/46/EC (General Data Protection Regulation) (OJ L 119, 4.5.2016, p. 1). 

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1.6 

In  addition,  the  draft  law  provides  that  entities  that  intend  to  sell  credit  facilities  must  notify  their 

security providers, as well as the underlying borrowers and their guarantors, and provide them with 

the opportunity to submit within 45 days from the date of notification a proposal for the purchase of 

the  relevant  credit  facilities.  It  also  introduces  an  exemption  from  this  ex  ante  notification 

requirement in  respect of credit facilities sold within the same group of companies. The transferor, 

at  the  time  of  the  transfer  and/or  on  the  date  of  publication  of  the  notice  to  the  relevant 

governmental departments, must notify, free of charge, the registrar of the competent court and the 

Department of Lands and Surveys  in relation to any proceedings which are  pending before them, 

and such  notification will  constitute a final notification with regard to the transfer of the  underlying 

credit facilities and their finality. The draft law requires the Registrar of Companies, the Department 

of  Lands  and  Surveys,  the  Cyprus  Stock  Exchange  and  any  other  relevant  governmental 

department to update their records to show the name of the  new holder of the credit facilities. The 

transfer of credit facilities and collateral pursuant to the Law should  not be subject to any charges 
or tax7. 

1.7  Finally,  the  draft  law  expands  the  ex  post  notification  requirement  to  cover  not  only  underlying 

borrowers, but also security providers and guarantors, the Registrar of Companies, the Department 

of Lands and Surveys, the Cyprus  Stock Exchange and other relevant governmental departments. 

Accordingly,  the  seller  and  the  purchaser  are  required  (a)  within  15  days  from  the  transfer  of the 

credit facilities to jointly and by post notify the underlying borrowers, the security providers and the 

guarantors  of  the  transfer  of  the  credit  facilities  and  related  collateral  of  the  contact  details  of the 

persons that will be handling these facilities and the updated account details, and (b) on the date of 

the transfer or no later than the next business day to jointly and by means of personal service notify 

the abovementioned governmental departments of the sale and transfer of the credit facilities and 

provide them with the necessary information for the purposes of updating their records.   

2. 

General observations  

2.1  The ECB recalls that it was consulted on the draft version of the Law and issued its observations in 

Opinion CON/2015/45 8. 

2.2  Tasks of the CBC 

2.2.1  The  draft  law  complements  the  CBC’s  existing  tasks,  particularly  in  respect  of  the  supervision  of 

regulated  financial  service  providers  and  regulated  businesses.  However,  it  does  not  confer 

genuinely  new  tasks  on  the  CBC  in  this  area.  For  example,  in  respect  of  credit  acquiring 

companies, the  CBC already  has powers to authorise and supervise such entities, to make them 
subject to the CBC’s  directives, and to take enforcement measures against them 9. Consequently, 

the  issue  of  assessing  the  conferral  of  new  tasks  on  a  national  central  bank  (NCB)  from  the 
perspective of the prohibition of monetary financing does not arise 10. The ECB notes, in any event, 

that  the  principle  of  financial  independence  requires  that  the  Member  States  may  not  put  their 

7  
8  
9 
10 

See Article 17 of the draft law, which amends Article 18 of the Law, for the provisions referred to in this paragraph. 

All ECB opinions are published on the ECB’s website at www.ecb.europa.eu.  
See Articles 17, 20 and 21 of the Law. 

See paragraph 3.1 of Opinion CON/2018/27 and paragraph 2.1 of Opinion CON/2018/31.  

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NCBs  in  a  position  where  they  have  insufficient  financial  resources  to  carry  out  their  European 
System  of  Central  Banks  (ESCB)  or  Eurosystem-related  tasks 11.  Therefore,  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 or Eurosystem-related tasks12. 

2.2.2  Furthermore,  the  ECB  notes  that,  according  to  the  Law,  credit  acquiring  companies  must  pay  an 

annual  fee  of  EUR  3  000  in  order  to  cover  the  costs  incurred  by  the  CBC  in  carrying  out  its 
supervisory  functions 13.  The  ECB  wishes  to  reiterate  that  a  more  flexible  mechanism  for 

determining  the  fee  level  would  be  more  appropriate,  with  a  view  to  safeguarding  the  CBC’s 

financial  independence.  For  example,  it  may  be  useful  to  include  a  provision  in  the  Law  that  will 
allow  the  fees  to  be  increased,  if  needed 14.  In  addition,  the  ECB  suggests  that  the  legislator 

considers whether, for the sake of consistency, the Law should also cater for the reimbursement of 

the CBC for costs incurred in the context of the licensing and supervision of credit servicers.   

2.3 

Impact on secondary markets for credit institution assets 

2.3.1  The ECB  has  been a strong proponent of the development of secondary markets for bank assets, 

particularly non-performing loans (NPLs), as reflected in the Council’s action plan to tackle NPLs in 
Europe 15.  In  the  context  of  the  large  stocks  of  NPLs  that  remain  on  the  balance  sheet  of  some 
European  credit  institutions,  and  as  part  of  a  comprehensive  solution  to  NPL  resolution16,  the 

development  of  secondary  markets  may  contribute  to  reducing  NPLs.  Looking  ahead,  well-
functioning secondary markets may also prevent stocks of NPLs building up in the future 17. 

2.3.2  Moreover,  a  well-functioning  secondary  market  may  have  a  positive  effect  on  financial  stability  to 

the  extent  that  it  could  facilitate  the  transfer  of  the  risks  of  NPLs  off  credit  institutions’  balance 

sheets. 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  the 

operational flexibility and overall profitability that are essential to a well-functioning banking sector. 

It  is  essential  that  the  legal  framework  applicable  to  secondary  markets  enables  the  efficient 
transfer of NPLs off the balance sheet of credit institutions 18. 

2.3.3  While  risk  transfer  through  asset  sales,  securitisation  and  other  measures  may  be  effective  in 

reducing NPLs, risk reduction measures remain, nevertheless, an important channel, particularly in 

a  context  where  NPL  stocks  are  high.  In  that  regard,  and  in  the  context  of  a  comprehensive 

solution  to  NPL  resolution,  the  originating  credit  institutions’  internal  procedures  for  handling  the 
work-out of NPLs themselves will always remain important 19. 

11   
12  
13  
14  
15  

16  

17 
18  
19  

See paragraph 2.4.1 of Opinion CON/2015/45. 
See paragraph 2.2.5 of Opinion CON/2017/32 and paragraph 3.2.3.5 of Opinion CON/2018/16. 
See Article 16 of the Law.  
See paragraph 3.1.1, 3.1.6 and 3.1.8 of Opinion CON/2015/45. 
See the Council’s press release of 11 July 2017 on the ‘Council conclusions on Action plan to tackle non-performing 
loans in Europe’, available on the Council’s website at www.consilium.europa.eu 

for  example,  Section  B  of 

See, 
www.ecb.europa.eu. 

the  ECB’s  November  2016  Financial  Stability  Review,  available  at 

See paragraph 2.2.1 of Opinion CON/2018/31 and paragraph 1.1 of Opinion CON/2018/54. 
See paragraph 2.2.2 of Opinion CON/2018/31 and paragraph 1.2 of Opinion CON/2018/54. 
See paragraph 2.2.4 of Opinion CON/2018/31. 

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2.4 

Impact on securitisation 

2.4.1  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  of 

monetary  policy.  A  healthy  European  securitisation  market  is  important  to  ensure  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. Securitisation may also  have a positive effect on financial stability to the extent that it can 
facilitate the transfer of the risks of  NPLs off credit institutions’ balance sheets20. Securitisation is 

one of a variety of options that banks may apply alone or in combination with other measures, such 
as borrower-creditor engagement, to address the issues posed by NPLs 21.  

2.4.2  The ECB understands that the draft law intends to exempt securitisations from its scope. The ECB 

welcomes  this  intention,  as  this  will  ensure  that  the  draft  law  does  not  discourage  securitisation 
activity22.  

2.5 

Interaction with prospective Union legislative measures 

2.5.1  Finally, the ECB notes that on 3 March 2018, the Commission published its proposal for a Directive 

of  the  European  Parliament  and  of  the  Council  on  credit  servicers,  credit  purchasers  and  the 
recovery  of  collateral 23.  This  proposal  seeks  to  set  out  a  common  Union  framework  and 

requirements for credit servicers, credit purchasers, and for the recovery of collateral in respect of 

credit  agreements  concluded  with  business  borrowers,  with  a  view  to  ensuring  a  high  level  of 

consumer  protection  and  a  level  playing  field  across  the  Union.  If  this  proposed  Directive  is 

adopted by the European Parliament and the Council, its provisions will be transposed into Cypriot 

law, potentially requiring further  amendment of the rules applicable to credit ownership and credit 
servicing 24.  

3. 

Specific observations   

3.1  The ECB takes note of the abolition of the current threshold of EUR 1 million, above which the Law 

is  not  applicable  as  regards  sales  of  credit  facilities  to  natural  persons  and  micro  and  small 

enterprises.  The  ECB  understands  that,  by  abolishing  this  threshold,  the  Law  will  become 

applicable as regards any kind of credit transaction  undertaken by the entities set out in the  Law, 

except  in respect of transactions which are subject to foreign  law, securitisations and transfers of 

banking activities. It is understood that, as a result of this amendment, any entity wishing to engage 

in  credit  transactions  in  Cyprus  will  need  to  comply  with  the  requirements  of  the  Law  and,  in 

particular, with authorisation requirements and ex ante and ex post notification requirements. 

3.2  The  ECB  also  takes  note  of  the  expansion  of  the  list  of  legal  persons  entitled  to  purchase  credit 

facilities under the Law and, in particular, the inclusion of legal entities that have been granted prior 

20  
21  
22  
23  
24  

See paragraphs 3.1.1 and 3.1.2 of Opinion CON/2018/16 and paragraph 2.3.1 of Opinion CON/2018/31. 
See paragraph 2.3.1 of Opinion CON/2018/31. 
See paragraph 2.3.2 of Opinion CON/2018/31. 
COM(2018) 135 final. 
See paragraph 2.4.5 of Opinion CON/2018/31. 

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written  consent  from  the  CBC 25.  It  is  understood  that  these  legal  entities  will  not  fall  within  the 

supervisory  scope  of  the  CBC  and  that,  in  particular,  the  provisions  concerning  changes  to 

qualifying  holdings,  suspension  and  revocation  of  authorisation,  supervision,  minimum  capital, 

the  carrying  out  of 
assessment  of  management  bodies,  submission  of 
investigations  apply  only  in  relation  to  credit  acquiring  companies  and  credit  services 26.  The 

information  and 

consulting authority may nonetheless consider whether these provisions should also apply to legal 

entities  that  have  obtained  the  CBC’s  prior  written  consent.  In  addition,  from  a  technical  drafting 

perspective, the words ‘or natural person’  in Article 4 of the draft law may  need to be removed as 

the rest of the provision refers only to legal persons.   

3.3  As regards the revised ex post notification requirements, the ECB understands that by requiring the 

transferor  and  the  transferee  to  notify  not  only  the  underlying  borrowers  as  regards  completed 

credit  transactions  but  also  their  guarantors  and  security  providers,  as  well  as  the  relevant 
governmental departments 27, the legislator may have intended to achieve greater transparency and 

to ensure that the records held by these departments are kept up to date. However, the consulting 

authority  may  need  to  consider  the  potential  implications  that  the  requirement  to  notify  the 

guarantors and security providers might have in practice, and in particular whether it might create a 

risk  of  judicial  challenge  on  procedural  grounds,  for  example  in  a  situation  where  one  security 

provider has not been properly notified or not notified at all, and whether this may potentially create 

an obstacle to the smooth execution of transactions for the sale and purchase of credit facilities.  

3.4  The  draft  law  requires  the  CBC  to  issue  a  directive  governing  the  procedure  for  approving  or 
rejecting  applications  for  authorisation  of  credit  servicers 28.  The  ECB  understands  that,  on  the 

basis  of  this  provision,  the  CBC  will  not  be  able  to  consider  any  applications  submitted  by  credit 

servicers  until it has first issued a directive setting out the applicable procedure that it would  need 

to follow. This, however, may have the consequence of delaying the practical implementation of the 

Law with regard to the granting of authorisations to servicers until such time as the CBC issues the 

relevant directive. It is therefore proposed that the wording of the relevant article should be revised 

in a manner that would allow, rather than require, the CBC to issue a directive regulating its internal 

authorisation procedure.  

3.5  The  ECB  also  takes  note  of  the  intragroup  exemption  introduced  with  regards  to  the  ex  ante 

notification  requirements.  It  is  understood  that  the  purpose  of  this  exemption  is  to  alleviate  the 

notification  burden  in  respect  of  credit  transactions  carried  out  within  the  same  group  of 
companies 29.   

3.6  Finally,  the  ECB  reiterates  its  understanding  that  the  Cypriot  authorities  opted  not  to  impose 

express  limits  on  leverage  and  liquidity  requirements  on  credit  acquiring  companies,  in  order  to 

25  
26  
27  
28  
29  

See paragraph 1.3, and Article 4(f) of the Law (as inserted by Article 4 of the draft law). 
See Articles 6, 8, 9, 10, 11, 12, 13 and 14 of the Law, respectively. 
See paragraph 1.7. 
See Article 4A(4) of the Law, as added by Article 5 of the draft law. 
The term ‘group of companies’ is defined in the draft law by reference to the Companies Law, Cap 113, as a group of 
companies comprising the holding company and the subsidiary company or companies. 

6 

                                                 
offer wider opportunities for  new companies entering the  market for such services, with a  view to 
facilitating private debt restructuring 30.  

ECB-PUBLIC 

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

Done at Frankfurt am Main, 16 August 2019. 

[signed] 

The President of the ECB 

Mario DRAGHI 

30 

See paragraph 3.3 of Opinion CON/2015/45. 

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