The Banking Regulation Review

Contributed by Patrikios Pavlou & Associates LLC [www.pavlaw.com]
Published by Law Business Research, 2011

INTRODUCTION

The Central Bank of Cyprus is the banking regulator and supervisor of banks incorporated in the Republic of Cyprus. The authority of the Central Bank of Cyprus stems from the Banking Law 66 (I) 1997 as amended(1) , (hereinafter to be referred to as the “Banking Law”) which empowers it to supervise banks and to issue directives and practices to regulate their conduct; it also establishes the legal framework within which banking business can be pursued.

The provisions of the Banking Law were amended to comply with the principles of EU legislation, therefore the context of the law comprises and reflects the EU directives(2) on credit institutions and the recommendations of Basel Committee Banking Supervision. In succeeding in its role as the regulator and supervisor of the banking industry in Cyprus, the Central Bank of Cyprus must have its prudential functions under constant review to take account of the new developments and changing circumstances of EU regulations, directives and practices.

As the global financial crisis has revealed weaknesses in supervisory and regulatory frameworks for addressing financial stability issues, the need for maintaining financial stability and also for retaining public confidence, has been of a great challenge to all European Union countries.

In the last few years, the Central Bank of Cyprus has systematically worked towards maintaining financial stability and also to addressing the various threats arising out of the financial crisis, by formulating a number of policies, principally in the area of regulatory capital and in the area of the protection of the depositors. The aforementioned policies are considered to be of great importance in the financial sector in the Republic of Cyprus.

In relation to the capital adequacy ratio (capital / risk weighted assets), the Central Bank of Cyprus, requires all the banks incorporated in the Republic to hold 10% of their capital in respect of credit risk, market risk and, in addition, operational risk. In particular, the capital base of a bank to its risk weighted assets should be at least 10%, in contrast with the current minimum requirement of 8% that the Basel II capital accord requires.

In addressing the necessity of a higher level of protection to the depositors, the Central Bank of Cyprus, has amended the regulations on the Establishment and Operation of the Deposit Protection Scheme, issued under article 34(2) of the Banking Law of 1997(3). The aforementioned regulations were amended on 24 July 2009, in accordance with which the following changes were introduced:

• The maximum amount of compensation per depositor per bank has increased from €20.000 to €100.000;
• All currencies of deposits are now covered, whereas before only the currencies of member states of the EU were covered;
• The co-insurance has been abolished and, therefore, claims up to €100.000 are fully reimbursed (whereas before only 90% of the claims was covered).

II. PRUDENTIAL REGULATION

i. Relationship with the prudential regulator

The Central Bank of Cyprus is as an autonomous institution established as a corporate body in 1963, following the provisions of Articles 118-121 of the Constitution of Cyprus and in accordance with the Central Bank of Cyprus Law 1963 and the Central Bank of Cyprus Laws 2002 to 2007. The provisions of the above Acts are compatible with the relevant provisions of the Treaty establishing the European Community and the Statute of the European System of Central Banks and of the European Central Bank. Most importantly, the Acts set out in their provisions the independence of the Central Bank of Cyprus as an institution and as a corporate body and its independence to follow its own policies in supporting the general economy policy of the State.

The Central Bank of Cyprus Law 1963, the Central Bank of Cyprus Laws of 2002 to 2007(4) and the Banking Law 66 (I) 1997 as amended, set out in their provisions the main functions and objectives of the Central Bank of Cyprus which include the following:

• Implementing the European Central Bank’s monetary policy decisions;
• Supervising banks;
• Promoting, regulating and overseeing the smooth operation of payment and settlement systems;
• Safeguarding the stability of the financial system;
• Holding and managing the official international reserves;

The conduct of banking business

The Banking Law, defines the meaning of “banking business” as the business carried on from within the Republic or abroad, consisting of lending of funds acquired from the assumption of obligations to the public, in the form of deposits, securities or other evidence of debt.

Further, the Banking Law, defines the meaning of “credit institution” as a business whose activity consists of accepting deposits or other repayable funds from the public and the lending of funds for its own account and which possesses a banking license from the competent authority of a member state or a third country and includes:

• A bank; and
• A cooperative credit institution, regulated by the Co-Operative Societies Law 22 of 1985; or
• An electronic money institution;

Moreover, the Banking Law provides in Part two, under the title “ licensing of Banks”, that it is prohibited to a person other that a Bank to be engaged in banking business or in the business of accepting deposits.

Under the aforesaid provisions, the term “Bank” should be interpreted broadly to cover other credit institutions, as well as, the Co-operative credit institutions and the Electronic money institutions which are engaged in banking business in the Republic of Cyprus, although these institutions are authorized to commence their activities by other competent supervisory authorities whose functions will be explained further below.

The infringement of the provisions of the law prohibiting persons other than banks to be engaged in banking business is an offence punishable with imprisonment not exceeding two years or with a fine not exceeding, eighty five thousand euro, or with both the said penalties and in a case of a continuing offence with a further fine.

A bank commencing banking business within the Republic of Cyprus

Under the provisions of the Banking Law, a bank engaged to carry on banking business, incorporated within the Republic, is required to be granted a license by the Central Bank of Cyprus. Moreover, a bank incorporated in the Republic, shall not establish a branch or a representative office outside the Republic without the prior approval of the Central Bank of Cyprus. However, a license is not required for a bank incorporated in the Republic wishing to establish a branch in an EU Member State.

A license to carry on banking business is issued only to a legal person established in Cyprus under the Companies Law, Cap 113, as amended or under any other law, or to a legal person established in a country other than Cyprus under comparable laws of the country concerned.

Applications for a license to carry on banking business must be presented by the applicant to the Central Bank together with the proposed memorandum and articles of association or any other documents and information which the Central bank may require. The Central Bank’s decision to grant or refuse a license has to be communicated to the applicant within a maximum of one year from the receipt of the application.

A license by the Central Bank is also required for the establishment of a representative office of an institution which is entitled under the laws of another country to carry on business which substantially corresponds to banking business. The Central Bank may grant its approval subject to any conditions which it may consider proper to impose.

The issue of a license by the Central Bank is not required with regard to the provision of cross border services or for the establishment within the Republic, of branches by a bank, electronic money institution, or financial institution, licensed by another EU member state. In this case, the competent supervisory authority of the member state which licensed the bank or the electronic money institution, or the financial institution, which intends to provide services on a cross border basis by carrying out activities within the territory of the Republic, notifies to the Central Bank a number of information related to the relevant financial institution and notifies accordingly the relevant financial institution or bank within a period of three months. The information which must be communicated by the competent authority to the Central Bank is the following:

(i) The programme of operations setting out, inter alia, the types of business envisaged and the structural organization of the branch;
(ii) the address of the branch in the Republic from which the documents may be obtained;
(iii) the names of those to be responsible for the management of the branch;
(iv) the capital base and capital adequacy ratio of the bank or the electronic money institutions or the financial institution;

Within two months from receiving the notification from the competent authority with the above information, the Central Bank must organize the supervision of the relevant financial institution or bank.

On receipt of a communication from the Central Bank, or in the event of the expiry of the two months period provided in the above paragraph and without receiving any communication from the Central Bank, the relevant institution may provide cross-border services in the Republic, or the branch of the bank or of the electronic money institution may be established and commence its activities in the Republic.

There could be situations, where the Central Bank may consider that there are certain reasons that the conduct of business of the financial institution or the bank which is licensed by another EU Member State, wishing to commence its activities within the Republic of Cyprus, should be exercised subject to conditions of public interest which must be fulfilled. In such situations, the Central Bank must communicate the particular conditions of public interest, which must be fulfilled, with the relevant financial institution. The Central Bank must do so within a period of two months commencing from the time of receiving the notification from the competent authority.

The Central Bank of Cyprus as the competent authority of the host Member State, retains the responsibility, in cooperation with the competent authority of the home Member State, for the supervision of cross border services within the Republic and the supervision of the branches of banks.

Financial institutions other than banks which are regulated and supervised by other authorities

Credit institutions other than banks which are also engage in banking business in the Republic of Cyprus, are Co-Operative Societies and Electronic Money Institutions.

The Co-Operative credit Societies provide various services to individuals and legal persons. These services include the acceptance of deposits and the provision of credit facilities. Co-Operative Societies are regulated by the Co-Operative Societies Law 22 of 1985, as amended, but many of the provisions of the Banking Law are also applicable to them.

Co-Operative credit societies obtain authorization and are supervised by a separate authority, that is to say, the Authority for the Supervision and Development of Co-operative societies. However, the Central Bank of Cyprus in exercising its monetary and credit policy and for the purpose of monitoring the balance of payments and the provision of information to the European Central Bank, can demand all the necessary data and information relating to Co- Operative Societies and it may carry out, a verification of the data submitted.

The Electronic Money Institutions are regulated by the Electronic Institution Law 86 (I) of 2004, implementing directive 2000/46/EU on the taking up pursuit of and prudential supervision of the business of electronic money institutions, but many of the provisions of the Banking Law are likewise applicable.

Investment firms, operating within the Republic are governed by the Investment Services Activities and Regulated Markets Law 144(I) of 2007 Law, as amended. The Law regulates, inter alia, the establishment and operation of investment firms and the provision of investment ancillary services as well as the performance of investment activities in relation to the operation of regulated markets. Under this law Cyprus Investment Firms (CIFs), EU member state Investment Firms (IFs), third country Investment Firms (IFs), banks and co-operative credit institutions are allowed to provide investment services and/or perform investment activities in Cyprus.

Insurance companies, are regulated by the Insurance Services and other Related Matters Law, 35(I) of 2002, as amended. That law governs, inter alia, the provision of insurance services within and outside Cyprus, by Cyprus insurance companies, including reinsurance companies, the provision of insurance services within Cyprus by foreign insurance companies, the provision of insurance mediation services, etc.

The Cyprus Securities and Cyprus Stock Exchange are regulated by the Stock Exchange Law 14 (I) 1993 as amended. That law governs, inter alia, the operation of the (CSE), the supervisory powers of the Council of the CSE, the listing and de-listing of securities on the CSE, the obligations and professional qualifications of brokers and other related issues.

The fact that the above institutions are governed by other laws does not bar the Central Bank of Cyprus from executing its role as the prudential supervisor of the banking sector in the Republic. In performing its role, the Central Bank, may cooperate and exchange information with the competent supervisory authorities which are responsible for the supervision of the credit institutions, insurance companies, investment firms, financial institutions or regulated markets, which are established either in the Republic or in a third country.

Further to the above, all Banks licensed by the Central Bank, are obliged when it is required by the Central Bank, to make available for examination by a duly authorized official of the Central Bank, its liquid and other assets, books or records, accounts and other documents, including those relating to the granting of loans and other facilities as well as the reports obtained by the Bank regarding the business and financial position of debtors.

On a yearly basis, the Banks licensed by the Central Bank are obliged within four months from the end of each financial year, to submit to the Central Bank a copy of the balance sheet and profit and loss account for that year, duly certified by an approved auditor.

Limitations and Prohibitions on certain Business Activities and Transactions

The Banking Law, imposes a prohibition on large credit exposures granted to any person. In particular, a bank incorporated in the Republic of Cyprus is prohibited to permit an exposure to any person equal or greater than 25 per centum of the capital base of the bank. Further, the Law imposes limitations on credit exposures granted by any person or to the directors of a bank, subject to certain exceptions.

It is also prohibited for a bank incorporated in Cyprus, to engage, whether on its own account or on a commission basis, in any trading activity or enterprise, save in so far as may be necessary in the ordinary course of banking operations for the satisfaction of debts due to the bank.

Further, the Law provides that the acquisition or dealing for its own account in its own shares and the granting of credit facilities to persons other than the employees of the bank in excess of €85.430,07 of its own shares or the shares of its holding company or the shares of any subsidiary of the bank or of its holding company is subject to prior written approval of the Central Bank.

Exercising supervision

The main objective of the Central Bank, as regards banking supervision, is to minimize systemic risk and to ensure the stability of the banking system, so as to retain public confidence and to protect depositors.

Supervision is exercised by both off-site monitoring and on-site examination. Off-site monitoring entails the submission by banks of an extensive range of periodic returns which cover numerous aspects of banking operations. Any areas of concern revealed through the returns are taken up promptly with the bank involved, for remedial action.

On-site examinations are carried out with a view to assessing the current financial position and soundness of a bank and its future prospects at a given time. In this respect, the following main areas are covered:

• the quality of the management of the bank, including internal control aspects and procedures;
• the bank’s loan portfolio, with emphasis on credit risk management, the quality of the loan portfolio and the adequacy of the provisions for bad and doubtful debts;
• the bank’s treasury operations with emphasis on risk management;
• the profitability of the bank including the analysis of its income generation and costs and the assessment of the returns achieved;
• the compliance with the conditions of the bank’s license and with Central Bank directives, regulations and instructions on capital adequacy, large exposures, etc;
• Adherence to the requirements of the anti-money laundering legislation and guidance notes.

In response to the practices stressed both by the Basel Committee on Banking Supervision and the European Legislation constituting the Capital requirements for supervisory disclosure and accountability, the Central Bank of Cyprus provides to all interested parties access to comparable information in the area of prudential supervision. In doing so, it has set up a website(5) where it publishes among other information, the requested by the Capital Requirements Directive 2006/49/EU exhausting information and details for supervisory disclosure purposes.

ii. Management of banks

The main bodies of a Bank are the following:

• The Board of Directors
• Senior Executive management
• Audit Committee
• Internal Audit Unit
• Risk Management Committee
• The Compensation Committee

In performing their operations, the main bodies of a bank should follow the principles set out in the directives/guidelines issued by the Central bank regarding the operation, structure and internal control systems(6).

The aims of these Directives, is to upgrade the three basic functions of internal control systems of the banks namely, Internal Audit, Risk Management and Compliance and to strengthen the overall framework of organizational structure and internal governance of banks.

Board of Directors

The Board of Directors is ultimately responsible for the operations and financial soundness of the bank. The body owes fiduciary “duty of loyalty” and “duty of care” to the bank and its shareholders.

They do not participate in the day-to-day management of the bank;

They approve the overall business strategy of the bank, including approval of the overall risk policy and risk management procedures;

They select, monitor and supervise the Senior Executive Management of the bank by exercising their duty.

At least two executive directors are required to participate and concur in the effective direction and management of each bank.

The role of the Chairman of the Board of Directors

The Chairman and Vice-Chairman are pivotal in creating the conditions for overall Board and individual director effectiveness. They Chairman and the Vice Chairman are both non executive members. Furthermore, there must be a clear segregation between the position and duties of the Chairman and the position and the duties of the Senior Executive Management.

The role of the non-executive members of the Board of Directors

The non-executive members of the Board of Directors set the values and standards of the bank and ensure that the bank’s obligations towards the shareholders are understood and are met.

They play a leading role in transpiring the appropriate business ethos acting and actively contributing to the setting of the banks strategic targets and monitoring closely the performance of the Senior Executive Management.

The role of the non-executive and independent members of the Board of Directors

The Board of Directors adopts suitable criteria in order to assess whether a non executive member is independent and his decision must be justified to the directors. The following factors are taken into consideration:

• The candidate must not have been an employee of the bank or the group for any period during the past five years;
• He is not a major shareholder or represents a major shareholder or has close family ties with a member of the Board or a major shareholder;
• He does not maintain or did not maintain during the past three years a material business relationship with the Bank including the grading of credit facilities from the bank which exceed or have exceeded at any time during the last three years the total amount of five hundred thousand Euro (€500.000).

A non executive and independent member who disagrees with any decision of the Board of Directors may notify the Central Bank of Cyprus.

Senior Executive Management

The Senior Executive Management is deemed to be the Bank’s Chief executive organization.

The Senior Executive Management is responsible for the implementation of the corporate strategy and objectives as approved by the Board of Directors, the risk management policy and the on-going monitoring of risk management, within the limits approved by the Board of Directors.

Further, the Senior Executive Management is responsible for the implementation of a code of Ethics to be followed by all the bank’s staff on the basis of generally acceptable principles which include amongst others, due diligence, effectiveness, responsibility, due relationship with members of the public, non-application or acceptance of benefits which are not of a taken value and the implementation of professional confidentiality.

Audit Committee

It is required that a bank establishes an Audit Committee if;

• Its shares are listed on a Stock Exchange or
• It has established branches or subsidiaries abroad or
• Its total balance sheet footing exceeds the amount of one hundred million Euro (€100.000.000)

Risk Management Committee

It is required that banks establish a Risk Management Committee if:

• Their shares are listed on a Stock Exchange or
• They have branches or subsidiaries abroad or
• Their total assets, including off balance sheet items exceeds the amount of two billion Euro (€2.000.000.000).

Internal Audit Unit

All Banks are required to establish an Internal Audit Unit which should be administratively independent of any other units which have operating responsibilities. The internal Audit Unit should report to the Board of Directors through the Audit Committee.

Compensation

The Compensation Committee should consist exclusively of non Executive directors.

The Committee formulates proposals for approval by the Board of Directors regarding the remuneration policy of the Executive Management and other personnel whose duties may include increased risk taking.

Further, banks licensed by the Central Bank of Cyprus, should follow the guidelines for remuneration policies based on the paper published on the 20th April 2009 by the Committee of European Banking Supervisors (CEBS) titled “High-level principles for Remuneration Policies”.

The Board of Directors, in its supervisory function, should determine the remuneration of the Senior Executive Management.

Where the pay award is performance, the related measurement of performance should be used as a basis for remuneration. Remuneration in this case should be based on a combination of individual and collective performance.

Bonuses or bonus pools should be calculated using a performance measure which is adjusted to take into consideration risks, including the liquidity risk and the cost of capital.

iii. Regulatory capital and liquidity

The Banking Law determines the minimum capital base which a bank incorporated in the Republic must maintain. It sets out that a bank incorporated in Cyprus must have at all times, minimum own funds of not less than €5.125.804,32 or such other higher amount that the Central Bank might determine.

Further, the Law provides that the Central bank is responsible for determining what constitutes a capital base of a bank and authorizes the Central Bank to require from banks incorporated in the Republic to maintain a capital adequacy ratio at such minimum level as may be determined by it.

Since 2006, when the EU Capital Adequacy Directive was implemented, the Central Bank of Cyprus set a new guideline on the calculation of the capital adequacy ratio that was aligned with the provisions of the Basel II capital accord.

Based on the capital adequacy ratio (Capital / Risk weighted assets) imposed by the Central Bank of Cyprus, the capital base of a bank to its risk weighted assets should be at least 10%, in contrast with the current minimum requirement of 8% that the Basel II capital accord requires. Based on the above mentioned ratio the Central Bank of Cyprus requires from all banks incorporated in the Republic to hold 10% of their capital in respect of credit risk, market risk and in addition operational risk.

Regarding the calculation of credit risk, banks incorporated in Cyprus, have the option to choose between three distinct approaches of calculation. In particular, the Central Bank of Cyprus requires that all banks incorporated in Cyprus, apply either the “standardized approach” or one of the two “advanced approaches” which are the IRB and the advanced IRB. Despite the fact that a variety of options is available, the majority of the licensed banks follow the standardized approach of credit risk calculation which is based on external ratings as provided by external credit assessment institutions.

As a result of the above, the capital charge for exposures to particular classes of counterparties (sovereigns, inter-banks, corporate, retail and mortgages) depends principally on the external credit rating of the counterparty.

In respect of the maintenance of liquidity, the Banking Law, empowers the Central Bank to establish a minimum ratio of liquefiable assets to be held by banks.

Supervisory review and evaluation progress framework- SREP

The Central Bank of Cyprus exercises the Supervisory Review and Evaluation Process (SREP) to all the credit institutions incorporated in Cyprus, licensed by the Central Bank of Cyprus, which are subject to capital requirements. SREP is exercised on an individual basis, subconsolidated basis and/or consolidated basis.

In applying the SREP, the Central Bank of Cyprus takes into account the principle of proportionality. Therefore, the frequency and the intensity of the review and assessment of each individual supervised credit institution are proportionate to the nature, scale and complexity of its operations, its risk profile and its systemic importance.

In the content of the practical application of the Supervisory Review and Evaluation Process (SREP), the Central Bank of Cyprus has designed its own Risk Assessment System (RAS), which provides a useful internal tool for the uniform institutions. RAS constitutes a structured and methodical process for evaluating the risk of each credit institution, by breaking down and assessing separately the various risks faced and controls applied further to risk and control elements and rating them in accordance with defined risk indicators using a four-grade scale.

Overall assessment and supervisory measures

In the course of the Supervisory Review and Evaluation Process (SREP), the Central Bank of Cyprus assesses the arrangements, strategies, processes and mechanisms implemented by supervised credit institutions, as well as, their internal own funds and determines whether these ensure a sound management and coverage of their risks.

Based on the SREP conclusions, the Central Bank of Cyprus requires corrective measures for the weaknesses identified especially where requirements of the Directive for the Calculation of the Capital Requirements and Large Exposures are not met. The final decision regarding the measures to be taken rests with the Central Bank of Cyprus, taking into account the SREP conclusions and dialogue with the supervised credit institutions, and the nature and the extent of the problem. The required measures are promptly communicated in detail to the supervised credit institutions.

III. CONDUCT OF BUSINESS

Each Bank incorporated in the Republic, has its internal rules on matters as such as communications with customers, the principles governing its contracts and cancellation rights in relation to banking products. Therefore, the account relationship between a bank and its costumers is largely regulated by terms implied into the contract between them.

There are, however, some core issues which impact every day transactions which are regulated by the Law. These comprise of issues which are awarded enormous importance by the House of Representatives such as, the bank secrecy laws, the measures for combating Money Laundering and terrorist financing and issues concerning interest rates.

In relation to banking confidentiality, the Banking Law, expressly provides that Banks must treat the personal information of their costumers as private and confidential even when they are no longer customers, subject to certain exceptions.

As far as the combat of Money Laundering is concerned, the Law(7) imposes a binding and compulsory obligation on all banks and credit institutions incorporated in Cyprus to take all the necessary measures, procedures and policies for the effective prevention of money laundering. In this respect, the Central Bank has issued a series of directives/guidelines to banks concerning strict customer identification procedures, record keeping, recognition and reporting of suspicious transactions, the appointment and duties of money laundering compliance officers and education and training of bank employees in anti-money laundering matters and in combating of terrorism.

In relation to the interest charged by a bank incorporated in the Republic, it should be noted, that before January of 2001, the interest rate was regulated by statute. However, following the enactment of the Liberalization of interest and Related Law 160 (I) of 1999 the interest rate is no longer regulated. Nevertheless, there is a restriction imposed by the said law on all credit institutions not to compound interest more than twice a year.

An important point to concern in relation to consumer credit activities is the Consumer Credit Act, as amended. This point is considered in more detail in section, VII infra.

IV. CONTROL OF BANKS AND TRANSFER OF BANKING BUSINESS

i. Control regime

Under the Banking Law, the prior approval of the Central Bank of Cyprus is required where any person, either alone or with any associates to control or increase his participation over any bank incorporated in the Republic or its holding company.

In particular, any natural or legal person, or such persons acting in concert, who have taken a decision to acquire, directly or indirectly, the control of a bank established in the Republic or have decided to increase further the control in such a bank as a result of which the proportion of the voting rights or of the capital held would reach or exceed the minimum limited of 20% or 30% or 50%, or so that the bank would become its subsidiary, they must first notify in writing the Central Bank of Cyprus.

The Central Bank of Cyprus has an assessment period of sixty (60) working days from the date upon which it acknowledges receipt of the application for approval to decide whether or not to approve a change in control. The Central Bank of Cyprus retains the right to oppose the proposed acquisition by justifying in writing the reasons for its decision. If the Central Bank of Cyprus does not oppose the proposed acquisition within the assessment period in writing, it shall be deemed to be approved.

The prior approval of the Central Bank of Cyprus is also required to be granted to a bank incorporated in the Republic, or to a bank maintaining business in the Republic, wishing to sell or dispose the whole or part of its business by amalgamation or otherwise.

ii. Transfer of banking business

The transfer or partial transfer of the ownership or control of banks is regulated by the Central Bank pursuant to the Banking Law, while there is also a specialized legislation the Transfer of Banking Business and Securities Law 64 (1) of 1997.

Any transfer of banking business is subject to the prior approval of the Central Bank of Cyprus. Both the acquired Bank and the acquiring Bank should notify promptly the depositors of the acquired bank, who retain the right to demand their deposits to be maintained at the acquired bank, if it is carrying on its business, or to claim their deposit to be due and payable with interest.

V. THE YEAR IN REVIEW

The Consumer Credit Act of 2001 has recently been amended and formed into the Consumer Credit Act of 2010. The CCA applies to most consumer lending in Cyprus with notable exceptions, such as the regulated mortgage contracts and business lending. The current consumer credit act also regulates hire purchase activities (all hire purchase contracts up to €35.000 are regulated by the Act, whereas before the amendment, the contracts which were regulated were up to €26,000) and residential mortgage contracts (all residential mortgage contracts up to €200,000 are regulated by the Act, whereas before the amendment the contracts which were regulated were up to €75,000).

This amendment has as its basic aim:

• To provide consumers with more details and information regarding the terms of their contracts prior to their signing.
• To grand the right to consumers to repudiate the signed contract within 14 days.
• To secure the right of prepayment of any facility under the CCA without any penalty fees.

VI. OUTLOOK & CONCLUSIONS

Overall, the banking industry in the Republic of Cyprus is well structured and regulated. This does not exempt it, however, from facing important challenges relating to the general economic situation which either globally or locally, tends to reduce the prospects for higher growth in the banking sector. A notable local financial problem is the aging-related public expenditure and also the productivity that remains low. These are factors which threaten the long-term sustainability of public finances(8). It is important therefore, to have fiscal and income policies and not to overlook the need for structural changes in the economy to be taken by the government. The role of Central Bank of Cyprus as the regulator and supervisor of the banking industry remains essential at al times for the maintenance of price stability and the enhancement of the general economy of the Republic of Cyprus.

CONTACTS & BIOGRAPHY SECTION

AUTHOR: Ioanna Samara
FIRM NAME: Patrikios Pavlou & Associates LLC
FIRM ADDRESS: Patrician Chambers, 332 Agiou Andreou Str., 3035 Limassol, Cyprus. P.O.Box 54543, 3725 Limassol, Cyprus.
TELEPHONE NUMBER: +357-25871599
FAX NUMBER: +357-25344548
FIRM CONTACT EMAIL: info@pavlaw.com
WEBSITE ADDRESS: www.pavlaw.com

AUTHOR BIOGRAPHY:

Ioanna Samara received her LLB from University of Athens (Greece) School of Law in 2005 and obtained an LLM in Commercial Law from University of Bristol (UK) in 2010. Her interest in Banking Law started while studying banking law during her LLM course. She joined PATRIKIOS PAVLOU & ASSOCIATES LLC in 2006 and she has been a member of the litigation department since then. Ioanna has been a member of the Cyprus Bar Association since 2006.

(1) The Banking laws of 66 (I)1997, 74 (I) of 1999, 94 (I) of 2000, 119(I) of 2003, 4(I)of 2004, 151(I) 2004,
231(I) of 2004, 235 (I) of 2004, 20(I) 2005, 80(I) of 2008,100(I) 2009,and 123(I) 2009.
(2) Directive 2006/48 /EU relating to the taking up and pursuit of the business of credit institutions and
directive 2006/49/ EU on the capital adequacy of investments firms and credit institutions “The capital
Requirements Directive”.
(3) The Deposit Protection Fund (DPF) has been established and is in operation since September 2000. The (DPF) is a separate legal entity administered by a Management Committee.
(4) The Law’s amendment in March 2007 paved the way for the legal integration of the Central Bank of Cyprus into the Eurosystem in January 2008. (5)www.centralbank.gov.cy.
(6)Directives/guidelines issued to banks on the framework of principles of operation and criteria of assessment of banks, organizational structure, internal governance and internal control systems of 2006 to 2010.
(7) The prevention and suppression of Money Laundering Activities Laws 1996 to 2007.
(8) Interview with Athanasios Orphanides, Governor of the Central Bank of Cyprus conducted on 30 December 2007 by Ninos Hadjiroussos and Tassos Anastasiades published on www.centralbank.gov.cy

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