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ECONOMY

ECB Welcomes Draft Amendment of Central Bank Legislation

ECB Welcomes Draft Amendment of Central Bank Legislation

The European Central Bank (ECB) has welcomed a bill which sets out to amend the legislation of the Cyprus Central Bank clarifying the division of competences between its decision-making bodies.
 
The ECB’s opinion, dated May 11, says the draft bill was submitted by the Cypriot government to it for its opinion in February noting that it “reorganises the governance of the CBC with a view to rendering it more efficient and effective.”
 
According to the explanatory memorandum, the opinion notes, “the draft law establishes a new decision-making body, the executive committee, comprised of the governor, the deputy governor and two executive directors.”
 
The ECB “welcomes the amendments introduced into the CBC Law clarifying the division of competences between the decision-making bodies of the CBC, in line with past ECB opinions on the CBC’s governance,” it points out.
 
The composition of the board of directors remains as it is, consisting of the governor, the deputy governor, two executive directors and five non-executive directors, the Cyprus News Agency reports.
 
The draft bill abolishes the article of the key legislation on the Cyprus Central Bank which concentrates competencies on the governor.
 
It further “replaces the section on the tasks of the governor and provides that the governor participates ex officio, as an independent personality, in the Governing Council and the General Council of the ECB and represents the Cyprus Central Bank in its relations with external persons, including the Cypriot government and in legal proceedings to which the CBC is a party”
 
He or she also “signs any contracts concluded by the CBC, its annual reports, financial statements and other documents on behalf of the CBC.”
 
It is also added that “the governor will chair the meetings of the board of directors and the executive committee and will have the casting vote.”
 
“Under the draft law the governor will no longer be responsible for the tasks of implementing the CBC’s policy; managing and controlling the CBC’s business; appointing, suspending or dismissing CBC employees; carrying out the tasks and powers granted to the CBC by virtue of the Treaty and the Statute of the ESCB; and overseeing the payment, clearing and settlement systems,” the ECB opinion says.
 
It continues noting that “the provision granting the governor the power to take decisions as to the issuing of licenses to credit institutions and the carrying out of the business of credit institutions is also removed from the CBC Law.”
 
In addition, the draft law introduces a new provision stating that without prejudice to the provisions of Article 10.2 of the Statute of the ESCB, the Governor may appoint an alternate as a member of the Governing Council of the ECB.
 
The draft text also “introduces a fit and proper criterion to the eligibility criteria for the appointment of the CBC’s executive and non-executive directors.”
 
According to the new procedure for the appointment of the CBC’s directors, “the Cypriot Council of Ministers appoints the directors following receipt of a formal reasoned opinion by a newly-established independent selection committee.”
 
“This selection committee will be comprised of three members appointed by the Council of Ministers for a term of five years and will have the mandate of identifying at least three eligible and qualified candidates for every vacancy.”
 
“Directors are appointed for a period of five years and may be re-appointed for one additional term of office, provided that the term of office for three of the five members appointed for the first time after the entry into force of the draft law would be three years and the term of office of two members would be four years,” the opinion says.
 
“The draft law provides for an automatic recapitalisation of the CBC whenever the CBC’s net equity falls below the level of the CBC’s capital provided in the CBC Law,” it adds.
 
“Under the draft law, the level of CBC’s capital will be raised from €30 million to €90 million,” it notes.
 
The ECB “understands that under Article 119 of the Constitution of the Republic of Cyprus the governor is responsible for the management of the CBC and exercises all powers and performs all functions and duties within the scope of the CBC’s competences, assisted by the deputy governor.”
 
It adds that it “therefore understands that given that the draft law confers on the executive committee all ESCB-related competences and on the board of directors all residual competences, the draft law and Article 119 of the Constitution may need to be aligned.”
 
“In such an event, the ECB would like to remind the consulting authority of the obligation to consult the ECB on any relevant draft leg.

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