|Elias Neocleous||Marissa Christodoulidou|
On February 11 2016 Cyprus enacted the first of three new laws to align its legislative framework with the 2014 EU Bank Recovery and Resolution Directive and the Deposit Guarantee Schemes Directive. These reforms provide a unified framework for the recovery and resolution of entities active in financial markets, including credit institutions, investment firms and financial holding companies, as well as for the protection of depositors.
Cyprus had already established a comprehensive framework of this type in 2013. However, after the adoption of the 2014 directives as the new European standard for the recovery and resolution of credit institutions and investment firms, it was necessary to replace some of the existing domestic legislation to align it with the directives and provide a unified structure for the entire financial sector.
The new Deposit Guarantee Scheme and Resolution of Credit and other Institutions Law of 2016 repeals and replaces the Law on the Establishment and Operation of Deposit Protection and Resolution of Credit and Other Institutions Scheme and its associated regulations of 2013 and 2014.
Under the new law a resolution fund will be available, which will be managed by the Deposit Guarantee and Resolution of Credit and other Institutions Scheme (DGS), along with the deposit guarantee fund and the fund for credit cooperatives. With effect from February 11 2016, the contributions that credit institutions established in Cyprus make to the resolution fund are transferred to the EU Single Resolution Fund in accordance with the provisions of the applicable agreement.
The resolution funds will be financed by: ordinary ex ante and extraordinary ex post contributions levied on institutions licensed in Cyprus; loans or other forms of financial support from credit institutions, financial institutions or other third parties, if the amounts collected are not sufficient to cover losses and resolution costs; and proceeds from sanctions and the liquidation of assets. The DGS will have a separate legal personality and will be administered by a committee comprising the governor of the Central Bank of Cyprus (CBC), two CBC officials and two officials from the Ministry of Finance.
The other draft laws, which relate to the resolution of credit institutions and investment firms and the business of credit and other institutions, are expected to be enacted during March 2016.
Elias Neocleous and Marissa Christodoulidou
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