A recent change in policy by the Central Bank of Cyprus means it is now possible to establish Administered Banking Units (ABUs) on the island. Applicant banks should be licensed in jurisdictions which exercise proper licensing and banking supervision. In addition, the prospective applicant banks must be institutions enjoying a good reputation internationally and which have an established track record of growth and profitable operation.
In accordance with the relevant provisions of the Banking Business (Temporary Restrictions) Law, CAP 124, applications for an ABU licence must be made in writing by the bank concerned and addressed to the Controller of Banks who is the Governor of the Central Bank of Cyprus. Applications should be supported by relevant information and documents as prescribed from time to time by the Central Bank of Cyprus.
ABUs are required to carry on banking business in their own name, but their day-to-day administration shall be carried out, on their behalf, by another bank, the 'administering bank', which is already licensed by the Controller of Banks to operate in or from within Cyprus.
Applicant banks are required to submit to the Central Bank of Cyprus a 'Letter of Authorization', which enables the latter to exchange information with the applicant bank's home banking supervisory authorities. In this respect, the Central Bank of Cyprus approaches directly the applicant bank's home licensing and banking supervisory authority and obtains its written consent as well as an undertaking that it will exercise consolidated supervision over the global activities of the applicant bank, including the operations proposed to be carried out by the ABU from within Cyprus.
ABUs can only operate wholly on an offshore basis and their dealings shall be with non-residents of Cyprus and denominated in currencies other than the Cyprus pound.
ABUs are expected to operate as if they had a full physical presence in Cyprus. Books and records should, therefore, be kept in Cyprus. ABUs are required to maintain their accounting systems as well as all their official books, records, documents and correspondence, relating to their banking business from within Cyprus, in the English language and use the US dollar:
- as the basis of their accounting system; and
- as the reporting currency of the various prudential/statistical returns submitted to the Central Bank of Cyprus.
ABUs are not expected to comply with the provisions of the Central Bank of Cyprus Law or regulations made thereunder, such as the maintenance of normal liquidity ratios, reserves with the Central Bank, capital ratios, etc, but they will be required to supply to the Central Bank such information about their activities as might be requested, to satisfy the Central Bank of their ability to meet their obligations as they fall due and of their adherence generally to sound banking practices.
ABUs must prepare annual accounts and submit them, after they have been audited, to the Central Bank of Cyprus within three months of the end of each financial year. These accounts shall be audited in accordance with the International Standards of Auditing, issued by the International Federation of Accountants, by external auditors appointed by the applicant bank and approved by the Central Bank of Cyprus and shall be expressed in the US dollar. The said accounts shall be prepared in accordance with the International Accounting Standards issued by the International Accounting Standards Committee.
An ABU must enter into a written management agreement with an administering bank. This agreement, which is subject to the prior written approval of the Central Bank of Cyprus, should, among other things, provide for the apportionment of responsibilities between the ABU and the administering bank, details regarding premises, staff, fees and other administrative matters. It should also provide that the staff of the administering bank or the Board of Directors of the ABU are obliged to assist the external auditors of the ABU, in the course of the annual audit, in discharging the special duties assigned to the ABU's external auditors by the Central Bank of Cyprus. ABUs pay an annual fee of US$10,000 to the Central Bank of Cyprus.