On 11 February 2016 Cyprus enacted the first of three proposed new laws to align its legislative framework with the EU Bank Recovery and Resolution Directive 2014/59/EU and the Deposit Guarantee Schemes Directive 2014/49/EU, which provide a unified framework for the recovery and resolution of entities active in financial markets, including credit institutions, investment firms and financial holding companies, and the protection of depositors.
Cyprus had already established a comprehensive framework of this type in 2013, prior to Directive 2014/59/EU and Directive 2014/49/EU being adopted. After the adoption of the Directives as the new European standard for the recovery and resolution of credit institutions and investment firms, it became 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, Law 5(I)/2016 ) repeals and replaces Law 16(I)/2013 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 11 February 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 via ordinary ex ante and extraordinary ex post contributions levied on institutions licensed in Cyprus; loans or other types of financial support from credit institutions, financial institutions or other third parties, in the event that 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 two draft laws that are yet to be enacted relate to the resolution of credit institutions and investment firms and the business of credit and other institutions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.