The House of Representatives of the Republic of Cyprus enacted a package of legislative bills on October 24, 2024, introducing substantial reforms to the credit management and credit market regime. This new regulatory framework is part of the Republic's commitment to align with Directive (EU) 2021/216, which establishes a unified and supervised system governing credit purchasers and managers across the European Union (EU). The new legislation further aims to foster the development of secondary markets for non-performing loans (NPLs) and to institute licensing and oversight mechanisms for credit managers, while safeguarding borrower rights in cases of loan transfers.
New Requirements for Credit Purchasers and Managers
Under the new provisions, changes affect both credit purchases and credit managers:
Abolition of Licensing and Minimum Capital Requirements for Credit Purchasers
Under the new framework, the licensing requirement and minimum capital threshold of EUR 100,000 for credit purchasing entities have been removed, thereby allowing both natural and legal persons to operate as credit purchasers. This deregulation is intended to support the expansion of the credit market in Cyprus.
Supervision by the Central Bank of Cyprus
Although the licensing requirement for credit purchasers has been abolished, the Central Bank of Cyprus retains full supervisory authority over their activities. The Bank has the right to impose administrative sanctions to ensure compliance with regulatory standards and enforce obligations toward borrowers and guarantors.
New Roles and Capabilities for Credit Managers
Τhe new framework authorizes credit managers to hold and manage borrower funds for remittance to credit purchasers. Additionally, credit managers have right, under certain conditions, to engage service providers for specific management activities, provided that credit purchasers have been duly informed.
Enhancing Transparency and Borrower Protection
Α key priority of the new regime is to strengthen transparency and borrower protection. Accordingly, credit institutions, acquisition entities, and credit managers are subject to increased obligations to disclose pertinent information to borrowers.
Automatic Recognition of Existing Credit Managers
Pursuant to the new framework, credit acquisition entities and existing credit facility managers who are already active under the Credit Facilities Acquisition Act are automatically recognized as licensed credit facility managers, thereby retaining the right to continue their operations without additional licensing requirements.
Transitional Provisions for Existing Credit Facilities
Any credit facilities transferred prior to the effective date of the new framework, along with any future restructuring or transfer thereof, will remain subject to the previous regulatory regime, thus providing stability to the involved borrowers and managers.
Additional Legislative Amendments for Harmonization
Further legislative amendments have been enacted to certain laws in pursuit of full harmonization with the Directive (EU) 2021/216.
Conclusion
Τhe new legislative framework governing credit managers and purchasers establishes the foundation for a safer and more transparent credit market, enhancing borrower protection and fostering confidence in the financial system. Therefore, all stakeholders operating in this sector, have been introduced to new opportunities, but at the same time to increased responsibilities.
At GZG, we provide specialized legal advice and guidance. Reach out to discuss how the new regulations may impact your operations and legal obligations.
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