Bank "bail-in", deposit guarantee regimes, and capital adequacy amendments transposed in Cyprus

On 13 August 2021, the Cyprus Securities and Exchange Commission (CySEC) issued an announcement to provide further information to the public regarding the pack of legislation passed by parliament on 7 May 2021 which seeks to harmonise the Cypriot legal framework with updated European Union rules targeting the reduction of risk in the banking system (Amending Regime).

The Amending Regime comprises of the following measures which in broad terms operate either as amendments to the Business of Credit Institutions Law 1997 as amended (BCI Law) or as new standalone legislation that financial institutions will need to regard for capital adequacy purposes:

• Business of Credit Institutions (Amending) Law of 2021 (L. 94(I)/2021);
• Investment Services and Activities and Regulated Markets (Amendment No. 2) Law 2021 (L. 91(I)/ 2021);
• Irrevocability of Settlement in Payment Systems and Systems Securities Settlement (Amending) Law of 2021 (Law 90 (I) / 2021);
• Recovery of Cypriot Investment Firms and Other Entities under the Supervision of CySEC and Related Matters (Amending) Law 2021 (L. 92(I)/ 2021);
• Resolution of Credit Institutions and Investment Firms (Amendment) Law of 2021 (L. 96(I)/2021);
• Capital Adequacy of Investment Firms Law 2021 (L. 97(I)/2021); and
• Macro-Prudential Supervision of Institutions (Amending) Law of 2021(L.93 (I) / 2021).

The purpose of the Amending Regime is largely to harmonise the local regime with the following EU Directives:

• EU Directive 2019/878 amending CRD IV; and
• EU Directive 2019/879 amending BRRD.

It is also worth noting that the following EU Regulations additionally complement the provisions of the above Level I measures:

• EU Regulation 2019/876, amending the EU Capital Requirements Regulation 575/2013 (CRR), also referred to as "CRR II"; and
• EU Regulation 2019/877, amending the Single Resolution Mechanism Regulation (EU) 806/2014 (SRMR), also referred to as "SRMR II".

As EU Regulations, these have direct effect and do not require further transposition into local law.

The Amending Regime seeks to update the existing banking rules and the institutional framework governing credit institutions and investment firms. As stated in the announcement, the purpose of these measures is to supplement the regulatory framework after the financial crisis so that it can meet all the challenges that continue to threaten financial stability, whether these risks concern credit institutions or investment firms.

Background

In connection with the above, it is worth providing an overview of the core regime in place prior to the introduction of the Amending Regime:

• The legislation governing credit institutions is the BBCI Law which implements namely the EU Capital Requirements Directive 2013/36/EU (CRD IV) in Cyprus;
• The legislation governing investment firms is the Investment Services and Activities and Regulated Markets Law 2017, as amended (IS Law) which implements namely the EU Markets in Financial Instruments Directive 2014/65/EU (MiFID II); and
• The legislation implementing the European bank and investment firm resolution regime is the Resolution of Credit Institutions and Investment Firms and Other Related Issues Law 2016 (Resolution Law), which implements namely the EU Bank Recovery and Resolution Directive 2014/59/EU (BRRD).

CySEC’s announcement (available only in Greek) can be viewed here.

For more on the approach of Cyprus towards the BRRD and the EU bank bail-out regime please refer to our insight article here.