The Central Bank of Cyprus was established in 1963, shortly after Cyprus gained its independence, as an autonomous institution in accordance with the Central Bank of Cyprus Law 1963 and the relevant articles of the Constitution. Today the Bank is governed by the Central Bank of Cyprus Laws 2002-2007, which ensure the Bank’s independence as well as compatibility with the relevant provisions of the Treaty establishing the European Community and the Statute of the European System of Central Banks and of the European Central Bank. The law’s amendment in March 2007 paved the way for the legal integration of the Bank into the Eurosystem in January 2008.
The main functions of the Central Bank include:
During the early years of its operation, the Bank undertook fully the functions of banker to the government and the management of international reserves as well as the administration of exchange controls. In parallel, the Bank strengthened its internal structure and prepared the regulatory framework for banking supervision, also setting up the operational framework for the implementation of monetary policy.
As regards banking supervision, the objective of the Central Bank is to ensure the stability of the banking system, the minimization of systemic risk and the protection of depositors. The rules, policies and practices of the Bank are in line with the EU directives and the recommendations of the Basel Committee on Banking Supervision. The Banking Law 1997 as amended, which establishes the legal framework within which banking business can be pursued, reflects the principles and rules of the EU directives on credit institutions. Furthermore, in accordance with the Prevention and Suppression of Money Laundering Activities Laws 1996 - 2004, the Central Bank is the supervisory authority for banks in this respect. In this connection, the Central Bank has issued a series of directives to banks concerning strict customer identification procedures, record keeping, recognition and reporting of suspicious transactions, the appointment and duties of money laundering compliance officers, and education and training of bank employees in anti-money laundering matters and in combating the finance of terrorism.
One of the primary objectives of the Central Bank of Cyprus is to ensure a safe and stable financial system that would preserve public confidence and foster economic stability and growth. This objective is satisfied by maintaining an effective mechanism of bank regulation and supervision.
To this effect, the Central Bank of Cyprus grants a licence to carry on Banking Business and exercises supervision, the main objective of which is to minimise systemic risk and preserve the stability of the banking system so as to retain public confidence and to protect depositors.
The Central Bank of Cyprus has always been guided in its supervisory role by the recommendations of the Basle Committee on banking supervision and the EU Directives on banking regulation while following up closely new developments and having its prudential functions under constant review to take account of these developments and changing circumstances.
Supervision is exercised by both off-site monitoring and on-site examination. Off-site monitoring entails the submission by banks of an extensive range of periodic returns which cover numerous aspects of banking operations. Any areas of concern revealed through the returns are taken up promptly with the bank involved for remedial action.