05 June 2013

ECB Opinion on changes to the governance of the Central Bank of Cyprus

The ECB notes the consulting authority's aim to facilitate the smooth functioning of the CBC's decision-making bodies. It nevertheless makes the following observations to the consulting authority, for its consideration.

The ECB considers that the draft law is unclear with regard to the nature of the executive directors’ powers and the division of competences between the Board and the Governor. In the case of Cyprus, the ECB understands that the competences of the CBC’s Governor stem both from primary Union law – in particular the Statute of the ESCB – and from the Constitution of the Republic of  Cyprus.

Although the draft law purports to vest two members of the Board with executive powers, in addition to the Governor, it does not specify the corporate governance arrangements applicable to the CBC once the draft law has entered into force. In the ECB’s view, the draft law should  provide clarity in terms of: (a) the precise scope of the powers and tasks to be assigned to the executive directors, (b) the limits of the competence of the executive directors when assisting the Governor, in particular as regards whether the executive directors will have decision-making powers, and (c) the position of the proposed executive directors in the CBC’s organisational  structure, for instance, whether or not CBC staff members will report directly to the executive directors. In particular, the independence of the Governor of the CBC should be reinforced by ensuring that the assistance provided by the executive directors to the Governor should be conducted under the supervision of the Governor. Without clarity in these respects, the ECB is concerned that the CBC’s decision-making processes will be undermined.

The ECB would like to point to the fact that there are currently a number of vacancies on the Board. Against this background, it is unclear why the number of Board members is being increased, taking into account: (a) the appointment of executive directors; and (b) the requirement  for the approval of the Board as regards decision-making in implementing the CBC’s policy. Central bank independence needs a stable legal framework for the central bank’s functioning. Frequent changes to the legal framework may adversely affect the organisational and governance  stability of an NCB and could therefore affect its institutional independence.

The ECB also has concerns about measures which might affect the personal independence of the Board members. To protect the CBC’s autonomy in staff matters, which is part of the principle of central bank independence under Article 130 of the Treaty, the Cypriot authorities have an obligation to ensure that any amendment to the legislative provisions on the remuneration of the CBC’s Board members is decided in cooperation with the CBC, taking due account of the CBC’s views. Furthermore, in order to comply with the Treaty requirements for the personal independence of the members of an NCB’s decision-making bodies who are involved in the performance of ESCB-related tasks, any adjustments to salaries should not affect the terms under which the members concerned were appointed. 

Full Opinion

© ECB - European Central Bank