Decree 12 from Cyprus

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The Republic of Cyprus issued its latest decree pertaining to the relaxation of restrictive measures on 20 September. Below is a legal update regarding this decree from Harneys Cyprus.

Relaxation of Restrictive Measures for Branches and Subsidiaries of Foreign Banks (Decree No 12)
 
The Republic of Cyprus through its Minister of Finance has published its twelfth decree of the Enforcement of Temporary Restrictive Measures on Transactions of Foreign Banks in case of Emergency Law of 2013 as per articles 4 and 5 of the Enforcement of Temporary Restrictive Measures on Transactions in case of Emergency Law of 2013 (the “Law”) on Friday, 20 September 2013 (the “Decree”).

The Decree allows for foreign credit institutions and their customers to enjoy relaxed restrictions subject to certain conditions. Eligible credit institutions are entered into a catalogue and published in the Official Gazette of the Republic. The Decree is in force for 35 days commencing on its publication date.
 
We set out below a summary of the various provisions of the Decree.
 
Catalogue Eligibility
 
In order for a credit institution to be included in the catalogue to be compiled by the Central Bank of Cyprus, it must apply to the Central Bank of Cyprus. The Governor of the Central Bank must be satisfied that all of the following conditions are met:

  1. The credit institution is a branch or a more than 50 per cent subsidiary of a foreign bank.
  1. The credit institution for the purpose of giving effect to this Decree internally splits into two operations: one dealing with international customers and the other with domestic customers.

An international customer is a customer who is (a) a non – resident of Cyprus or (b) a corporation, trust, partnership or legal entity, whereby 100 per cent of the ultimate beneficial owners thereof are non resident natural persons or a company listed on a recognised exchange, outside the Republic and provided that any such company is not listed in the Cyprus Stock Exchange or (c) a corporation, trust, partnership or legal entity, whereby more than 90% of the ultimate beneficial owners thereof are non resident natural persons and the rest 10% of the ultimate beneficial owners that are resident natural persons are not citizens of Cyprus; provided that the Committee’s approval has been obtained prior to the inclusion of such a customer in the list of international customers. A domestic customer is a customer other than an international customer.

  1. In the case of a subsidiary of a foreign bank:

                                       i.      a letter of comfort is provided to the Central Bank of Cyprus from the parent bank of the credit institution confirming that, as long as this Decree is in force, it will always support the liquidity position of the subsidiary in the Republic so that the subsidiary in the Republic will not request Emergency Liquidity Assistance from the Central Bank of Cyprus or liquidity from Eurosystem credit operations;
                                     ii.       a standby credit facility is provided to the subsidiary by the parent bank for an amount of at least equal to 30 per cent of customer deposits;
                                    iii.      the ratio of liquid assets to total customer deposits will not be lower than 60 per cent.
 
With respect to liened (blocked funds) held as collateral for credit facilities granted, the lower between the liened (blocked) funds and outstanding credit facility balance shall be excluded from the total customer deposits mentioned in (ii) and (iii).

  1. A list of the international customers is submitted to the Central Bank of Cyprus in a standardised electronic template in a format specified by the Central Bank of Cyprus with written confirmation from the credit institution that all the persons included in the list of international customers are international customers as defined above.
  1. The Central Bank of Cyprus, if it deems necessary, may request the External Auditors of the credit institution to confirm in writing that the credit institution meets all the conditions of this section.

The credit institution, once entered into the catalogue, must report to the Central Bank of Cyprus any change and submit electronic reports of the credit institution’s weekly transactions.
 
The Central Bank of Cyprus is responsible for monitoring the continuous fulfilment of the above conditions and report to the Finance Minister any change that may need to be made to the catalogue.
 
Permitted Transactions
 
The following are permitted transactions in respect of credit institutions entered on the catalogue and are not subject to any restrictive measure imposed under any other Decree issued under the Law:

  1. All cashless payments or transfers of deposits/funds from a credit institution that is included in the catalogue, for its own account or by the order of an international customer.
  1. All transactions between a credit institution that is included in the catalogue and an international customer.
  1. All transactions between international customers.
  1. All transactions between a credit institution that is included in the catalogue, by the order of an international customer or for their own account, and an entity outside the Republic.

Restrictive Measures
 
The following restrictive measures are imposed on credit institutions that have been entered into the catalogue:

  1. All cashless payments or transfers of deposits/funds from a credit institution that is not included in the catalogue to an international customer of a credit institution included in the catalogue or to such a credit institution’s own account are considered as cashless payments or transfers of deposits/funds to accounts held abroad and are subject to the provisions of any other Decree issued under the Law.
  1. All cashless payments or transfers of deposits/funds from a domestic customer to an international customer of a credit institution included in the catalogue or to such a credit institution’s own account are considered as cashless payments or transfers of deposits/funds to accounts held abroad and are subject to the provisions of any other Decree issued under the Law.
  1. Credit institutions that are included in the catalogue are prohibited from servicing domestic customers that maintain accounts with their Head Office or soliciting and obtaining new business from domestic customers or opening new accounts for domestic customers who were not existing customers of the said credit institutions on 25 April 2013; unless the new account relates to a new loan, which is not financed by clients’ deposits, granted after 20 September 2013 provided that:

(i)      the account is used exclusively for the servicing of the loan; and
(ii)    all deposits into the account are used exclusively for the servicing of the loan and may not be used for any other transactions.

  1. All domestic customers are also subject to the restrictive measures imposed by any other Decree issued under the Law.

Any accounts held by international customers that have been credited with funds from accounts of domestic customers and with funds from domestic banks since the entry into force of the Enforcement of Temporary Restrictive Measures on Transactions in case of Emergency First Decree, i.e. 27 March 2013, until the date that the relevant credit institution is included in the catalogue, shall be subject to the restrictive measures contained in any other Decree issued under the Law.
 
Abolition of eleventh Decree
 
The eleventh decree of the Enforcement of Temporary Restrictive Measures on Transactions of Foreign Banks in case of Emergency Law of 2013 is abolished.
 
The abolition does not:

  1. restore anything that was not in force or in existence at the time of abolition; and
  2. affect the previous effect of the abolished Decree or anything that was concluded normally or was allowed under the said Decree; and
  3.  affect any right, privilege, obligation or responsibility, which is obtained, derived or resulting from the abolished Decree; and
  4.  affect any penalty, confiscation or punishment, which resulted in relation to a crime committed under the abolished Decree; and
  5. affect any investigation, legal proceedings or remedy, in relation to any right, privilege, obligation, responsibility, confiscation or punishment as mentioned above

And such investigation, legal proceedings or remedy may be initiated, carried on or fulfilled, and such penalty, confiscation or punishment may be imposed as if the Decree had not been abolished.
 
Catalogue of Credit Institutions

  1. Arab Jordan Investment Bank SA
  2. Bank of Beirut SAL
  3. BankMed SAL
  4. Banque BEMO SAL
  5. Banque SBA
  6. Barclays Bank PLC
  7. BBAC SAL
  8. BLOM Bank SAL
  9. Byblos Bank SAL
  10. Credit Libanais SAL
  11. Jordan Ahli Bank plc
  12. Lebanon and Gulf Bank SAL
  13. OJSC Promsvyazbank
  14. Open joint-stock company AvtoVAZbank
  15. Privatbank Commercial Bank
  16. Russian Commercial Bank (Cyprus) Ltd.

Topics:  Cyprus Bailout, EU, Foreign Banks

Published In: General Business Updates, Finance & Banking Updates, International Trade Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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