Latest Cyprus decrees relaxing restrictive measures in banking

The Republic of Cyprus issued new decrees on 2 June 2014 which provide further relaxation of restrictive measures, including abolishing restrictions on the opening of new bank accounts. 

For further information please refer to the Harneys legal updates below.

Relaxation of Restrictive Measures for Branches and Subsidiaries of Foreign Banks (Decree No 21)
 
The Republic of Cyprus through its Minister of Finance has published its twenty-first 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 Monday, 2 June 2014 (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 until 30 June 2014.
 
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 per cent of the ultimate beneficial owners thereof are non resident natural  persons and the rest 10 per cent 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 and/or new indirect credit facility (e.g. letter of guarantee, letter of credit) provided that:

(i)     the account is used for the servicing of the loan and/or new indirect credit facility and for the regular activity of the client and not for depositing purposes;
(ii)   the credit balance of the account cannot at any time exceed the one hundred and twenty per cent (120%) of the loan balance; and
(iii) if only indirect credit facility is granted, credit balance of the account cannot at any time exceed the one hundred and twenty per cent (120%) of the indirect credit facility.

  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 twentieth Decree
 
The twentieth 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.

Enforcement of Restrictive Measures on Transactions in case of Emergency Law of 2013-Decree No. 30
 
 
The Republic of Cyprus through its Minister of Finance has published its 30th decree as per articles 4 and 5 of the Enforcement of Restrictive Measures on Transactions in case of Emergency Law of 2013 on Monday, 2 June 2014 (the “Decree”). The Decree is in force until 1 September 2014.
 
The restrictions have been greatly relaxed since their original enforcement. Particularly, the following restrictions have been abolished:
 
-          Restrictions on the maximum amount of cash withdrawal per person (natural and legal);
-          Prohibition on the cashing of cheques;
-          Restrictions on the payment and/or transfer of deposits/funds between credit institutions within Cyprus;
-          Restrictions on the opening of new bank accounts in Cyprus.
 
We set out below a summary of the remaining restrictive measures and exceptions thereto.
 
Cashless Payments and Transfers of Deposits/Funds Abroad
 
Cashless payments and/or transfers of deposits/funds to accounts held abroad are prohibited. This is however not an absolute prohibition so that the following exemptions apply:
 
(a) for transactions that fall within the normal business activity of the customer who may be required to provide documents justifying such transactions:
 
(i) payment and/or transfer of deposits/funds of up to €1.000.000 per transaction, is not subject to the Committee’s approval provided that the particular credit institution authorizing such a transaction has reviewed the necessary documents and reached a conclusion based on such documents that the transaction is justified;
 
(ii) payment and/or transfer of deposits/funds above €1.000.000 per transaction, is subject to the Committee’s approval. The credit institution or payment institution is required to submit all of the relevant documents as well as the name of the involved credit institution and in providing its approval the Committee will take into account the liquidity position of the credit institution;
 
(b) payments made for salaries of employees upon the presentation of relevant supporting documents;
 
(c) living expenses of up to €5.000 per quarter as well as tuition fees, of a person who is studying abroad and is a first degree relative of a Cyprus resident. Supporting documents will need to be provided and the tuition fees must be paid only to the beneficiary educational institution. The credit institution will be required to maintain a record of all such transactions and to monitor these for any irregularities.
 
(d) transfers of deposits/funds outside of Cyprus not exceeding €5.000 per month, per person for each credit institution and/or payment institution regardless of the purpose.
 
Export of Euro Notes/Foreign Currency
 
Exports of euro notes and/or foreign currency notes are prohibited in excess of €3.000, or the equivalent in foreign currency, per natural person per journey abroad.
 
 General Exemptions
 
The Decree does provide a number of general exemptions to the restrictive measures, which are as follows:
 
(a)    all new funds transferred to the Republic from abroad provided that any re-transfers to a second credit institution in the Republic will only be exempt if the first credit institution that the new funds were transferred to states that the funds are already exempt;
(b)   withdrawal of cash using credit and/or debit and/or prepaid cards issued by foreign institutions on accounts abroad;
(c)    the cashing of cheques issued on accounts held with foreign institutions abroad;
(d)   cash withdrawals from accounts of credit institutions with the Central Bank;
(e)   payments and receipts of the Republic of Cyprus;
(f)    payments and receipts of the Central Bank;
(g)   the foreign diplomatic missions and the UN missions in Cyprus based on the exemptions specified in the Vienna Convention for Diplomatic Relations and the Agreements between the Republic and the United Nations and other international Agreements which have precedence over national legislation;
(h)   the payments via a debit and or credit and or prepaid card; and
(i)     transactions or payments that have been authorized by the Committee.

Topics:  Bank Accounts, Banks, Central Bank of Cyprus, Foreign Bank Accounts, Foreign Banks

Published In: 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.

© Harney Westwood & Riegels | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »