A bank is a corporate body licensed to carry out banking business under the Banking Law (66(I)/1997), as amended. 'Banking business' is defined by the law as business that is carried out either in Cyprus or abroad, from within Cyprus, that consists of lending funds acquired from the assumption of obligations to the public in the form of deposits, securities or other evidence of debt.
The definition itself provides for a distinction between corporations that lend to the public and corporations that lend only to associated persons (whether natural or legal). A banking business licence is granted only to legal persons established in Cyprus, pursuant to the Companies Law (Cap 113) or any other law, or to legal persons established in another country, pursuant to the corresponding legislation of that country.
This update offers a brief overview of the procedure and requirements involved in applying for a banking business licence in Cyprus.
Applicants for banking business licences commonly inform the Central Bank of Cyprus (CBC) of their intentions and ask for consultation as early as possible, in order to obtain its preliminary views before filing an application.
Before filing an application, the applicant should first satisfy itself that it meets the statutory requirements for the granting of a banking business licence. In addition to requiring confirmation that the applicant is a legal person and of the location of the applicant's head office (as mentioned above), the CBC will not grant a banking business licence unless:
- it has been previously informed of the identity of the shareholders or members (both natural and legal) that exercise control, whether directly or indirectly, over the applicant and their respective shareholding; and
- it is satisfied that the above persons are suitable controllers for ensuring the proposed bank's sound and prudent management.
The CBC will determine the identity and suitability of direct and indirect controllers through detailed questionnaires and other information. Furthermore, suitability is determined by examining the following areas:
- the reputation of the applicant and/or its controllers;
- the financial soundness of the applicant and/or its controllers; and
- any suspicion of money laundering or terrorist financing by the applicant and/or its controllers.
The CBC will not grant a banking licence if a locally incorporated bank has an initial capital of less than €5 million. Furthermore, at all times, a locally incorporated bank must maintain a minimum capital base of not less than the above amount, or such higher amount as the CBC may determine.
All applications for a banking business licence must be supported by a business plan including, among other things, a description of the activities to be conducted by the proposed bank, its organisational structure and any other information and documents that the CBC may require. Specifically, the business plan must include information to determine the bank's:
- objectives and proposed operations;
- financial projections;
- capital and solvency, according to the Directive for the Calculation of the Capital Requirements and Large Exposures of Banks 2006 (as amended) issued by the CBC;
- funding policies;
- organisational charts;
- risk management;
- anti-money laundering procedures;
- outsourcing arrangements, if any;
- internal audit arrangements; and
- compliance arrangements and key compliance responsibilities.
Confirmation from external auditors is also required.
Applicants must provide the CBC with all necessary information required in order to monitor compliance relating to 'close links' as defined by the law - that is, a situation in which two or more natural or legal persons are linked by:
- participation in the form of ownership - whether direct or by means of control - of 20% or more of the voting rights or capital of an undertaking;
- means of control; or
- the fact that both or all natural or legal persons are permanently linked to one and the same third party by a means of control relationship.
CBC will not grant a licence if such close links prevent the exercise of its supervisory function.
Fit and proper persons
Directors, chief executives and managers of the prospective bank or the prospective branch, as appropriate, must satisfy the CBC that they are 'fit and proper' persons for involvment in the provision of banking services. When determining whether a person is fit and proper, the CBC will take into account a number of considerations, including his or her integrity, competence, skills and experience in relevant financial operations, commensurate with the intended activities of the bank to be licensed in Cyprus, as well as a good reputation and character (eg, no record of criminal activities or adverse regulatory judgments).
Furthermore, at least two persons must participate and concur in the effective direction and management of the business of the bank. In addition, where locally incorporated banks are involved, the individuals concerned must be executive directors and only eligible individuals may be involved in all decisions relating to the determination of strategy and general direction of the bank to be licensed in Cyprus.
An application for a banking licence must be submitted to the CBC in writing by or on behalf of the applicant, along with the memorandum and articles of association, or any other incorporation document or determinative for the establishment of a legal person, as well as the various questionnaires that CBC has prepared in order to cover the abovementioned requirements. All matters that may be of interest to the CBC in assessing the applicant's ability to satisfy the CBC's requirements must be disclosed during the process. The documents required for the application are intended to provide the CBC with information on:
- the identity and suitability of all direct or indirect controllers, directors and managers of the applicant;
- the source of funding of the proposed bank, as well as the transparency and legitimacy of such source;
- the financial standing of the applicant, its controllers and/or the group to which it belongs;
- the adequacy of the proposed bank's business plan, which must provide insights on the proposed banking activities to be conducted as well as on the proposed bank's projected financial condition, its management and organisational structures, including the proposed internal governance and compliance procedures and systems to be used; and
- the existence of any close links between the applicant and other natural or legal persons, which may prevent the effective exercise of the CBC's supervisory function.
With an adequately reasoned decision, the CBC may:
- grant a licence without any condition, or subject to such conditions it may consider proper to impose; or
- refuse to grant a licence.
A refusal must be notified to the applicant within six months of the date on which the application for a licence was received. If the application submitted is incomplete, a refusal must be notified to the applicant within six months of the date on which it receives the additional information or clarifications required. In all cases the CBC must make its decision within one year of receipt of an application.
For further information on this topic please contact Nancy Erotocritou or Demetris Nicolaou at Harneys Aristodemou Loizides Yiolitis LLC by telephone (+357 2582 0020), fax (+357 258 20021) or email (firstname.lastname@example.org or email@example.com).
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