ECB issued an opinion on the draft law on securitization framework in Cyprus. The opinion focuses on specific aspects of the newly established securitization framework and on the new tasks conferred on the Central Bank of Cyprus (CBC) in the context of the prohibition of monetary financing.
The purpose of the draft law is to establish a framework for securitizations in Cyprus to facilitate the secondary market for loans, which may in turn support the reduction of the high level of nonperforming loans (NPLs) of Cypriot banks. The draft law vests in CBC the power to regulate and supervise securitizations to safeguard the proper functioning of the securitization market in Cyprus. The draft law also establishes the procedure that an originator would need to follow to notify CBC that it intends to carry out a securitization. The draft law provides that a securitization special purpose entity (SSPE) set up by an originator may not commence its activities as a securitization vehicle, unless the originator has notified CBC in writing of its intention to carry out one or more securitization transactions and has furnished CBC with the necessary information required under the draft law.
ECB, in its opinion, welcomed the establishment of the framework for securitization in Cyprus, as it may enable the efficient transfer of NPLs off the balance sheet of credit institutions. In addition, by granting the regulatory and supervisory authority to CBC over the securitization activity of originators, servicers, and SSPEs, the draft law intends to ensure that this activity is properly carried out and, more generally, to safeguard the proper functioning of the securitization market in Cyprus. ECB also asked for certain clarifications and modifications to be incorporated into the draft law. For instance, ECB noted the provisions of the draft law requiring originators to notify securitizations to CBC. ECB states that it would be worth clarifying whether the notification obligation would be equally applicable in cases where the SSPE has been set up by a person other than the originator, which intends to carry out securitization.
ECB, on January 03, 2018, had received a request from the Ministry of Finance of Cyprus for an opinion on a draft securitization law. On February 22, 2018, the Ministry of Finance submitted a new request for an opinion on a revised version of the draft law. The competence of ECB to deliver an opinion is based on Articles 127(4) and 282(5) of the Treaty on the Functioning of the EU and the third and sixth indents of Article 2(1) of Council Decision 98/415/EC1 , as the draft law relates to the CBC and to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions and markets. In accordance with the first sentence of Article 17.5 of the Rules of Procedure of the ECB, the Governing Council has adopted this opinion.
Related Link: ECB Opinion (PDF)
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