Cyprus races to adopt overdue EU banking rules
Cyprus has tabled a long-delayed package of four banking reform bills in parliament, seven months after the European Union deadline for transposing the bloc's updated banking directive into national law. According to a report from Philenews, the government submitted the legislative package at the beginning of July and has urged…
Finance ministry warns of potential court action over late directivesCyprus has tabled along-delayed package of four banking reform bills in parliament, seven months after the European Union deadline for transposing the bloc’s updated banking directive into national law. According to a report fromPhilenews, the government submitted the legislative package at thebeginning of Julyand has urged parliament to examine it as amatter of priorityfollowing months of delay. However, the legislation is now expected to be discussed inSeptember, after parliament suspended its work for the summer recess on Wednesday. EU member states were required to incorporate the directive into their domestic legal systems byJanuary 11, 2026, but Cyprus did not submit the bills to parliament until the beginning ofJuly 2026. The prolonged delay prompted theEuropean Commissionto launch formal infringement proceedings against Cyprus earlier this year. Cypriot authorities received aletter of formal noticefrom the Commission onMarch 27, 2026, marking the first formal step in the EU infringement process over the country’s failure to meet the transposition deadline. Despite the legislation now reaching parliament, the risk of further action by the European Union has not disappeared. According to thefinance ministry, the European Commission has adopted a stricter approach towards member states that fail to comply with legislative deadlines, taking atougher stance on delays in implementing EU directives. The ministry also warned that even if a member state completes the transposition process after proceedings have begun, there remains a possibility that the European Union will not withdraw a case already referred to theCourt of Justice of the European Unionover the failure to implement the directive on time. The four bills are intended to bring Cyprus into line with the EU’s revisedbanking regulatory framework, coveringsupervisory powers, sanctions, third-country bank branches, and environmental, social and governance (ESG) risks. The directive strengthens the supervisory powers of competent authorities while explicitly incorporating environmental, social and governance risks into banks’ operations and risk management frameworks. It also introduces updated rules governing branches of banks from third countries, with the aim of further harmonising banking supervision across the European Union and deepening the bloc’s internal banking market. The first bill provides for theOther Systemically Important Institutions (O-SII) buffer requirement, establishes the systemic risk buffer and empowers theCentral Bank of Cyprus (CBC)to impose administrative sanctions, periodic financial penalties and other supervisory measures in its capacity as the designated authority. The second bill introduces approval requirements for financial holding companies and mixed financial holding companies by theCentral Bank of Cyprus (CBC)when acting as the consolidated supervisor or the competent authority in the member state where the company is established. It also sets out prudential supervision rules for branches of institutions from third countries, including operating licences, regulatory requirements, supervisory powers, significant shareholding acquisitions or disposals, mergers, demergers and administrative sanctions imposed by the central bank. The third bill contains provisions allowing theCyprus Securities and Exchange Commission (CySEC)to approve financial holding companies and mixed financial holding companies when acting as the consolidated supervisor or the competent authority of the relevant member state. It also introducestechnical criteria governing the organisation and risk management of Cyprus investment firms, corporate governance requirements, administrative sanctions and other supervisory measures to be imposed by the securities regulator. The fourth bill focuses on the boards of directors ofCyprus investment firms, financial holding companies and mixed financial holding companies, including the assessment of board members’ suitability and corporate governance arrangements. According to the explanatory report accompanying the legislation, thefirst and third billsalso include additional provisions following recommendations by the European Union and a completeness review of the transposition process. These additional amendments relate toexempt entities, financial holding companies, remuneration rules, supervisory measures and powers, as well as capital conservation measures, ensuring the legislation fully reflects the amended EU directives.