Activation of Deposit Protection Scheme protects CBC, not Depositors

10 April 2016

Following a series of unilateral, illegal, arbitrary and irresponsible actions by the Central Bank of Cyprus (“CBC”) the delayed announcement on 9 April 2016 that the Deposit Protection Scheme is activated is a welcome move, coming some 21 months after the Resolution Authority and the CBC acted against FBME Bank Limited (“FBME”).

However, this occurs at the end of a protracted period where the Special Administrator choked depositor access to funds on the instruction of the CBC and for the expressly stated purpose of maintaining sufficient funds in the Bank to repay the Deposit Protection Scheme. The funds that CBC rely on have been in their possession for more than a year and the circumstances that would have permitted depositors to access the Deposit Protection Scheme have subsisted for a considerable time. It is incorrectly stated that the economic condition of FBME is the reason for activation; the truth is that funds are available but CBC’s mishandling of the situation has starved depositors of access to funds, although, during this time some depositors have had better access to funds than others.  Depositors will have three legitimate questions:

1 – Why now?

2 – Have depositors been treated equally and correctly by the regulatory authorities in Cyprus?

3 – Is the position of depositors better now than it would be if correct measures had been taken from 21 July 2014? (The date that Resolution Measures were implemented and the standard for CBC actions required by the law they invoked)

Any observer of CBC actions over the past year will notice three consistent traits: lack of transparency, lack of responsibility, and lack of technical competence.
The answer to the depositors’ questions is that they have not been treated equally; the Deposit Protection Scheme is being triggered so that CBC can claim to have fulfilled its duties to depositors and evade further exposure for misconduct; and the intervention of the CBC and the Resolution Authority has had a negative impact on depositors. The consistent lack of competence of CBC needs no further comment.

Depositors will already have noted that CBC and the Resolution Authority is therefore liable in law to them at this point in time. By taking action now, CBC seeks to create a faint accompli situation rendering moot any decision of the courts in the upcoming liquidation action and designed to obscure and evade their liability to all relevant parties that arises from the action over the past year and a half. Depositor protection has clearly not been the priority for CBC at any point.