Resolution Law Amendment Reveals CBC Actions to be Hopelessly Wrong

8 October 2015

A proposed amendment to the Cyprus Resolution Law tabled to Parliament’s finance committee this week, shows just how hopelessly wrong and illegal was the Central Bank of Cyprus’s (CBC) implementation of this same Law on the Cyprus branch of FBME Bank in July 2014. At the same time, it points up that the authorities wish the implementation of the Resolution Law in the Republic to become highly selective, thereby heaping discrimination upon injustice.

According to media reports, the proposed amendment to the Resolution Law transfers the right to appoint a special administrator to sort out the legacy issues of an insolvent bank, to the creditors of the institution and away from the CBC. The quoted example is Laiki Bank – the Cyprus Popular Bank – which was closed down in March 2013 with massive indebtedness costing its uninsured depositors and other creditors hundreds of millions of euros. Under the amendment, the creditors would be allowed to appoint the special administrator to act in their behalf.

This amendment follows harsh public criticism of the Central Bank of Cyprus’s efforts over the past 30 months.

The same media reports say that the framers of this amendment are trying to have its terms refer only to Laiki Bank. This would cut off FBME’s depositors and shareholders from having the same rights and has led Cyprus newspapers to cite serious concerns at the selective and preferential implementation of the Law that will result.

All through this sorry saga, the Cyprus authorities in the form of the CBC have continually broken the Republic’s own laws and regulations, using them as they deem fit to advance their own interests and as a cover for their mistakes. The Resolution Law, framed in 2013 for the bankrupt Laiki Bank and Bank of Cyprus, was never intended to be used to take charge of a highly liquid, solvent bank such as the Cyprus branch of FBME in the first place. Now, this proposed amendment provides more cause for disgrace by seeking to make its terms applicable only as and when the authorities deem it suits them. Whatever happened to the concept of law being equally applied to all?

It is worth noting that the CBC’s use of Resolution Law against FBME’s Cyprus branch also failed to comply with applicable European laws and directives, which stress that Resolution should be used only in the case of failed banks and as a last resort. The Central Bank of Cyprus basically broke every rule in the book, its own and those of the EU. And it goes on doing so. The European Central Bank should take note.

The CBC compounds its errors by continuing to behave vindictively against the interests of the Bank and its depositors, employees, affiliates and shareholders. This has forced the shareholders of FBME Bank to seek redress through international arbitration. An Arbitral Tribunal at the ICC in Paris has now decided that it can rule in the matter and the process is heading towards an assessment of the damages and entitlements for compensation.

Watch this space!