CBC exploring raising bank capital requirements amid emerging risks, Governor says

The Central Bank of Cyprus (CBC) is currently assessing the capital requirements of the country’s banking institutions in light of growing macroeconomic and geopolitical risks, Governor Christodoulos Patsalides has said.

He also hinted at the possibility of increasing capital buffers, pointing out the need to adapt to unprecedented challenges and uncertainties.

During a recent press briefing about the CBC’s new organisational structure, Patsalides noted that the evolving geopolitical instability, climate change, technological advancements like artificial intelligence, digitalisation, and new payment methods pose significant risks. Additional concerns include escalating cybersecurity threats, trade protectionism, and the emergence of cryptocurrencies.

The Governor highlighted the shifting political landscape both in Europe and globally, noting also that Cypriot banks face heightened reputational risks at home in relation to their pricing policies. This environment complicates macroeconomic forecasting and supervision, presenting significant challenges for regulators.

Despite Cyprus having the highest liquidity levels among European banks, Patsalides warned that this could be impacted by both external and internal factors. He stated that the CBC is poised to respond to risks, tailoring capital requirements as necessary. Discussions on this matter have been ongoing, he added, with decisions expected soon.

The CBC has also undertaken significant measures to adapt to new challenges, forming thematic teams to address issues like climate risk and cryptocurrencies. A newly established Policy Research and Production Center aims to provide analytical support and strategic guidance. Collaborations with external advisors are helping refine the oversight of electronic money and payment institutions, ensuring robust licensing and supervisory frameworks.

Strategic adjustments include bolstering resilience to shocks through available tools, exploring macroprudential measures, and integrating artificial intelligence into CBC operations. Plans are also in place for regular dialogues with economic stakeholders to enhance transparency and collaboration.

A modernised framework for supervision

Governor Patsalides announced the implementation of a new organisational structure aimed at transforming the CBC into a modern, flexible, and efficient central bank. This new framework. According to the Governor, the updated structure is set to take effect on February 3, 2025,

The new structure introduces significant reforms aimed at bolstering the bank’s effectiveness as a member of the Eurosystem and a key institution in Cyprus. It prioritises specialisation, resource adequacy, and clear mandates, fostering accountability through action plans and performance metrics. Newly established departments will address evolving challenges, emphasising efficiency, cross-departmental collaboration, and the enhancement of support functions like organisation and technology.

The Central Bank is also investing in its human resources, focusing on results-oriented performance while expanding opportunities for career advancement.

Supervisory enhancements across all sectors

A key focus of the reorganisation is the enhancement of the bank’s supervisory capabilities. Banks, credit management companies, electronic money institutions, and payment firms will be monitored under a revamped system. A Center of Excellence will be established for the supervision of technological risks.

The Governor highlighted the importance of financial stability, extending oversight to smaller systemic credit institutions and credit management companies, alongside major systemic banks. The Financial Ethics Division will also be upgraded, adopting proactive measures to encourage best practices, improve complaint management, and protect consumers.

A new Compliance Enforcement Service will strengthen the culture of compliance across supervised entities. It will ensure dynamic responses, including deterrent fines and sanctions, while reinforcing the bank’s consistency in decision-making.

Additionally, the Central Bank will establish a Research and Policy Center—filling a unique gap as the only central bank in the Eurosystem currently without one. A Financial Literacy Service will also be created, underscoring the institution’s commitment to empowering the public with knowledge.

Risk management, anti-money laundering efforts, and licensing procedures will be fortified, while new departments, including those for microeconomic statistics, market operations, organisation, and project management, will enhance the bank’s governance and regulatory compliance expertise.

Strategic oversight of e-money and payment institutions

The CBC also announced a comprehensive licensing and supervisory strategy for electronic money and payment institutions. Developed in collaboration with international experts, the strategy aims to ensure the sector's sustainable growth while mitigating inherent risks. Key initiatives include strengthening licensing processes, enhancing supervision, and adopting industry best practices.

To implement this strategy, the CBC is establishing a dedicated Directorate of Supervision for Electronic Money and Payment Institutions. This body will oversee the prudent regulation of the sector, which currently includes 26 e-money institutions and 11 payment firms, with several new licensing applications under review.

(Source: CNA)