Cyprus’ legal framework is particularly strong, due in part to mandatory compliance with European Union regulations. The legislation governing Cyprus’ financial services sector underpins the island’s ambition to become a leading international financial centre. As a former British colony, Cyprus law is based on English Common Law and was amended to meet European Union requirements. Offering foreign business a familiar and reliable framework within which to operate, the island’s legal and regulatory system is considered to be one of the most favourable in Europe, whilst at the same time being fully compliant with the EU, the Financial Action Task Force on Money Laundering (FATF), the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Forum.
Financial institutions are regulated and supervised by three authorities in Cyprus, the Central Bank of Cyprus (CBC), which is responsible for the supervision of commercial banks and the cooperative credit institutions; the Superintendent for Insurance Control (SI); and the Cyprus Securities and Exchange Commission (CySEC). However, changes introduced by the EU’s Single Supervisory Mechanism (SSM) in 2014, saw the transfer of supervision of all the eurozone’s largest banks to the European Central Bank (ECB). For Cyprus, this meant that Bank of Cyprus, Hellenic Bank and RCB Bank were transferred from the supervision of the CBC to the ECB.
Cyprus has put in place all necessary mechanisms for the prevention and suppression of money laundering and terrorist financing activities. In 2007 the House of Representatives enacted ‘The Prevention and Suppression of Money Laundering Activities Law’ by which the former Laws on the Prevention and Suppression of Money Laundering Activities of 1996-2004 were consolidated, revised and repealed. Under the current Law, which came into force on 1 January 2008, the Cyprus legislation has been harmonised with the third European Union Directive on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing.
The law obliges all individuals and legal entities that perform financial and other business activities, to protect themselves, their companies and the financial system of Cyprus from money laundering, by setting standard procedures. These procedures aim at identifying and reporting suspicious transactions, as well as applying the ‘know-your-client’ principle which requires the entire industry to adhere to strict procedures for maintaining records.