Cyprus races to adopt overdue EU banking rules

Finance ministry warns of potential court action over late directivesCyprus 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 parliament to examine it as a matter of priority following months of delay. However, the legislation is now expected to be discussed in September, 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 by January 11, 2026, but Cyprus did not submit the bills to parliament until the beginning of July 2026. The prolonged delay prompted the European Commission to launch formal infringement proceedings against Cyprus earlier this year. Cypriot authorities received a letter of formal notice from the Commission on March 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 the finance ministry, the European Commission has adopted a stricter approach towards member states that fail to comply with legislative deadlines, taking a tougher 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 the Court of Justice of the European Union over the failure to implement the directive on time. The four bills are intended to bring Cyprus into line with the EU’s revised banking regulatory framework, covering supervisory 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 the Other Systemically Important Institutions (O-SII) buffer requirement, establishes the systemic risk buffer and empowers the Central 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 the Central 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 the Cyprus 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 introduces technical 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 of Cyprus 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, the first and third bills also include additional provisions following recommendations by the European Union and a completeness review of the transposition process. These additional amendments relate to exempt 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.