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IMF Publishes Assessment Of Cypriot Financial Sector Supervision

by Lorys Charalambous, for, Cyprus

12 October 2006

The International Monetary Fund (IMF) has this week published an assessment of financial sector supervision and regulation for Cyprus.

The assessment includes reports on the observance of standards and codes in the following areas: banking supervision, insurance supervision, and securities regulation.

The report is based primarily on work undertaken during a visit to Cyprus from March 28 through April 08, 2005, but includes updated factual information.

According to the IMF assessment, the financial system in Cyprus is in a process of reform generated by the liberalization and regulation brought about by accession to the European Union (EU). As a result, restrictions on the scope of domestic operations, as well as fiscal differences between
domestic and internationally-oriented institutions were eliminated at the end of 2005.

The International Monetary Fund team reported that:

"Competent supervision for the banking sector has been enhanced by legislation and regulation to meet the requirements of EU accession. Central bank independence and technical supervisory rules have been improved. The obligations resulting from EU accession have however strained supervisory resources, and it is recommended that skills be enhanced."

"The commitments made for EU accession have also placed stress on the skills and resources of the supervisors for the cooperative credit institutions and insurance companies. Significant training will be required by staff in these supervisory agencies. The securities supervision authority is well-staffed with the requisite skills."

"However, the legal framework for cooperation severely limits the scope of investigative assistance that can be provided if the Cypriot securities regulator does not have an independent interest in the matter under investigation. Further, the regulator has had difficulty accessing information about the beneficial owner of shares registered in the names of lawyers that act as nominees on behalf of beneficial owners. The regulator is seeking amendments in legislation that would confirm sharing of and access to information."

"Cooperation in other sectors is good and the authorities have signed a domestic Memorandum of Understanding (MOU) and several abroad."

The full text of the IMF assessment of the regulation of the Cypriot financial sector can be found in the Tax News Resources section.

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