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Memorandum of Understanding between the Central Bank of the Russian Federation (Bank of Russia) and the Central Bank of Cyprus in the Field of Banking Supervision

The Central Bank of the Russian Federation (Bank of Russia) and the Central Bank of Cyprus, hereinafter referred to as the “supervisory authorities”, have reached a mutual understanding on the need to exchange information for the effective fulfillment of their functions and assist the reliability and stable functioning of the supervised institutions in their countries, guided by the recommendations of the Basel Committee on Banking Supervision on the principles of consolidated and comprehensive supervision and co-operation between supervisory authorities.

1. The powers of the supervisory authorities

1.1. The Russian Federation

Under the Russian Federation laws, the Bank of Russia is the banking regulation and supervision authority. It constantly monitors compliance by credit institutions and banking groups (banking holdings) with banking legislation and the Bank of Russia regulations and mandatory standards. To fulfill its regulatory and supervisory functions, the Bank of Russia conducts inspections of credit institutions and their branches, sends them orders to eliminate the shortcomings discovered in their work and uses measures against credit institutions established by the Federal Law on the Central Bank of the Russian Federation (Bank of Russia).

1.2. The Republic of Cyprus

Under the Banking Business Law of 1997, as subsequently amended, the Central Bank of Cyprus is the country’s banking licensing and supervisory authority. The above law, inter-alia, empowers the Central Bank of Cyprus to grant, modify and revoke banking business licences, supervise banks by means of off-site reviews and on-site examinations as well as issue directives, circulars and recommendations to banks. Under the Central Bank of Cyprus Law of 2002, as subsequently amended, the Central Bank of Cyprus is, inter-alia, empowered to manage, participate in, or become a member of any payment and settlement system, place under its oversight payments and settlement systems operating in the Republic of Cyprus, issue directives regulating the functions and the operating procedure of payments and settlement systems and suspend the operation of any payment and settlement system or terminate the participation of any member in any payment and settlement system under its oversight.

2. For the purposes of this Memorandum:

2.1. A supervised institution is a legal entity that has the right to conduct banking operations and whose activities are subject to licensing and banking supervision under the laws and regulations of the Russian Federation and/or the Republic of Cyprus.

2.1.1. In the Russian Federation:

A credit institution is a legal entity whose main purpose is to derive profit and which has the right for this purpose to conduct banking operations under the Federal Law on Banks and Banking Activities on the basis of a special permission (licence) issued by the Bank of Russia. A credit institution may be established on the basis of any type of ownership as an economic entity.

A bank is a credit institution having the exclusive right to conduct all of the following banking operations: to take natural persons’ and corporate funds on deposit, place these funds in its own name and at its own expense on a repayable, chargeable, shareable and terminable basis and open and operate natural persons’ and corporate bank accounts.

A non-bank credit institution is a credit institution that has the right to conduct individual banking operations under the Federal Law on Banks and Banking Activities. The permissible combinations of operations for non-bank credit institutions are established by the Bank of Russia.

2.1.2. In the Republic of Cyprus:

A bank is a body corporate licensed to carry on banking business under the provisions of the Banking Business Law of 1997, as subsequently amended. “Banking business” means business carried on in the Republic of Cyprus or abroad from within the Republic of Cyprus consisting of lending of funds acquired from the assumption of obligations to the public, whether in the form of deposits, securities or other evidence of debt.

2.2. A supervised parent institution is a supervised institution that has a cross-border establishment (a subsidiary credit institution, branch or representative office) in one of the countries.

2.3. Cross-border establishments

2.3.1. The Russian Federation

In the Russian Federation, foreign banks may establish subsidiary credit institutions — residents of the Russian Federation, or otherwise participate in the authorised capital of a Russian Federation resident credit institution and open representative offices. The activities of credit institutions with foreign capital are subject to licensing in compliance with the requirements of the Russian Federation laws and regulations.

Under the Russian Federation laws:

A subsidiary credit institution is a legal entity in which the supervised parent institution can determine the decisions taken by the subsidiary credit institution due to a majority stakeholding in authorised capital or under an agreement concluded between them or otherwise.

A representative office of a credit institution is its separate unit located outside the residence of the supervised parent institution. A representative office of a credit institution has no right to conduct banking operations. A representative office of a credit institution is not a legal entity and it conducts its activities on the basis of the statute approved by the credit institution that has established it.

2.3.2. The Republic of Cyprus

European Union banks may freely exercise their right of establishing branches in the Republic of Cyprus or providing cross-border services without establishing a physical presence, in accordance with the provisions of EU Directive No. 2000/12/EC — Article 20. Non-European Union banks may establish branches in the Republic of Cyprus under the provisions of the Banking Business Law of 1997 with the prior approval of the Central Bank of Cyprus and in accordance with the Central Bank of Cyprus’s policy on the matter.

Foreign banks (whether incorporated in the European Union or not) may establish subsidiary banks or representative offices in the Republic of Cyprus, under the provisions of the Banking Business Law of 1997, with the prior approval of the Central Bank of Cyprus and in accordance with the Central Bank of Cyprus’s policy on the matter.

A “branch” of a bank is an operating unit, registered in the Republic of Cyprus under the Companies Law, which does not have a separate legal status and is, thus, an integral part of a bank incorporated outside the Republic of Cyprus.

A “subsidiary bank” is a legally independent institution, incorporated in the Republic of Cyprus under the Companies Law, which is wholly-owned or majority owned by a bank incorporated outside the Republic of Cyprus.

A “representative office” is an office, registered in the Republic of Cyprus under the Companies Law, which does not have a separate legal status and is, thus, an integral part of a foreign bank incorporated outside the Republic of Cyprus, through which the interests of the said foreign bank are promoted or assisted but at which no banking business is carried on.

2.4. Home country is the country where a supervised parent institution is incorporated.

2.5. Host country is the country where a cross-border establishment is incorporated or registered.

3. Exchange of information

3.1. The supervisory authorities express their readiness to regularly exchange information in the following areas: licensing, supervision of the on-going activities of cross-border establishments, including the conduct of inspections, decision-making on the acquisition of shares (stakes) in supervised parent institutions, countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism, the state and development of the banking sector, the requirements of national laws in the field of banking supervision and the major changes made in them.

The supervisory authorities shall agree to provide all possible information to one another necessary for identifying the real owners of supervised home country institutions submitting an application for a licence to open a cross-border establishment and/or carrying-out cross-border transactions with supervised institutions in the Russian Federation or the Republic of Cyprus respectively. If the supervisory authorities do not have the requested information, they shall do everything to receive it.

3.2. In the Russian Federation, the exchange of information with foreign supervisory authorities is regulated by the Federal Law on the Central Bank of the Russian Federation (Bank of Russia), which allows the Bank of Russia to pass to a foreign supervisory authority information or documents received from credit institutions in the course of supervising them, provided that such information and documents do not contain data on operations conducted by credit institutions and their clients and the foreign supervisory authority guarantees the confidentiality of information meeting the confidentiality requirements established by the Russian Federation legislation for the Bank of Russia.

As for the information and the documents received from the central banks and from the banking supervisory authorities of foreign states, the Bank of Russia is obliged to meet the demands for revealing information and for submitting the documents established by the legislation of the Russian Federation, with an account for the demands established in the legislation of these foreign states.

The information and documents received from foreign banking supervisory authorities may be revealed by the Bank of Russia to third parties, provided that the relevant legislation of the Russian Federation allows this. The Bank of Russia, before revealing information and/or documents received from banking supervisory authorities, must also take in to account the provisions of the corresponding legislation of the foreign states, which have provided the said information.

3.3. In the Republic of Cyprus the exchange of information with foreign banking supervisory authorities is governed by section 27 of the Banking Business Law of 1997, as subsequently amended, which stipulates that the Central Bank of Cyprus may provide to the appropriate recognized banking supervisory authority of a territory outside the Republic of Cyprus any information in its possession which, in the opinion of the Central Bank of Cyprus, will enable such authority to exercise functions corresponding to those of the Central Bank of Cyprus under the Banking Business Law and is related to the affairs of a bank incorporated in that territory or of a bank incorporated in the Republic of Cyprus which has or proposes to establish in that territory a branch, a representative office or a subsidiary.

Sub-section (2) of the above section stipulates that the Central Bank of Cyprus shall not divulge any information under this section relating to any individual deposit account.

Information in the possession of the Central Bank of Cyprus is, in accordance with the provisions of the Central Bank of Cyprus Law of 2002, as subsequently amended, considered to be secret. In accordance with section 25 of the above law, secrecy, however, does not apply against a Court of the Republic, a Commission of Inquiry appointed and acting under the Commission of Inquiry Law, a penal investigator carrying out an investigation under the Criminal Procedure Law, the Unit for Combating Money Laundering under the Prevention and Suppression of Money Laundering Activities Law and a Parliamentary Committee under the Submission of Data and Information to the House of Representatives and the Parliamentary Committee Law.

3.4. Co-operation within the framework of this Memorandum shall be conducted on the basis of a request for assistance from the supervisory authority.

3.5. A request shall be made in writing. Any means of communications may be used to transmit a request.

3.6. A request for assistance within the framework of this Memorandum may be denied wholly or partially if the requested supervisory authority believes that the fulfillment of the request would contravene national laws and regulations or harm national interests. In this case, the requesting supervisory authority shall be notified in writing about the denial and the reasons for it.

3.7. Each supervisory authority shall do everything to ensure the soonest and fullest possible response to the request of the other supervisory authority or notify the latter about the circumstances preventing or delaying the fulfillment of the request.

3.8. Each supervisory authority shall cover on its own the expenses involved in the implementation of this Memorandum unless another procedure is agreed upon.

4. Confidentiality of information

4.1. The supervisory authorities shall take the corresponding measures to ensure confidentiality of information and documents when safe keeping and using them and passing them to one another by any means of communications.

4.2. Confidential information provided within the framework of this Memorandum may not be used for purposes other than those for which it was requested and provided without the consent of the supervisory authority that provided it.

4.3. Confidential information or documents may be passed to third persons in each particular case by permission given in writing by the supervisory authority that provided confidential information, excepting the cases when the provision of information is required by the national laws and regulations.

4.4. Should this Memorandum be terminated, supervisory information received within its framework shall remain confidential.

5. Licensing

5.1. The application made by a supervised home country institution to the host country supervisory authority for a licence (permission) to open a cross-border establishment, hereinafter referred to as the application, shall be considered within the time period and in compliance with the requirements set by the national laws and regulations.

5.2. The supervisory authority that has received the application shall notify the other supervisory authority about its contents and afterwards about the outcome of its consideration. The host country supervisory authority shall issue a licence (permission) to open a cross-border establishment if the home country supervisory authority has no objections.

5.3. The supervisory authorities shall notify one another in writing about the decision by the supervised institution indicated in point 5.1 to open a cross-border establishment.

5.4. The home country supervisory authority shall pass information at the request of the host country supervisory authority on a supervised parent institution, necessary for making the decision on opening a cross-border establishment, which may be provided within the framework of this Memorandum.

5.5. The home country supervisory authority shall notify the host country supervisory authority about the requirements to consolidated reporting.

5.6. The supervisory authorities shall exchange information about the candidates to the position of manager of a cross-border establishment inasmuch as this is permitted by national legislation and possible within the framework of information available.

6. Co-operation in decision-making on the acquisition of shares (stakes) in a supervised institution

6.1. The supervisory authorities shall co-operate in decision-making on the acquisition by a legal entity or natural person or a group of legal entities and (or) natural persons of shares (stakes) in a supervised parent institution.

6.2. For the purposes of this Memorandum, an acquisition is a transaction resulting in the acquisition of a stake in the capital of a supervised institution registered in the Russian Federation or the Republic of Cyprus whose size requires under the national laws and regulations of the corresponding country prior approval by the corresponding supervisory authority.

7. Co-operation in supervising on-going activities of cross-border establishments of supervised parent institutions

7.1. The host country supervisory authority shall supervise the activities of cross-border establishments in compliance with its national laws and regulations.

7.2. The host country supervisory authority shall not prevent cross-border establishments from presenting to the supervised parent institution information and reports necessary for consolidated supervision and the compiling of consolidated reports in forms established in the home country.

7.3. The home country supervisory authority shall inform the host country supervisory authority about the reporting forms and other information passed by a cross-border establishment to the supervised parent institution for the purpose of compiling consolidated reports.

7.4. The home country supervisory authority in respect to supervised parent institutions and the host country supervisory authority in respect to cross-border establishments shall exchange the following information upon request:

—  on violations of banking legislation and legislation on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism, committed by supervised parent institutions and their cross-border establishments;

—  on fines and other measures used by the home country supervisory authority in regard to a supervised parent institution and by the host country supervisory authority in regard to a cross-border establishment.

8. Co-operation in conducting inspections

8.1. The home country supervisory authority shall regulate on its own the relations with cross-border establishments in regard to the provision of access for its representatives to conduct inspections.

8.2. The home country supervisory authority shall notify the host country supervisory authority at least 25 working days before the planned inspection about its intention to conduct an inspection, indicating the name of the cross-border establishment and the time period to be inspected, inspection subjects and duration, information about the inspectors and the procedure of presenting inspection results to the host country supervisory authority.

9. Co-operation in countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism

Within the framework of co-operation in countering the legalisation (laundering) of criminally obtained incomes and the financing of terrorism the supervisory authorities shall exchange the following information:

9.1. on the requirements of legislation on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism within the competence of the supervisory authorities;

9.2. on the practice of using the principle of scrutinising customers (know your customer) and the procedures for identifying and verifying the beneficiaries in customer operations connected with money laundering and terrorism financing;

9.3. on compliance by cross-border establishments and supervised parent institutions with the requirements of the national laws on countering the legalization (laundering) of criminally obtained incomes and the financing of terrorism;

9.4. on typologies and methods used in legalizing (laundering) criminally obtained incomes and terrorist financing.

10. Other provisions

10.1. The supervisory authorities express their readiness to promote co-operation in the form of visits aimed at sharing information and exchanging specialists, especially in staff training, for the purpose of enhancing the efficiency of banking supervision in both countries.

10.2. To ensure practical co-operation after the coming into force of this Memorandum, the supervisory authorities shall exchange the lists of contact persons (with full names, job titles, telephone and fax numbers and e-mail addresses).

10.3. Information on the Bank of Russia, the Russian Federation banking system and laws and regulations is available on the Bank of Russia home page on the Internet at www.cbr.ru.

Information on the Central Bank of Cyprus and Cyprus’s banking system, laws and regulations is available on the Central Bank of Cyprus’s home page on the Internet at www.centralbank.gov.cy.

The Bank of Russia and the Central Bank of Cyprus have no objection to the public placement of this Memorandum on their websites.

10.4. This Memorandum shall come into force as of the date of its signing and shall remain effective until one of the supervisory authorities notifies the other in writing about its intention to terminate it. In this case, the Memorandum shall remain in effect for 30 days after the notification. Requests for assistance made before the notification date shall be considered by the supervisory authorities in compliance with the terms and conditions of this Memorandum.

10.5. Should changes be made in national legislation, the corresponding changes may be made in this Memorandum.

10.6. This Memorandum is done in two copies in the English language.

10.7. As of the date of the coming into force of this Memorandum, the Memorandum of Understanding between the Central Bank of the Russian Federation (Bank of Russia) and the Central Bank of Cyprus in the Field of Supervision of the Activities of Supervised Institutions, signed on July 27, 1998, shall be terminated.

 

Date 17 December 2007

On behalf of the Central Bank
of the Russian Federation (Bank of Russia)

S. M. Ignatyev

Chairman

Date 2 November 2007

On behalf of the Central Bank
of Cyprus

Athanasios Orphanides

Governor

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Last updated on: 29/10/2018