The status of capital restriction in Cyprus 03/03/2014

A number of temporary capital restrictions measures were imposed in Cyprus in March 2013 in order to safeguard the stability of the Cypriot banking system. The temporary capital restrictions were implemented through decrees issued by the Minister of Finance pursuant to the provisions of the Restrictive Measures on Transactions in case of Emergency Law of 2013.

These decrees were revisited on a regular basis and they are gradually being lifted. The most recent decree is the twenty-seventh (27th) decree, which was issued on the 24th of February 2014 and is currently in force.

The Minister of Finance has announced in March 2014 that according to the roadmap, which was published in August 2013, all milestones of the second stage have been met — disbursement of funds under the macroeconomic adjustment program for the recapitalisation of co-ops, submission of the co-ops restructuring plan to the European Commission, recapitalisation of Hellenic Bank, approval of Bank of Cyprus’ restructuring plan — therefore it is possible proceed with further easing of the restrictions.

New funds from abroad or from other Banking institutions in Cyprus which are indicated as new funds with credit value date 28.3.2013 and after are not subject to any of the restrictions imposed on transfer of funds.

We set out below a summary of the restrictive measures and exceptions thereto further to the latest decree.

The latest decree is abolishing restrictions on fixed term bank deposits i.e. on the maturity of fixed term deposits, the whole amount can now be transferred to the current account. Of course sums transferred from a fixed term deposit to a sight/current account are subject to the restrictive measures applicable to current accounts as specified below.

1) Cashless Payments and Transfers of Deposits/Funds
 
The following are permitted:
 
(a)    The cashless payment or transfer of deposits/funds to accounts held in other credit institutions within Cyprus up to €20.000 per month per natural person in each credit institution regardless of the purpose;
 
(b)   The cashless payment or transfer of deposits/funds to accounts held in other credit institutions within Cyprus up to €100.000 per month per legal person in each credit institution regardless of the purpose; and
 
(c)    A cashless payment or transfer of deposits/funds to accounts held in other credit institutions within Cyprus for the purchase of goods and or services regardless of the amount, provided that the payment is not made from one credit institution to another into the person’s own account. The credit institution is authorized to request a justification for the contemplated transaction.
 
The Decree provides that cashless payments and/or transfers of deposits/funds to accounts held abroad are prohibited. This is however not an absolute prohibition so that the following exemptions apply:
 
(a) for transactions that fall within the normal business activity of the customer who may be required to provide documents justifying such transactions:
 
(i) payment and/or transfer of deposits/funds of up to €1.000.000 per transaction, is not subject to the Committee’s approval provided that the particular credit institution authorizing such a transaction has reviewed the necessary documents and reached a conclusion based on such documents that the transaction is justified;
 
(ii) payment and/or transfer of deposits/funds above €1.000.000 per transaction, is subject to the Committee’s approval. The credit institution or payment institution is required to submit all of the relevant documents as well as the name of the involved credit institution and in providing its approval the Committee will take into account the liquidity position of the credit institution;
 
(b) payments made for salaries of employees upon the presentation of relevant supporting documents;
 
(c) living expenses of up to €5.000 per quarter as well as tuition fees, of a person who is studying abroad and is a first degree relative of a Cyprus resident. Supporting documents will need to be provided and the tuition fees must be paid only to the beneficiary educational institution. The credit institution will be required to maintain a record of all such transactions and to monitor these for any irregularities.
 
(d) transfers of deposits/funds outside of Cyprus not exceeding €5.000 per month, per person for each credit institution and/or payment institution regardless of the purpose.

It is prohibited to terminate fixed term deposits prior to their maturity unless the funds are used:

(i) to repay a loan and/or overdraft and/or credit card within the same credit institution provided-

(aa) the said credit facility was granted prior to the entry into force of the Enforcement of Temporary Restrictive Measures on Transactions in case of Emergency First Decree, of 2013, and

(bb) there are no sufficient credit balances in a current/sight  account in the same credit institution for the repayment of the credit facility, and

(cc) in the case of an overdraft and/or credit card the maximum repayment amount originating from a fixed term deposit cannot be higher than the outstanding balance during the entry into force of the Enforcement of Temporary Restrictive Measures  on Transactions in case of Emergency Twelfth Decree, of 2013:

Provided that the remaining amount of the fixed term deposit remains for the remaining maturity period under the same conditions:

Provided further that in the case where part of the overdraft limit or the whole limit of the overdraft is repaid, then the part of the overdraft limit or the limit of the overdraft which is repaid shall be cancelled :

Provided still further that, in the case of repayment of an overdraft and/or credit card, the relevant termination of fixed term deposit is permitted only once during or after the entry into force of the Enforcement of Temporary Restrictive Measures on Transactions in case of Emergency Twelfth Decree, of 2013:

(ii) to create one or more fixed term deposits, within the same credit institution, the total amount of which is equal to the initial deposit and for a term at least equal to the initial term of the terminated deposit:
Provided that new beneficiaries can be added or deleted on the new deposit;

(iii) to transfer up to €5.000 monthly, from a fixed term deposit in a sight/current account within the same credit institution, in duly substantiated cases where the credit institution is satisfied that the transfer is done for humanitarian reasons:

Provided that the credit institution maintains a catalogue, in which it lists in detail all the cases:

Provided further that the remaining amount of the fixed term deposit remains for the remaining maturity period under the same conditions.

(iv) to transfer, to a sight/current account within the same credit institution, in the case of fixed term deposit belonging to a natural person, of the exact amount to be solely used for the payment of medical expenses to the medical care provider, provided that-

(aa) the justified documents are presented to the credit institution, and

(bb) no sufficient funds are available in a sight/current account, with the same financial institution, to cover the payment of the medical expenses:

Provided that the remaining amount of the fixed term deposit remains for the remaining maturity period under the same conditions.

(v) for a transfer to a sight/current account within the same credit institution, to repay obligations to the Republic provided that –

(aa) the justifying documents are presented to the credit institution, and

(bb) the payment is made to the Republic either through a direct electronic transfer or through the issue of a bankers draft in favour of the Republic

(cc) no sufficient funds are available in a sight/current account, with the same credit institution, to cover the payment of the obligations:

Provided that the remaining amount of the fixed term deposit remains for the remaining maturity period under the same conditions.

(vi) for the payment of real estate acquisition in the Republic provided that-

(aa) the funds are paid directly intoa loan account of the seller of the real estate within the same credit institution and

(bb) the loan of the seller of the real estate was granted prior to the entry into force of the Enforcement of Temporary Restrictive Measures on Transactions in case of Emergency First Decree, of 2013 and

(cc) the justifying documents are presented to the credit institution and

(dd) no sufficient credit balances are available in a sight/current account, with the same credit institution, to cover the payment.

Provided that the remaining amount of the fixed term deposit remains for the remaining maturity period under the same conditions.

 2) Opening of New Bank Accounts in Cyprus
 
The Decree does not lift the restrictions on opening of new bank accounts in Cyprus and provides that a new bank account for any customer who is not an existing customer of the particular credit institution on the date of issue of the 6th Decree which entered into force on 11 April 2013, may only be able to open a new bank account if:
 
(a)    the account is only credited with funds transferred from abroad into Cyprus; or
 
(b)   the prior approval of the Committee is obtained; or
 
(c)    the account relates to a new fixed term deposit created with funds from cash provided that:
(i)      the amount to be deposited exceeds €5.000;
(ii)    the term of the new fixed term deposit is at least 3 months; and
(iii)    the new fixed term deposit may not be terminated prior to its maturity; or
 
(d)   the account relates to a new loan granted after the 2 August 2013 provided that:
(i)      the account is used exclusively for the servicing of the loan; and
(ii)    all deposits into the account are used exclusively for the servicing of the loan and may not be used for any other transactions.
 
3) General Exemptions
 
The Decree provides a number of general exemptions to the restrictive measures, which are as follows:
 
(a)   all new funds transferred to the Republic from abroad provided that any re-transfers to a second credit institution in the Republic will only be exempt if the first credit institution that the new funds were transferred to states that the funds are already exempt;
(b)   withdrawal of cash using credit and/or debit and/or prepaid cards issued by foreign institutions on accounts abroad;
(c)   the cashing of cheques issued on accounts held with foreign institutions abroad;
(d)   cash withdrawals from accounts of credit institutions with the Central Bank;
(e)   payments and receipts of the Republic of Cyprus;
(f)    payments and receipts of the Central Bank;
(g)   the foreign diplomatic missions and the UN missions in Cyprus based on the exemptions specified in the Vienna Convention for Diplomatic Relations and the Agreements between the Republic and the United Nations and other international Agreements which have precedence over national legislation;
(h)    the payments via a debit and or credit and or prepaid card; and
(i)     transactions or payments that have been authorized by the Committee.
 
We will keep you informed for any changes in the current decree.

Should you have any questions or comments, please do not hesitate to contact us at [email protected]