How much capital must a Cypriot bank hold, and what must it report and publish?

The exam material describes a minimum capital of €5 million that the CBC could raise, and a capital-adequacy ratio set by the CBC, varied for each ACI by written notice and measured against total assets, including the trading book, off-balance-sheet items, operational risk and categories the CBC chooses. Those rules were in sections 20 and 21 of the Law, which Law 5(I)/2015 repealed on 30 January 2015 when Cyprus transposed CRD IV.

Since then €5,000,000 has survived as initial capital: the CBC refuses a licence to a credit institution without separate own funds or with initial capital below that amount. For special categories it may accept at least €1,000,000, telling the European Commission and the EBA why.

The ongoing requirements come from the CRR, which has applied directly since 1 January 2014. A bank must always hold Common Equity Tier 1 (CET1) capital of at least 4.5%, Tier 1 capital of at least 6% and total capital of at least 8% of its total risk exposure amount, and, since 28 June 2021, meet a leverage ratio of 3%. That amount combines credit risk, including off-balance-sheet items, market risk in the trading book, foreign-exchange and commodity risk, settlement risk, credit valuation adjustment risk and operational risk. Capital buffers come on top (What counts as own funds, and which capital ratios and buffers must be met?).

After the supervisory review, the CBC, or the ECB for a significant bank, requires additional own funds from an ACI whose risks the common rules do not fully cover, or in the other cases the Law lists, such as weak governance. At least three quarters of this add-on must be Tier 1, and at least three quarters of that Tier 1 must be CET1. The CBC must justify the decision in writing to each ACI.

Every ACI sends the CBC electronically, within 4 months after each financial year ends, its audited annual report with a signed copy of the approved auditor's report; the CBC may allow longer. Within 15 days after each month-end, or another period the CBC sets, it sends a certified statement of the assets and liabilities it held at month-end.

The CBC may also demand, by a deadline, any information it needs, or that would be useful, for its functions, from ACIs and anyone else within its remit, including written records, client data and computer-held information. Recipients must keep the request strictly confidential and comply.

Appointing the approved auditor needs the CBC's express approval, and the auditor certifies that the audit followed international auditing standards and any extra CBC requirements. If a Cyprus-incorporated ACI fails to appoint one, the CBC may appoint an auditor and fix the fee, which the ACI pays. Auditors must promptly report material breaches and threats to the ACI's continued operation to the CBC.

An ACI incorporated in Cyprus publishes, within 6 months of year-end and as the CBC specifies, its balance sheet and its profit and loss account, with the auditor's report. A third-country bank's Cyprus branch publishes yearly accounts covering the bank's business as a whole. Each year Cyprus-incorporated ACIs also disclose country-by-country data, such as turnover, staff numbers, profit before tax, tax on profit and public subsidies, and their annual report shows the return on assets. Investment firms have similar country-by-country rules (What must a CIF report country by country, and what rules govern variable pay?).

The exam material lists what a Cyprus-incorporated ACI must disclose publicly: its risk-management objectives and policy, quantitative risk information, own funds, how it calculates capital adequacy, how it monitors large exposures and whether it meets the capital-adequacy ratio. Section 25(3) of the Law still contains this list, though its reference to a ratio set by the CBC is out of date. Since 1 January 2014 the detailed rules have come from Part Eight of the CRR (Pillar 3): today large institutions disclose up to quarterly; other institutions disclose annually, with key figures half-yearly if listed; and small and non-complex ones disclose annually. The Law's list does not include the names of qualifying shareholders: listed ACIs report those to the CBC at least annually.