IIEffective Insolvency and Creditor Rights Systems
According to a brief put forth by a law firm Andreas Neocleous & Co., insolvency proceedings for corporate entities are set out in the Companies Law, Cap.113, sections 203 to 344. Section 203 provides for two types of insolvency procedures, either compulsory liquidation by the court or voluntary liquidation by the company or its creditors. A 2005 report by PricewaterhouseCoopers states that sections 222 to 224 provide for receivership, which is a remedy available to secured creditors and involves the collection and realization of assets and payment of debts. Furthermore, Cypriot law does provide for restructuring and reorganization. Beyond this information, however, there is insufficient information publicly available as to Cyprus’s compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank.
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ENInternational Financial Reporting Standards
In line with European Commission (EC) Regulation No 1606/2002, Cyprus requires application of International Financial Reporting Standards (IFRSs) as adopted by the EC in the consolidated accounts of listed companies. According to the information available on the EC website, Cyprus opted to further require IFRSs in the annual accounts of listed companies and in the annual and consolidated accounts of all types of companies.
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IIPrinciples of Corporate Governance
Cyprus equity markets and legal framework for corporate governance are still in their infancy. The Cyprus Stock Exchange issued its first Corporate Governance Code in 2002, based on the “comply or explain” principle, in an effort to promote transparency, protection of small shareholders, and effective independent boards. The legislative and regulatory framework for corporate governance in Cyprus mainly consists of the Companies Law, the Cyprus Securities and Stock Exchange Law of 1995 as amended, the Cyprus Securities and Stock Exchange Regulations on Public Offer for the Acquisition of Securities and Merger of Companies Listed on the Stock Exchange of 1997, and the Corporate Governance Code of March 2006. A 2009 report by Christophi and Christodoulidou calls for strengthening the monitoring roles of the appropriate authorities and better enforcement of corporate governance related laws and regulations. The report does note ,however, that Cyprus is seriously pursuing the improvement of corporate governance of its listed companies, with a focus on greater efforts to educate on the benefits of good corporate governance, and the enforcement of more stringent listing rules. Nevertheless, apart from the above information, publicly available sources do not directly address Cyprus’ compliance with the Organization of Economic Cooperation and Development's Principles of Corporate Governance.
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ENInternational Standards on Auditing
On May 17, 2006, Directive 2006/43/EC of the European Parliament and Council came into force, requiring all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the EC. Although it is not specified which standards constitute international auditing standards, it is widely anticipated that International Standards on Auditing (ISAs) as issued by the International Auditing and Assurance Standards Board will be adopted. Per information provided on the EC website, Cyprus has fully transposed the above-mentioned Directive into its national legislation. The Companies Act of 2006 is the primary law that governs business entities in Cyprus and mandates every Cypriot company to appoint a qualified auditor who will audit and submit to the Registrar of Companies a copy of the financial statements which reflect the true and fair view of the company’s financial health. The EC website also points out that auditors are required to conduct their audit in accordance with ISAs and the Code of Ethics for Professional Accountants as put forth by the International Federation of Accountants.
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ENAnti-Money Laundering/Combating Terrorist Financing Standard
As a member of the Council of Europe’s Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL), Cyprus was assessed against the Financial Action Task Force's (FATF) 40 recommendations and 9 special recommendations in 2005. MONEYVAL released its findings in a 2006 report, in which, it observed the country to be either compliant or largely compliant with most of the FATF's recommendations. However, there were some significant shortcomings identified by the assessors. For example, the country was rated as only partially compliant with recommendation 5 on customer due diligence, and with special recommendation (SR) II on the criminalization of terrorist financing. Both these recommendations are deemed core by the FATF. For SR II, the mutual evaluation pointed out that the criminalization of terrorism as defined in the 1999 United Nations Convention for the Suppression of the Financing of Terrorism is not completely achieved by the country. Since the 2006 mutual evaluation, there have been regulatory changes made to the anti-money laundering (AML) and combating the financing of terrorism framework in the country. In 2007, the Law for the Prevention and Suppression of Money Laundering Activities (LPSMLA) was passed which consolidated and superseded the 1996 AML law that had been in existence at the time of the 2006 mutual evaluation. According to a 2009 U.S. Department of State report, the LPSMLA encompasses all recent recommendations of the FATF and the recommendations made by MONEYVAL in its 2006 assessment. Similarly, in July 2005 (soon after the MONEYVAL assessors visit to Cyprus), the Cypriot authorities passed an amendment to implementing legislation of Ratification Law 29 (III) of 2001 (which criminalizes terrorist financing), thereby eliminating an earlier loophole that had been identified as the main reason by the MONEYVAL assessors for their partially compliant rating for Cyprus with FATF's SR II.
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FCCore Principles for Systemically Important Payment Systems
TARTET2-CY, the Cypriot component of the European Union's TARGET2 system, is designated by the CBC as the systemically important payment system in Cyprus. The CBC and another 14 commercial banks in Cyprus were connected to TARGET2 on November 19, 2007, among the first wave of countries that migrated to TARGET2. TARGET2 provides harmonized payment services under a single shared platform across its member countries. In May 2009, the ECB came out with an assessment of TARGET2's design against the Core Principles for Systemically Important Payment Systems (CPSIPS) developed by the Committee on Payment and Settlement Systems. The report concludes that TARGET2 fully observes all relevant CPSIPS, although it does make certain recommendations pertaining to Principles III and VIII. It is generally believed that the system is an improvement over its predecessor TARGET and its component systems. The ECB in its function as the overseer of TARGET2 aims to ensure continued compliance of the system with the CPSIPS, and will continually monitor the implementation of its recommendations by the system. Apart from TARGET2-CY there are five other systems operating in Cyrus, namely, the Cyprus Clearing House for checks, the Payment Cards System, the retail credit transfers system (JCCTransfer), the government credit transfers system, and the Central Depository and Central Registry of Securities, notes the CBC's 2008 Annual Report.
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