Cyprus Mail

New banking regulations look askance at €500 notes

By Annette Chrysostomou

Bank customers may be in for a surprise if they try to exchange their €500 banknotes into smaller denominations as they can no longer be changed over the counter.

The problems have emerged after it was decided to gradually phase out the notes by the European Central Bank (EBC) in May.

On May 4 the ECB decided to discontinue the production and issuance of the biggest euro banknotes by the end of 2018 because of concerns that their circulation is likely to facilitate illegal activities.

The note continues to be legal tender, will retain its value forever and can be exchanged at the national central banks of the Eurosystem indefinitely. At the same time, steps are being taken to ensure that the other denominations will be available in sufficient quantities. Thus, there is no need for urgency, but a number of Cyprus residents are already trying to get rid of the big banknotes, with varying degrees of success.

Recently, the Central Bank received complaints from disgruntled customers complaining that they are being asked searching questions about where their €500 notes come from.

“The banks now keep records,” a Central Bank official explained this week. “They keep the name and how much money the customer wants to change, regardless of whether they actually change the money or not. They then give this information to us.”

This does not only apply for the large denomination notes, but is valid for all large amounts of money. “if you come with €10,000 in €20 notes you might be asked where the money comes from,” the official elaborated. “It is a risk based approach and it is up to the cashier when they start asking questions. If you say you had the money at home and they believe you that’s fine.”

These new precautions stem from a directive introduced as part of anti-money laundering efforts. The Central Bank of Cyprus in April amended the directive by clarifying and enhancing banks’ ‘Know Your Customer’ obligations, requiring them to know the identity of their customers, as well as their financial profile. The current amendment is part of the continued effort to further strengthen the regulatory framework which aims at “zero tolerance” of possible shortcomings allowing loopholes for money laundering.

“The relevant legal and regulatory framework has been significantly updated and further action was taken by credit institutions and parties involved concerning the administrative capacity of implementation,” a statement said in April.

Since then, banks have adopted stricter measures.

“People cannot change €500 notes for smaller denominations at the Bank of Cyprus (BoC),” a BoC press officer said. “They can deposit the money, but they cannot change it over the counter,” he added. “If they don’t have an account, they have to open one and then we collect all the relevant information.”

“If the total amount is considered to be peculiar the teller has to ask for proof of origin,” Loukas Papaloukas, teller at a Bank of Cyprus branch explained. “These are the guidelines. We may change one or two (€500) notes to people we know.”

According to the press officer, there have been no cases where customers have reported that they have had problems related with exchanging €500 notes.

However, Papaloukas has other experiences. “Most people react as though lightening hits them when we tell them we can’t just change the notes,” he said. “They say it’s legal tender money that comes out of safety boxes.”

A Hellenic Bank spokesman also explained about the bank’s procedure. “Our policy is to question people irrelevant of the amount of money. We not only have the right but an obligation to check customers’ profile, their banking history and their movements.”

Though he also claims there have not been any reports of complaints about the banknote exchanges, the Central Bank insists that the problem exists and the situation is getting worse. “There have been general complaints after the introduction of the stricter laws,” the Central Bank official reported, “but also particular problems have been more evident lately after people heard about the withdrawal of the large notes. These are people who had their money at home and who now find it ridiculous that they are being questioned where it comes from.”

But even before the introduction of the new regulations, trust was an issue when it comes to €500 notes. “When I exchanged €500 at my local supermarket some years ago,” customer Anna Georgiou told the Sunday Mail, “there was no problem, but when I tried at a post office the employees initially wouldn’t change it until a supervisor told them ‘What’s wrong with you, can’t you judge characters? Can’t you see that you can trust her?’ “

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