Lawmakers on Monday continued discussion of a bill designed to transpose into domestic law EU-wide rules on mortgages which introduces credit intermediaries, in a move said to lead to greater competition in the lending market and drive down prices for borrowers.
In November 2016, the European Commission sent Cyprus and eight other EU member states a reasoned opinion requesting them to transpose the Mortgage Credit Directive (Directive 2014/17/EU) into national law.
According to the commission, the directive aims to improve consumer protection measures across the EU by introducing EU-wide responsible lending practices.
“Consumers will benefit from clearer and more understandable information with the introduction of the European Standardised Information Sheet (ESIS), which will allow borrowers to understand better the risks associated with their mortgage agreement as well as letting them compare offers and shop around for the best product to suit their needs at the best price.”
The directive also establishes principles for the authorisation and registration of credit intermediaries.
“This will, in the long run, provide lenders with new business opportunities and will be a step towards the creation of a Single European Mortgage Market, which is expected to increase competition and to drive down prices,” the commission said.
Credit intermediation – taking money from savers and lending it to borrowers – is sometimes referred to as ‘shadow banking’.
Non-banking financial institutions operate in areas such as venture capital, private equity investment, public equity issuance, corporate bond issuance, corporate debt securitisation, and captures activities such as loan origination by investment funds.
Speaking in parliament, financial ombudsman Pavlos Ioannou said the inclusion of non-credit institutions in the lending business is a serious development that will further promote competition.
Among others, the bill sets out rules on what information mortgage advertising must contain, and mandates that non-banking institutions provide consumers a calculation of the annual percentage rate for comparison purposes.
It also regulates the granting of loans in foreign currency and the right for early loan repayment.
The bill lays out the administrative penalties for violations of the law. Institutions may be fined up to €250,000 and, in the event of a repeat or continued violation, €5,000 per day.
Non-credit institutions will be licensed and regulated by the Central Bank of Cyprus. They must have an initial capital of €500,000.
They must further disclose to the central bank the identities of their direct and/or indirect shareholders with a qualifying holding. If no qualifying holding exists, an institution must disclose the identities of its 20 biggest shareholders with a participation of 5 per cent or higher.