The Central Bank of Cyprus (CBC) on Friday said that it is assessing the capital needs of banks in light of escalating macroeconomic and geopolitical risks.

Speaking during a briefing on the CBC’s new organisational structure, governor Christodoulos Patsalides left open the possibility of higher capital requirements.

Patsalides pointed out that unprecedented challenges are creating new uncertainties.

“The updated structure”, he said, “equips the central bank to address emerging risks such as geopolitical instability, climate change, technological advancements, cyber threats, trade protectionism, and the growth of cryptocurrencies”.

“The political environment in Europe and globally is constantly evolving, while Cypriot banks face an increased reputational risk following recent events,” Patsalides explained.

He added that this environment complicates the forecasting of macroeconomic indicators, making the supervisory role more challenging.

Moreover, Patsalides said that Cypriot banks currently boast the highest liquidity levels in Europe, but this could change due to internal or external risks.

He stressed that the capital requirements framework is under review, with decisions expected in the new year.

New organisational structure, strategic focus

The CBC’s new organisational structure, set to take effect on February 3, 2025, aims to enhance its effectiveness as a Eurosystem member and a key national institution.

The revamped framework emphasises resource adequacy, specialisation, and accountability, while promoting cross-departmental collaboration. It also prioritises support functions like technology and governance.

Patsalides announced the establishment of thematic groups to address issues such as climate risk and cryptocurrencies.

Furthermore, a new policy studies and development centre will provide analysis and guidance, while external consultants are aiding the development of a comprehensive supervisory strategy for electronic money and payment institutions.

The bank is also exploring the use of artificial intelligence in its processes and considering additional macroprudential measures to bolster resilience.

Strengthening supervisory roles

The CBC is also expanding its oversight to include non-systemic credit institutions, credit management firms, and systemic banks.

A new compliance enforcement service aims to foster a culture of adherence across all supervised entities through deterrent penalties and consistent actions.

In addition, the financial conduct sector will adopt proactive measures to benefit citizens, such as managing complaints effectively and encouraging best practices.

Financial literacy, public engagement, electronic money

As part of its strategic shift, the CBC is creating a financial literacy service and enhancing its public communications.

The CBC also said that “future publications will feature data visualisation and explanatory materials to ensure accessibility and understanding”.

It was also announced that the CBC currenclty oversees 26 electronic money institutions and 11 payment institutions, with additional licence applications under review.

Finally, a new directorate for the supervision of electronic money and payment institutions will implement best practices, ensuring prudent growth in the sector.