CYPRUS: Central Bank says due diligence checks on foreign transactions too slow

New Governor of the Central Bank of Cyprus (CBC), Constantinos Herodotou urged Cypriot banks to invest in technology and staff training to speed up due diligence checks for anti-money laundering (AML) on lawful transactions.

He said there are many examples where businesses opt to carry out their lawful transactions in other countries due to delays in the Cyprus banking system.

Herodotou said Cypriot banks take more time to carry out due diligence checks compared with their EU peers, although AML directives are the same for all member-states.

The banks should invest in staff training and technology for more effective combating of money laundering, reducing negative impact on lawful activities at the same time, he said.

Herodotou added that the CBC will work with the commercial banks and at a later stage with affected stakeholders with a view to finding ways to tackle the issue in an efficient manner.

Christodoulos Angastiniotis, President of the Cyprus Chamber of Commerce and Industry, also voiced concerns by businesspeople that the banks decline money transfers especially by former Soviet Union states and recently from China due AML compliance reasons, noting that businesses are forced to look for banks abroad in a bid to carry out their activities.

Herodotou said that AML directives do not focus on where the money comes from but on whether the activities are lawful or not, adding that the CBC is ready to examine any ambiguities in the AML laws.

However, Herodotou said that Cyprus has adequate correspondent banks, noting that the CBC will continue the work to improve Cyprus’ image abroad that would provide the banks with more options concerning correspondent banking.

On the broader issue of combating of money laundering, Herodotou said that there has been progress, noting that the efforts to improve Cyprus’ AML framework should continue as there will always be efforts to beat the system.

The CBC Governor referred to progress in efforts to reduce non-performing loans which declined from a peak of Euros 28 bln to Euros 11 bln following the sale of an NPL package amounting to Euros 2.8 bln by Bank of Cyprus, the island’s largest lender.

But he added that efforts should continue as the banking system NPL rate remains high.

Following amendments to the legal framework in the summer of 2018, banks for the first time have all the tools at their disposal to effectively tackle NPLs.

Herodotou also said that the CBC in its capacity to maintain financial stability, is mindful of Cyprus’ high private debt which is declining at a slower pace, as banks sell NPLs portfolios which are offloaded from the banking system but remain in the economy.

Therefore, the banks and NPL management platforms should not focus solely on (NPL) sales, correct loan restructurings is a very important factor not only for the economy but for households and small and medium enterprises as well.

Herodotou said GDP will continue to expand with strong momentum above the EU average, albeit at a slower pace, although growth is broad based and not dependent on one sector.

Source: The Financial Mirror