Cyprus Central Bank to launch digital compliance platform

The Central Bank of Cyprus has concluded the competition for a new digital platform for customer compliance, CBC governor Constantinos Herodotou explained during an event held on Thursday evening.

The event was organised by the Cyprus Association of Cyprus Electronic Money and Payment Institutions.

“In an effort to promote the digitisation of the financial sector for the creation of an efficient financial ecosystem and to support the economy, the Central Bank of Cyprus announced a competition for the implementation of a remote digital platform,” Herodotou said.

The competition has concluded, he explained. The central bank is expected to announce the results in the coming days.

According to the governor, the digital platform will gradually bring benefits to individuals and businesses, such as reducing compliance time and improving the quality of services.

The implementation will take place in three phases. The first phase involves using technology for remote customer data integration and updating of existing customer files.

According to the governor, digitisation will provide an optimised user-friendly system without the need for physical presence, which will be adaptable to the needs of each financial institution.

The second phase will involve connectivity and interoperability with utility companies and government services to obtain verified customer data for verification processes, thus expediting the Know Your Customer (KYC) process and ensuring data reliability.

The third phase will involve the exchange of information among participating institutions when there is an update on customer data or for anti-money laundering (AML) purposes, which can reduce the need for further client involvement typically involved in such processes.

Regarding financial technology companies (fintech), Herodotou said that the coexistence of traditional banks and innovative fintech companies is transforming the landscape of the Cypriot and global financial sectors.

“There are significant advantages in combining the network and regulatory expertise of traditional banks with the flexible and innovative operating models of fintech,” he said, noting, however, that innovation comes with challenges and risks.

“The Central Bank of Cyprus encourages innovation and opportunities arising from digitisation. At the same time, it is its duty to remain vigilant,” he said, to ensure that unwanted risks are not being inadvertently created.

“We are facing transformative challenges due to digitisation and innovation,” Herodotou continued. He said that in order to address them, the Eurosystem is adopting a multi-dimensional approach, promoting instant payments as the new norm and exploring the possible introduction of the digital euro.

Moreover, instant payments allow the release of funds tied up in the financial system, he noted.

At the same time, he said that instant payment solutions should comply with customer and data protection, anti-money laundering, and sanctions requirements.

From November 2017 to the second quarter of 2023, instant payments reached about 15 per cent of the total volume of transfers in the EU.

Although Cypriot banks do not yet offer instant payments, some Electronic Money Institutions (EMIs) and Payment Institutions (PIs) under CBC supervision are eligible to offer this service to their customers, he said.

Regarding the digital euro, Herodotou said it has the potential to complement the physical euro.

“It is worth noting that apart from banks, other final service providers also plan to have a role in distributing the digital euro to their customers”, he explained.

Despite the already significant number of licensed institutions, given the size of Cyprus, there is a continuous interest in new licenses, the governor mentioned, adding that at this moment, 33 applications for new licenses are under examination by the Central Bank of Cyprus.

Meanwhile, Patrick Papsdorf, Head of the Payment Oversight Department at the European Central Bank, presented data on digital payments in the EU.

He stated that non-cash payments in the euro area have increased in both volume and value in recent years, reaching 114.2 billion transactions and €197 trillion in total.

He noted that in 2022, cash payments accounted for 59 per cent of total transactions, down from 79 per cent in 2019, while card payments stood at 34 per cent, up from 25 per cent in 2019, and mobile app payments were at 3 per cent.

The majority (62 per cent) of card payments at POS are contactless, he reported, adding that the number of contactless transactions in Cyprus is even higher, at 84 per cent.

As for person-to-person transactions, Papsdorf noted that cash still dominates, accounting for 73 per cent of transaction volume and 59 per cent of value.

However, non-cash payments are increasing, with mobile apps representing 10 per cent of transaction volume and 11 per cent of value transfers.

What is more, Papsdorf emphasised the importance of the regulatory framework and supervision regarding financial services in light of technological developments, highlighting the need for security and efficiency of the payment system as a whole.

Furthermore, Ioannis Georgoulas, President of the Cyprus Association of Cyprus Electronic Money & Payment Institutions, stated that digital payments have the potential to revolutionise the foundations of the financial system, providing a gateway to a more inclusive, efficient, and sustainable future.

“Digital payments are not just a technological innovation. They represent a gateway to a more inclusive, efficient, and sustainable world,” Georgoulas said.

“They empower people, promote economic development, provide convenience, economic inclusion, and environmental sustainability,” he concluded.