Cyprus banks warn against expanding basic account access to small firms

The Association of Cyprus Banks has expressed strong disagreement with proposed legislative amendments affecting payment account access, warning that the changes could create legal, practical and competitive problems for the banking sector.

In a detailed note signed by senior director Michalis Kronides, the association said it disagrees with amendments concerning the comparability of fees, the switching of payment accounts and access to payment accounts by very small businesses.

The association stated that it opposes proposals that seek to expand the definition of the term consumer so that it would include very small businesses, shareholders of very small businesses and self employed individuals acting within their professional activities.

It also expressed opposition to provisions that would allow the maintenance of a payment account with basic features at more than one credit institution.

According to the association, its positions and views concern both practical issues related to the implementation of certain provisions as well as legal and constitutional matters arising from the proposed amendments.

The association explained that the purpose and philosophy of European Directive 2014/92/EU is to provide a specific category of consumers, namely natural persons, with access to a bank account.

The directive, it said, was “designed to assist individuals who face difficulties or are unable to open a bank account”.

“Such individuals include political refugees, asylum seekers, people without identity cards or passports and individuals without permanent residence,” the association stated.

The association stressed that the directive clearly states that very small businesses as legal entities do not fall within its scope of application.

It also warned that intervention in the existing law, which harmonised national legislation with the directive, could place domestic banks at a competitive disadvantage compared with rival banks in the European Union.

Moreover, the association said that information it requested and received from 22 of the 27 EU member states showed that the opening or maintenance of a payment account with basic features applies only to natural persons.

It added that the same information confirmed that individuals may maintain only one such account with a single credit institution.

The association further emphasised that each credit institution determines its own policy regarding the products and services it offers, including its exposure to specific sectors of the economy and the risk profile it chooses to follow.

It argued that a credit institution cannot be obliged to open a payment account with basic features for a business while ignoring the policies it considers appropriate and wishes to follow.

According to the association, if the amendments are adopted, credit institutions would not be able to reject requests to open bank accounts for businesses that under normal circumstances they would decline for specific reasons.

It cited as an example businesses operating in high risk sectors, which institutions might otherwise decide not to serve.

The association also pointed out that the definition of a very small business is not static, raising questions about how credit institutions should act if a company that currently qualifies as very small later ceases to meet the relevant criteria.

Furthermore, it questioned how institutions should handle cases involving companies with fluctuating numbers of employees due to seasonal activity.

It also asked how the number of employees would be verified in such situations.

At the same time, the association stated that the proposed amendments include specific timelines for switching or transferring accounts, which it considers unrealistic.

It explained that opening a business bank account requires more legal documents and procedures compared with the opening of an account for a natural person.

The association also raised legal and constitutional concerns regarding the proposed changes.

It stated that the amendments restrict constitutionally guaranteed economic freedom and business activity, as well as the right of credit institutions to decide which services they provide and at what price.

The association added that both the preamble and specific articles of the European directive explicitly state that accounts held by businesses, including small or very small enterprises, do not fall within its scope.

Consequently, it warned that the introduction of such legislation could be subject to scrutiny regarding its constitutionality and its compatibility with European Union law.

Finally, the association said that modifying the definition of the term consumer while including only certain businesses could raise issues of unequal treatment of other companies and potentially lead to distortions of competition within the single market.