Cyprus lawmakers push ahead with small business bank account reform

The House plenum on Monday rejected the president’s referral of a law on small business bank accounts, reaffirming its support for the legislation previously approved.

The referral was voted down by 22 votes against 20, with parliament calling on president Nikos Christodoulides to proceed with signing the law.

The approved legislation regulates fees imposed on very small businesses for maintaining payment accounts, as well as procedures for switching payment accounts within Cyprus and facilitating access to basic payment accounts for very small enterprises.

The development marks a significant step in efforts to improve access to banking services for very small businesses, which represent a large share of the Cypriot economy.

The issue had been examined earlier on April 6 by the House trade committee, following the president’s referral of two separate laws.

One of the referrals concerned access of very small businesses to payment accounts, while the second related to amendments to the consumer protection law.

During the committee discussion, a representative of the Legal Service explained that the legislation, as passed by parliament, seeks to extend consumer-style protections to very small businesses, particularly in relation to access to basic banking services through simple and transparent procedures.

However, the same representative warned that this extension raises legal and constitutional concerns, as very small businesses are not subject to mandatory regulation under European law in the same way as consumers.

The concerns include potential conflicts with the Constitution, European Union law, the principle of separation of powers and the contracts law.

It was also highlighted that very small businesses account for 95 per cent of all businesses in Cyprus, underlining the broad impact of the proposed changes.

Regarding the second referral, director of the Consumer Protection Service Constantinos Karagiorgis stated that although the need to modernise the legal framework is recognised, key aspects remain unclear.

“The need to strengthen and modernise the legislative framework for consumer protection is recognised, but the roles and responsibilities regarding the addition of clauses are not sufficiently clarified,” said Karagiorgis.

He added that the clauses introduced do not align with what is legally defined as unfair terms under existing legislation.

“The inclusion of charges imposed by credit institutions constitutes an intervention in the freedom of contract,” stated Karagiorgis.

A Legal Service representative further mentioned that while the annex of Directive 93/13 is indicative rather than exhaustive, the specific clauses added do not correspond to what has been interpreted as unfair terms by the Court of Justice of the European Union.

Meanwhile, House trade committee chairman Kyriacos Hadjiyiannis stressed that measures must be applied in a necessary and proportionate manner to protect consumers.

“The House does not accept the approach that it will not support consumers in relation to a real issue, but seeks to provide technical and lawful answers while taking into account the reservations expressed,” he said.

He added that, in the absence of proposed amendments, the first referral would proceed unchanged to the plenary, while the second would move forward with clarifications discussed at committee level.

The latest parliamentary decision comes amid broader debate over the scope of the legislation and its potential implications for the banking sector.

The Association of Cyprus Banks previously expressed strong opposition to the proposed amendments, warning of legal, practical and competitive risks.

The association argued that extending the definition of consumer to include very small businesses, shareholders and self-employed individuals would conflict with the intent of European legislation.

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

It explained that Directive 2014/92/EU applies specifically to natural persons, such as vulnerable individuals including refugees or those without permanent residence.

The association stressed that very small businesses as legal entities do not fall within the directive’s scope, raising concerns about compatibility with EU law.

It also warned that the changes could place Cypriot banks at a competitive disadvantage compared with other EU institutions, where similar provisions do not apply.

Further concerns were raised over the ability of banks to refuse high-risk clients, as well as practical issues linked to verifying the status of very small businesses and managing fluctuating employment levels.

The association additionally criticised strict timelines for switching accounts, arguing that business accounts require more complex procedures than those of individuals.

It further stated at the time that the proposed amendments may restrict economic freedom and the right of credit institutions to determine their services, while also potentially raising issues of unequal treatment within the single market.

Despite these objections, parliament ultimately reaffirmed its position, signalling a clear intention to expand access to banking services for very small businesses in Cyprus.