The Cyprus Securities and Exchange Commission (CySEC) has slapped the Bank of Cyprus Public Company and its former CFO, as well as ten of its directors, with fines in excess of EUR 595,000 (USD 708,000) in connection with accounting disclosure failures and other infringements.
The administrative fines were imposed after CySEC concluded its investigation into violations made by the firm, its board of director members and its former CFO due to their negligence.
According to a CySEC announcement, the ruling is related to the transparency requirements in relation to information about doubtful debts in its consolidated financial statements for 2011. The penalties also relate to the banks’ violation of reporting requirements, insider dealings, publishing misleading and incomplete statements and the Market Manipulation (Market Abuse) Law of 2005.
The Cypriot regulator explained that Bank of Cyprus had not taken the required accounting actions to address or acknowledge loan impairments of at least €362 million. This figure stands for the lender’s collective exposure to lending portfolios in Cyprus, Russia and Ukraine and Greece, valued at €198.9 million, €41.3 million and €121.8 million respectively
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Due to these weaknesses, Bank of Cyprus, which was recapitalised in 2013 with depositor money, had to increase its total losses by €362 million. The bank also should have decreased its equity by this figure, reducing its overall capital adequacy from €2.3 billion to at least €1.9 billion.
Citing this serious failing as the reason for its enforcement action, the CySEC noted that the company and its directors “did not provide a true and fair view of the Company’s financial position.”
The investigation of this case related to the goodwill of the named officers in Bank of Cyprus’s financial statements was time consuming and complicated as CySEC had to collect and analyse a lot of evidence and data, CySEC chairwoman Demetra Kalogerou was quoted as saying.
She added: “This announcement follows an in-depth thorough investigation by CySEC into management actions taken at the Bank of Cyprus in the period leading up to the Cyprus banking crisis. The Bank of Cyprus and its former directors failed to adequately disclose the true nature of its clearly worsening financial position in 2011, which had a direct and negative impact on the course of the unprecedented banking crisis in Cyprus in the years that followed. The Company’s management had a fiduciary responsibility to ensure adequate provision for bad loans – a fundamental accounting procedure which they did not uphold.”