Poor practices of risk management, inadequate supervision as well as delay in measures taken by the Cypriot Government, were the main reasons for the current economic situation in Cyprus said European Commissioner for Economic and Monetary Affairs Olli Rehn.
In a written reply to a question by Cypriot MEP Antigoni Papadopoulou, who asked the Commission
to give evidence to substantiate allegations that the Cypriot banking system was used for money laundering, Rehn said that the current difficult situation of Cyprus economy has its origin to “an oversized banking sector that thrived on attracting foreign deposits with very favourable conditions”.
“The banking problems were aggravated by poor practices of risk management. Lacking adequate oversight, the largest Cypriot banks built up excessive risk exposures”.
Rehn adds that the Commission has warned Cyprus about its accumulating problems early on.
“Warnings and policy guidance to tackle the banking problems and consequent fiscal and macroeconomic imbalances were included in the reports and Country-Specific Recommendations under the first European Semester in June 2011”.
He also said that, in November 2011, the Cypriot authorities were further informed that a financial assistance programme would be unavoidable, unless the persistent economic problems were immediately addressed and eventually, in June 2012, Cyprus asked for financial assistance.
Papadopoulou also questioned whether the Cypriot banking sector was more prone to illegal acts than those of other Member States, when it is known that many independent studies reveal that other Member States such as Germany, Austria, the Netherlands and Luxembourg are ranked much higher on the risk of money laundering and illegal acts.
Rehn referred to the reports conducted by Moneyval and by Deloitte Financial Advisory, concluding that the legal and regulatory system in Cyprus is poorly implemented by financial institutions.
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