According to the Ministry of Finance, the legislative package required for the implementation of Reform 4, which concerns the digital system for the exchange of data and the provision of credit rating services, which is part of Policy Component 3.5 of the Republic of Cyprus' Recovery and Resilience Plan, titled "Safeguarding Fiscal and Financial Stability," and which aims to protect the economy from future crises, has been successfully voted in.
"The reform is part of the broader effort to modernise the economy and strengthen the resilience of the financial system, within the framework of the European Union's Recovery and Resilience Mechanism," a statement from the Ministry states.
The new legislation adds to and modernises the existing credit data exchange framework, enabling the production of credit scoring services. This assessment is based on objective data relating to the credit behaviour of borrowers and constitutes an additional tool to support the process of evaluating applications for credit facilities.
According to the announcement, the reform is expected to contribute to improving the assessment of credit risk by licensed credit institutions and other licensed entities, promoting responsible borrowing and limiting over-leveraging, channeling financing to borrowers with real repayment capacity, reducing credit risk and non-performing loans, enhancing trust and transparency in financial transactions and, more broadly, ensuring financial stability for the benefit of the economy and society.
It is noted that the credit score is a tool to support the creditworthiness assessment and does not replace the creditor's judgment.
It is clarified that the decision to provide or not a credit facility continues to be taken exclusively by the relevant credit institution or other licensed entity, based on all the information available to it and in accordance with the internal policy and the applicable supervisory framework.
Furthermore, the credit rating system is designed so that the credit rating reflects the credit obligations for which the person is directly responsible as a primary or co-borrower. Therefore, obligations in which he participates solely as a guarantor are not taken into account when determining his credit score.
Particular importance was attached during the preparation of the reform to the protection of personal data.
The new legislative framework has been formulated in full compliance with the General Data Protection Regulation (GDPR), national legislation on the protection of personal data and the principle of data minimization. At the same time, clear rules are provided for the rights and obligations of participants in the system, as well as graded access to data, depending on their needs and responsibilities, it is reported.
The legislative package was prepared after extensive cooperation and consultation with the Central Bank of Cyprus, the Office of the Commissioner for Personal Data Protection and the relevant bodies.
"The passage of the legislative package in question constitutes an important milestone for the implementation of the Recovery and Resilience Plan and confirms the commitment of the Republic of Cyprus to the implementation of reforms that enhance transparency, financial stability and sustainable development of the economy," the Ministry of Finance's announcement concludes.
(Source: InBusinessNews)
