The Board of Directors of the Cyprus Business Development Organisation, known as KOAE, is expected to get to work as soon as it is appointed by the Council of Ministers. The board will have seven members and must be appointed before the end of August, so the country can disburse up to €69 million from the Recovery Fund.
The underlying scheme expires at the end of the year. The appointment of the board, along with the establishment of the organisation, are among the last requirements Cyprus must meet. The review of CVs for the first board has already begun. KOAE is intended to make it easier for small businesses to access financing, given that banks and other financial bodies have been unable to offer sufficient funding.
Five of the board’s members, including the chair and vice-chair, will be appointed on the recommendation of the Finance Minister, who will also decide how the organisation makes use of financial instruments beyond direct lending. Two ex-officio members will also sit on the board, from the Finance Ministry and the Deputy Ministry of Innovation.
Safeguards and restrictions
Under safeguards written into the law, no one can be appointed to the board if they, their spouse, or a first-degree relative works professionally in a business similar to KOAE’s operations. The same restriction applies if they hold more than 1% of the share capital in such a business, or have any other direct or indirect conflicting interest. Elected local officials will also be excluded from the board.
The first board will be transitional, serving for two years. Its responsibilities will include:
Strategic and governance duties:
- Setting KOAE’s investment strategy and issuing directives, circulars and guidelines
- Managing the organisation’s assets and making investments
Personnel duties:
- Selecting, appointing and dismissing the general director, financial director and strategy director
- Preparing service schemes for KOAE’s directors and staff
- Carrying out disciplinary procedures and imposing disciplinary penalties
Financial reporting duties:
- Preparing KOAE’s annual budget, keeping accounts, and compiling and submitting reports and financial statements
Market and risk duties:
- Identifying weaknesses in the financing market and preparing the framework for implementing strategic priorities
- Approving plans and ensuring the organisation applies proper administrative and accounting procedures, internal control mechanisms, and effective risk assessment and management procedures
Strict corporate governance framework
The new organisation will follow a strict corporate governance and risk management framework. The legislation provides for a clear separation of responsibilities between the board, management and the responsible minister. It also requires strategic planning and regular evaluation, as well as independent units for internal audit, regulatory compliance and risk management.
The legal framework sets a maximum overall percentage for direct lending to beneficiary businesses per programming period. The criteria and conditions for the maximum total financing exposure KOAE can grant to a business and its affiliated companies will be set by the board through regulations.
Guidelines will also set out the procedures for approving and granting new loans and guarantees, as well as for managing overdue debts, to ensure financing is granted properly, fairly and objectively. According to the Ministry of Finance, these provisions will ensure the organisation operates with transparency, accountability, professionalism and in line with international best practice.
KOAE will be required to maintain a central office in Nicosia, while it will have the option of setting up branches in other cities.
