According to the Ministry of Finance, the legislative package required to implement Reform 4—which concerns the digital system for data exchange and the provision of creditworthiness assessment services , which is part of Policy Axis 3.5 titled “Ensuring Financial and Fiscal Stability” of the Republic of Cyprus’ Recovery and Resilience Plan.

“The reform is part of a broader effort to modernize the economy and strengthen the resilience of the financial system, within the framework of the European Union’s Recovery and Resilience Facility,” according to a statement from the Ministry.

Under the new legislation, the existing framework for the exchange of credit data is expanded and modernized to enable the provision of credit scoring services. This assessment is based on objective data regarding borrowers’ credit behavior and serves as an additional tool to support the process of evaluating applications for credit facilities.

According to the announcement, the reform is expected to help improve credit risk assessment by licensed credit institutions and other licensed entities, promote responsible borrowing and limit over-indebtedness, channeling financing to borrowers with a genuine ability to repay, reducing credit risk and non-performing loans, strengthening trust and transparency in financial transactions and, more broadly, ensuring financial stability for the benefit of the economy and society.

It should be noted that the credit score is a tool to support the assessment of creditworthiness and does not replace the lender’s judgment.

It is clarified that the decision to grant or deny a credit facility continues to be made exclusively by the relevant credit institution or other licensed entity, based on all available information and in accordance with its internal policies and the applicable supervisory framework.

Furthermore, the credit assessment system is designed so that the credit rating reflects the credit obligations for which the individual bears direct responsibility as a primary or joint obligor. Therefore, obligations in which the individual participates solely as a guarantor are not taken into account when determining their credit score.

Particular importance was placed on the protection of personal data during the preparation of the reform.

The new legislative framework has been designed 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 established regarding the rights and obligations of system participants, as well as tiered access to data, depending on their needs and responsibilities, the report states.

The legislative package was drafted following extensive cooperation and consultation with the Central Bank of Cyprus, the Office of the Commissioner for the Protection of Personal Data, and the relevant stakeholders.

“The passage of this legislative package marks a significant milestone in the implementation of the Recovery and Resilience Plan and reaffirms the Republic of Cyprus’s commitment toreforms that enhance transparency, financial stability, and the sustainable development of the economy,” concludes the Ministry of Finance’s statement.