Amendments To Law 87(I)/2026 - Strengthening Of The Framework For The Out-of-Court Resolution Of Financial Disputes

The amendments to Law 87(I)/2026 on the Establishment and Operation of the Single Body for the Out-of-Court Resolution of Disputes of a Financial Nature entered into force on the 1st of June 2026.

The reform aims to strengthen the effectiveness of the out-of-court financial dispute resolution mechanism, to achieve faster settlement of disputes between consumers and financial institutions, and to enhance the protection of borrowers, without restricting the constitutionally guaranteed right of access to justice.

One of the most significant reforms introduced by Law 87(I)/2026 is the establishment of the binding nature of the Financial Ombudsman's decisions for monetary compensations up to the amount of €20,000, reinforcing the institution of out-of-court dispute resolution and reducing the need to resort to time-consuming court proceedings.At the same time, the parties’ rightto resolve their financial disputes is safeguarded, enhancing the swift and effective administration of justice in the area of financial disputes.

Notwithstanding the binding nature of the Financial Ombudsman's decisions, the law preserves the right of interested parties to seek judicial review for a judgment. Specifically, any party that disagrees with a judgment has the option, within 30 days, to file an application before the competent District Court. Upon the filing of the appeal, the execution of the Financial Ombudsman's decision is suspended until a final judicial decision is issued. It is noted that, the appeal does not annul or set aside the Ombudsman's decision; it merely suspends its binding nature and enforceability until the Court's final ruling.

If no appeal is filed within the prescribed deadline, or should the parties accept the decision, it then becomes binding and must be executed within 30 days from the expiry of the deadline for filing an appeal.

Should a financial institution omit or refuse to comply with a binding decision, the Financial Ombudsman has the right to impose an administrative fine.

At the same time, the Financial Ombudsman or the party in whose favour the decision was issued, may apply to the competent District Court requesting a compliance order.

Another significant amendment brought by Law 87(I)/2026, concerns the strengthening of the procedural safeguards that protect eligible debtors during the process of mortgaged property disposal.

An eligible debtor is, among others, the person upon whom a Notice of Type I or Type IA has been served, and who submits a complaint to the Financial Ombudsman within the statutory deadline. Of particular importance in the said amendment is the fact that the relevant right may only be exercised once for each disposal procedure, thereby achieving a balance between the effective debtor protection and the need for legal certainty and procedural finality.

Also significant is the extension of the deadline to submit a complaint from 21 days to 30 days from the service of the relevant notice.

The legislature's intention is to ensure that the debtor's access to the out-of-court dispute resolution mechanism is real and substantive.

The complaint may be submitted only once, hence preventing the right’s abusive exercise and ensuring the effective and rapid completion of the procedure.

Law 87(I)/2026 also introduces a new procedure in cases where the Financial Ombudsman determines the amount of the debt. Once the decision is accepted by the parties, a period of 30 days is granted for the achievement of a restructuring or repayment agreement. Should no agreement is reached, the disposal procedure is suspended for 60 days, for the eligible debtor to have the opportunity to approach a licensed insolvency practitioner and to examine the available insolvency procedures. This provision enhances the prospects of finding a viable solution prior to the completion of the mortgaged property disposal procedure. The new provisions allow the debtor to put forward their positions before measures are taken.

in conclusion, the amendments introduced by Law 87(I)/2026 constitute an important step in the modernisation of the out-of-court financial dispute resolution framework in the Republic of Cyprus. The new legislative framework strengthens the binding nature of the Financial Ombudsman's decisions, maintains effective judicial review, reinforces the protection of eligible debtors, and broadens procedural safeguards. At the same time, it contributes to the creation of a more effective, functional, and modern dispute resolution system, while reinforcing citizens' confidence in the institution of out-of-court dispute resolution, and ensuring better balance between consumer protection and the proper operations of financial institutions.