Seðlabanki Íslands (Central Bank of Iceland)

Overview

Seðlabanki Íslands (the Central Bank of Iceland) was founded in 1961. On 1 January 2020, the Central Bank of Iceland merged with the Financial Supervisory Authority (FME) to create an integrated financial supervision authority, following the lessons learned from Iceland's devastating 2008–2011 financial crisis.

Leadership

Governor: Ásgeir Jónsson (2024)

Governor Jónsson cited the lack of cohesive, centralized supervisory responsibility as a critical factor contributing to Iceland's near-total economic collapse during the 2008 crisis, making the 2020 merger a structural response to that institutional failure.

Strategic Mandate

The merged institution serves as:

• Iceland's central bank and monetary authority

• Primary regulator for banking and financial supervision

• Securities and capital markets regulator

• Insurance supervisor

• Payment systems overseer

• AML/CFT enforcement authority

Basic Identity

Classification

Inclusion Justification

What This Entity Oversees

Banking and Financial Supervision

Dual Oversight Structure

Post-2020 merger, the Central Bank conducts:

• Prudential Regulation: Capital adequacy, liquidity, leverage ratios

• Consumer Protection: Deposit insurance, unfair practice prevention

• Systemic Risk Management: Macroprudential surveillance

• Market Conduct: Fraud prevention, transparency requirements

Licensed Institutions

The Central Bank supervises:

• Commercial banks

• Savings banks

• Credit unions

• Mortgage credit institutions

• Investment firms

Capital Framework

Iceland implements:

• Basel III / CRD IV standards

• Minimum Common Equity Tier 1 (CET1): 8%

• Tier 1 capital ratio: 10.5%

• Total capital ratio: 12.5%

• Countercyclical buffer (CCyB) framework

Securities and Capital Markets

Regulatory Coverage

• Nasdaq Iceland (stock exchange)

• ICEX (bonds market)

• Investment services providers

• Alternative Trading Systems (ATS)

• Collective Investment Schemes (CIS)

Market Conduct Standards

• Insider dealing prohibition

• Market manipulation prevention

• Prospectus approval and continuous disclosure

• Fund management authorization

• Custody and depository oversight

The Central Bank oversees:

• Non-Life Insurance: Property, casualty, liability insurers

• Life Insurance: Pension-linked products, individual life policies

• Reinsurance: Reinsurance undertakings

• Insurance Brokers and Agents

Solvency Framework

• Solvency II implementation for EU-aligned capital

• Own risk and solvency assessment (ORSA)

• Governance and internal control requirements

• Anti-fraud and market conduct standards

Regulatory Framework

Iceland maintains strict anti-money laundering standards:

• Full FATF 40 Recommendations implementation

• 5th and 6th EU AML Directives (AMLD5/AMLD6) compliance

• Financial Intelligence Unit (FIU) cooperation

• International sanctions enforcement

CDD/EDD Requirements

• Know Your Customer (KYC) standards across all sectors

• Enhanced Due Diligence (EDD) for high-risk customers

• Beneficial ownership verification

• Politically Exposed Persons (PEP) screening

Suspicious Activity Reporting (SAR)

• Mandatory reporting to FIU for suspicious transactions

• Quarterly SAR statistical reporting

• Cross-border transaction monitoring

• Terrorist financing prevention

Regulatory Powers

The Central Bank possesses:

• Administrative Penalties: Fines up to specified caps

• License Actions: Issuance, suspension, revocation

• Business Restrictions: Cease-and-desist orders

• Restitution Orders: Customer compensation directives

• Criminal Referral: Prosecution recommendations to authorities

Regulatory Role and Function

Legal Foundation

Central Bank Act 2019 and Implementation (2020)

The merger was authorized by Iceland's 2019 Central Bank Act, which came into effect on 1 January 2020. Key provisions:

• Integration of FME supervisory functions into Central Bank structure

• Unified regulatory authority over all financial sectors

• Centralized macroprudential policy coordination

• Integrated resolution and enforcement powers

Post-Crisis Reforms

Following the 2008 financial crisis, the Central Bank was restructured to:

• Establish unified supervisory responsibility

• Improve macroprudential oversight

• Strengthen banking stability monitoring

• Enhance cross-sector regulatory coordination

Licensing and Authorization Relevance

The Seðlabanki Íslands (Central Bank of Iceland) is a key licensing authority in Iceland's financial system:

The licensing process typically involves assessment of capital adequacy, fitness and propriety of management, business plan viability, AML/CFT compliance frameworks, and IT systems readiness.

Payments and Money Movement Relevance

Inflation Targeting Framework

• Primary objective: Price stability

• Target inflation rate: 2.5%

• Policy rate (March 2024): 9.25% (among highest in Western Europe)

• Hawkish stance maintained through 2024 under Governor Jónsson

2024 Monetary Stance

Governor Jónsson maintained a cautious approach to monetary easing in 2024:

• March 2024: Stated it was "too early" to ease policy; cited concern that recent wage agreements could undermine inflation expectations

• June 2024: Noted that US Federal Reserve's "tough" policy provided tailwind support

• November 2024: Signaled pace of easing would slow in 2025; characterized 50 basis point cut as "decisive step" toward economic relief

Oversight

• Real-time gross settlement (RTGS) systems

• Interbank payment networks

• Clearing and settlement infrastructure

• Cross-border payment arrangements

Payment Services Directive (PSD2)

Iceland, as EEA member:

• Implements PSD2 requirements for payment providers

• Authorizes payment initiation services (PIS)

• Supervises account information services (AIS)

• Regulates payment institutions and EMIs

Payment Systems Governed or Overseen

The Seðlabanki Íslands (Central Bank of Iceland) operates and/or oversees the national payment and settlement infrastructure of Iceland. Specific systems include:

Relationship to Other Regulators

EEA and EFTA Membership

Iceland's status as European Economic Area (EEA) member provides:

• Access to single financial market

• Regulatory equivalence with EU frameworks

• Cross-border supervision coordination

• EFTA cooperation in financial supervision

Central Bank Coordination

• Member of European System of Central Banks (ESCB)

• Participation in financial stability networks

• Bilateral MOUs with other EEA central banks

• Coordinated crisis management protocols

International Standards

• Basel Committee standards adherence

• IMF Financial Sector Assessment Programs (FSAP)

• FATF mutual evaluation cooperation

• World Bank development finance coordination

Geography and Jurisdiction Notes

Important Departments and Divisions

Key Public Resources

Seðlabanki Íslands (Central Bank of Iceland)

• Address: Kalkofnsvegur 1, IS-150 Reykjavik, Iceland

• Telephone: +354 569 9600

• Email: [email protected]

• Website: https://cb.is/

• Supervisory Inquiries: [email protected]

• Emergency Line: +354 569 9700 (after hours)

Notes on Naming and Language