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Legislation on prudential requirements and the supervision of financial undertakings is fundamentally the same in all Member States of the European Economic Area. In Iceland, financial undertakings operate in accordance with Act No. 161/2002 on Financial Undertakings.

The role of the Central Bank of Iceland is, among other things, to provide forward-looking and risk-based supervision of the activities of financial undertakings, in particular through an analysis of their business models and an assessment of their governance and internal controls, and main risk factors inherent in their activities. In this way the Central Bank promotes the financial health of financial undertakings, sound and proper business practices, and the continued access of households and businesses to reliable and secure financial services.

Credit institutions can apply to the Central Bank of Iceland for a licence to issue covered bonds, cf. Chapter I of the Act on Covered Bonds.

The Central Bank of Iceland is authorised to set liquidity and stable funding rules for financial institutions; cf. Article 117(b), Paragraph 3 of the Act on Financial Undertakings, no. 161/2002.

Financial undertakings need to have recovery plans in place on how to respond to possible shocks or stress.

The purpose of the Rules on Foreign Exchange Balance is to contain foreign exchange risk by preventing credit institutions’ foreign exchange balances from exceeding defined limits.

Financial undertakings must meet various requirements related to their capital.

Financial undertakings shall monitor and manage large exposures.