Other credit institution activities

The operating licences of credit institutions are governed by Articles 20-23 of Act No.161/2002 (in Icelandic) on Financial Undertakings. In general, credit institutions are not permitted to engage in activities other than or not related to financial services, unless it is temporary, as discussed in greater detail below.

General authorised activities, including authorisations to operate investment services and investment activities and additional services, cf. Act No. 115/2021 (in Icelandic) on Markets in Financial Instruments, are governed by Article 20 of the Act on Financial Undertakings. Other activities and authorisations are governed by Articles 21-23 of the Act. Other service activities and ancillary activities are discussed under Article 21, temporary activities and the takeover of assets under Article 22 and authorisations for insurance activities under Article 23 of the Act.

Before a credit institution is said not to fall under the general authorisations according to Article 20 of the Act, a decision must be taken as to whether it is another service activity, ancillary activity or temporary activity. It is important that a credit institution is aware of which legal provisions certain activities fall under. In this regard, it should be considered whether the activity is naturally connected to the credit institution's operating licence, is a natural extension of its financial services or whether it is an unrelated activity. When assessing this, the Financial Supervisory Authority primarily looks at the nature of the activity when assessing whether it is another service activity, ancillary activity or temporary activity.

The activities of a credit institution can be carried out within the relevant credit institution, in a separate company or through other forms of participation in activities, both in Iceland and abroad. In the case of a small holding in an undertaking, below 10%, the Financial Supervisory Authority has generally considered this as trading for own account, cf. item 7 of the first paragraph of Article 20 of the Act. If the credit institution's holding is 20% or more, the company is considered an associate or, as the case may be, a subsidiary. In such cases, the holding generally needs to be classified as either an ancillary activity or a temporary activity. When assessing whether it is another form of participation in an activity, one considers, among other things, board membership of a company, a shareholder’s agreement or other factors that may make a credit institution a participant in the undertaking's activities.

The credit institution must ensure that there are work procedures and adequate internal controls to ensure the implementation of the applicable legal provisions on the activities of the credit institution. In this regard, the managers of a credit institution must at all times have an overview of the activities of the respective undertaking and under which legal provisions certain aspects of the activity fall.

The credit institution must submit a report on ancillary and temporary activities to the Financial Supervisory Authority every six months. The reports shall be based on 31 December and 30 June of each year and submitted in accordance with the current requirements of the Financial Supervisory Authority regarding data submission.

According to the first paragraph of Article 21 of the Act on Financial Undertakings, credit institutions may pursue other activities naturally linked to their authorised activities, cf. Article 20 of the same Act.

Pursuant to the second paragraph of Article 21 of the Act on Financial Undertakings, credit institutions may pursue ancillary activities, provided they are a normal extension of their financial services. This also applies when the credit institution has a holding in or participates in other business activity.

A notification must be sent to the Financial Supervisory Authority of an intention to pursue ancillary activities. Such notification must be accompanied by information on the proposed activity deemed to be satisfactory by the Financial Supervisory Authority. If the Financial Supervisory Authority raises no objection to the proposed activity within one month of receiving satisfactory notification, this shall be interpreted as authorisation for commencing the activity. The Financial Supervisory Authority may require that a separate company pursue this activity, in which case it must notify the party concerned of its decision within the time limit specified above. Failure by the credit institution to send a notification in accordance with this paragraph may result in prohibition of the activity by the Financial Supervisory Authority or its demand that the activity be pursued by a separate company.

Ancillary activities must always be a natural extension of the financial services of the credit institution concerned. The provision primarily covers activities that are not considered financial services, but are nevertheless considered to be services related to the activities of a credit institution. Examples of ancillary activities include undertakings owned by a credit institution that manage real estate and house the operations of the credit institution concerned, undertakings that manage foreclosed assets, i.e. real estate and liquid assets, holdings in other regulated entities and holdings in undertakings that provide necessary support services.[1]

If an undertaking that is considered to be engaged in ancillary activities has holdings in other companies, all holdings of the company concerned must be reported to the Financial Supervisory Authority, which ensures transparency with regard to the indirect holdings of a credit institution.

Credit institutions may, pursuant to special agreement upon receiving the authorisation of the Financial Supervisory Authority, provide postal service on behalf of a party authorised to provide such service, pursuant to the third paragraph of Article 21 of the Act on Financial Undertakings.

Credit institutions are furthermore permitted to provide services as agents for other entities, such as insurance companies, reinsurance companies, pension funds and other financial undertakings, provided that the Financial Supervisory Authority does not consider such activities to prejudice their ability to provide services pursuant to their operating licences or prejudice its own ability to regulate the activities. The Financial Supervisory Authority shall be notified in advance of the intentions of the entity in question so that its assessment will be available before provision of the services commences.

Pursuant to the first paragraph of Article 22 of the Act on Financial Undertakings, credit institutions may only pursue activities other than those listed under Chapter IV of this Act on a temporary basis and for the purpose of concluding transactions or reorganising the activities of customers.

The credit institution's notification to that effect, together with justification, must be sent to the Financial Supervisory Authority, which assesses whether the financial conditions are met, and the restructuring must be completed before 12 months have passed since the activity began. The Financial Supervisory Authority may extend the time limit and the credit institution's application must justify the circumstances preventing the sale. The credit institution must also notify the Financial Supervisory Authority of the end of temporary operations.

The provision allows a credit institution to otherwise conduct an unrelated activity temporarily while the business is being reorganised or completed. The reorganisation and completion of a business refers to the financial restructuring of the business, which ends with an agreement with the relevant client, its sale to other investors or bankruptcy, if it fails.[2] The Financial Supervisory Authority emphasises that during the restructuring of companies, it is forbidden to make contracts to make it impossible to meet the statutory deadline.

If a credit institution or its subsidiary needs to take such action and has taken over at least a 40% holding in its business partner, the provisions of Chapters II and IV of Act no. 20/2021 (in Icelandic) on the Disclosure Obligations of Issuers of Securities and Disclosure of Major Holdings shall apply to the business partner as appropriate. The Financial Supervisory Authority is authorised to grant an exemption from this, as long as the financial restructuring is completed within six months of the credit institution, or its subsidiary, starting operations.

Credit institutions may take over assets to ensure the fulfilment of a claim, cf. the second paragraph of Article 22 of the Act on Financial Undertakings. Such assets shall be sold as soon as this is considered favourable.

This authorisation covers the assets of customers of credit institutions who have encountered financial difficulties. The provision authorises a credit institution to take over such assets to ensure the fulfilment of a claim, i.e. real estate and liquid assets. The Financial Supervisory Authority does not need to be notified of the acquisition of foreclosed assets.

Commercial banks, savings banks with initial capital in accordance with the first paragraph of Article 14 of the Act on Financial Undertakings and credit undertakings may operate an insurance company or reinsurance company in a separate company, cf. Article 23 of the same Act.

[1] According to point 17 of the first paragraph of Article 1(b) of the Act on Financial Undertakings, an undertaking in additional activities is defined as an undertaking whose principal activity is to own or manage real estate or provide data processing services or similar services that are additional to the main activities of one or more financial undertakings. Special requirements also apply to such undertakings when calculating capital requirements, etc. in accordance with Regulation (EU) No 575/2013  (CRR).

[2] The credit institution's holdings in entities outside the financial sector are also taken into account in accordance with Articles 89-91 of the CRR.