Payment services and electronic money

Act  No. 114/2021 (in Icelandic) on Payment Services transposes the European Union’s second Payment Services Directive, Directive (EU) 2015/2366 (PSD2), into Icelandic law. The Act applies to all entities authorised to provide payment services and contains specific provisions applicable to payment institutions.

Payment services are defined in Point 22 of Article 3 of the Act as follows:

• Services enabling cash to be deposited to a payment account as well as all the operations required for operating a payment account.
• Services enabling cash withdrawals from a payment account as well as all the operations required for operating a payment account
• Execution of payment transactions, including transfers of funds into and out of a payment account with the user's payment service provider or with another payment service provider:
  • execution of direct debits, including one-off direct debits;
  • execution of payment transactions using a payment card or similar device:
  • execution of credit transfers, including standing orders.
• Execution of payment transactions where the funds are covered by a credit line for a payment service user;
  • execution of direct debits, including one-off direct debits;
  • execution of payment transactions using a payment card or similar device;
  • execution of credit transfers, including standing orders.
• Issuing of payment instruments and/or acquiring of payment transactions.
• Money remittance.
• Payment initiation services.
• Account Information Services.

Only entities authorised to do so under the Act on Payment Services may provide payment services. Pursuant to Point 23 of Article 3 of the Act, these are:

• Financial undertakings authorised to accept deposits or other repayable funds from the public and to grant credit for their own account, including their branches, as defined in Act No. 161/2002 on Financial Undertakings, where such branches are located within the European Economic Area (EEA), whether the head offices of those branches are located within or outside the EEA, in accordance with Article 47 of Directive 2013/36/EU and national law.
• Electronic money institutions in accordance with Act No. 17/2013 on the Issuance and Handling of Electronic Money, including their branches pursuant to Article 34 of that Act, where such branches are located within the EEA and their head offices are located outside the EEA, insofar as the payment services provided by those branches are linked to the issuance of electronic money.
• Post office giro institutions entitled under national law to provide payment services.
• Payment institutions.
• The European Central Bank and the central banks of EEA states when not acting in their capacity as monetary authorities.
• Public authorities where the payment services are not connected with their functions as public authorities.
• Payment institutions with limited authorisation.
• A legal or natural person benefiting from an exemption pursuant to Article 35.

Applications for athorisation as a payment institution and the conditions for authorisation are governed by Chapter II of the Act. In addition to providing payment services, payment institutions may engage in the following activities:

• the operation of closely related support services, such as ensuring the execution of payments, currency transactions, measures for the safeguarding of assets and the storage and processing of data,
• operate a payment system,
• activities other than payment services in accordance with other applicable legislation.

Applications for authorisation as a payment institution and the conditions for authorisation are governed by Chapter II of the Act.

Payment institutions are also subject to Rules no. 88/2020 on the safeguarding of funds of payment institutions (in icelandic).

The Central Bank of Iceland supervises activites in accordance of the Act on Payment Services regarding entities subject to supervision, cf. Article 102 of the Act.

If a dispute arises regarding access to payment accounts pursuant to Article 37 of the Act on Payment Services or other provisions of the Act, a complaint can be sent to the Central Bank. When addressing complaints, the Central Bank follows the European Banking Authority's (EBA) Guidelines on complaint procedures(EBA/GL/2017/13).

Pursuant to Points 11 and 12 of Article 2 of the Act on Payment Services, the Act does not apply to the following payment instruments:

• Payment instruments that can be used only to acquire goods or services on the issuer’s premises or within a network of service providers under a direct commercial agreement with the issuer of the payment instrument.
• Payment instruments that can be used only to acquire a very limited range of goods or services.

Pursuant to the Paragraph 2 of Article 38 of the Act, undertakings providing services referred to in Points 11 and 12 of Article 2, where the total value of payment transactions executed over the preceding 12 months exceeds EUR 1 million, must submit to the CBI a description of the services offered to customers and specify the exemption under Points 11 or 12 of Article 2 under which the services fall.

The EBA has issued Guidelines on the limited network exclusion under PSD2(EBA/GL/2022/02), which clarify, among other things, how to assess whether a service provider’s network or the range of goods and services is sufficiently limited, as well as when notifications must be submitted to competent authorities and what information they must contain. The CBI has notified the EBA that it complies with these Guidelines in its supervisory practices.

In view of the above, the CBI assesses whether the relevant conditions are met on the basis of the information specified in the Paragraph 2 of Article 38 of the Act, taking into account the considerations and criteria set out in the aforementioned EBA Guidelines.

Undertakings are encouraged to familiarise themselves with the aforementioned Guidelines, including the requirements concerning when a notification must be submitted and when a new notification is required.

Notifications must be submitted through the CBI’s document portal.

The issuance and handling of electronic money is governed by Act no. 17/2013 (in Icelandic) on the Issuance and Handling of Electronic Money. The act implemented Directive 2009/110/EC (EMD) to Icelandic law.

Electronic money means monetary value, represented by a claim on the issuer, which is stored electronically, including magnetically, issued on receipt of funds for the purpose of making payment transactions within the meaning of Act No. 114/2021 on Payment Services, and accepted by a natural or legal person other than the electronic money issuer, cf. Point 5 of Article 2 of the Act.

Pursuant to Article 3 of the Act, only entities authorised to do so may issue electronic money. Pursuant to Point 8 of Article 4 of the Act, an electronic money issuer means any of the following:

• Electronic money institutions.
• Financial undertakings authorised to accept deposits or other repayable funds from the public and to grant credit for their own account.
• The European Central Bank (ECB) and the central banks of EEA states when not acting in their capacity as monetary authorities.
• Public authorities when acting in their capacity as public authorities.

Applications for authorisation as an electronic money institution and the conditions for authorisation are governed by Chapter III of the Act.

Electronic money institutions are also subject to Rules No. 322/2014 on the safeguarding of funds of electronic money institutions (in icelandic).

The CBI supervises the activities of electronic money institutions and the issuance and handling of electronic money, cf. Article 28 of the Act.

In addition to issuing electronic money, electronic money institutions may engage in the following activities:

• The provision of payment services under the Act on Payment Services.
• The granting of credit in connection with payment services referred to in Points (d) and (e) of Point 22 of Article 3 and Point 14 of Article 2 of the Act on Payment Services, provided that the conditions laid down in the Paragraph 4 of Article 16 of that Act are met.
• Other activities and ancillary services related to the issuance of electronic money or the provision of payment services.
• The operation of payment systems as defined in the Act on Payment Services.
• Other activities, unless restricted by this Act or other legislation.