With the passage of the Act on Recovery and Resolution of Credit Institutions and Investment Firms, no. 70/2020 (the Resolution Act), the Central Bank was entrusted with powers of resolution. This entails the authorisation to take decisions on resolution procedures and the application of resolution measures for credit institutions and investment firms in financial distress; i.e., those that are unable to honour their obligations or are highly likely to be unable to do so. The preferred resolution action for each institution is outlined in a resolution plan. The Central Bank’s Resolution Authority also determines the minimum requirement for own funds and eligible liabilities (MREL). According to Article 4 of the Act, the Resolution Authority shall be separate from other activities within the Bank’s organisational structure. The Central Bank’s Resolution Authority formally commenced operation in November 2020.
All decisions taken by the Resolution Authority are based on the objectives laid down in the Resolution Act. These objectives provide the foundation for an assessment of which measures should be taken and what resolution strategy is most suitable for financial institutions in Iceland. The purpose of the new Act as specified in Article 1 is to preserve financial stability and minimise the adverse implications of financial shocks by protecting insured deposits and investors, customers’ assets, and vital company operations; and to minimise the risk that capital contributions from the Treasury will be needed.