Act No. 161/2002 on Financial Undertakings
Act on Financial Undertakings, No. 161, 20 December 2002
Entered into force 1 January 2003.
The EEA Agreement: Annex 9, Directive85/611/EEC, 86/635/EEC, 93/22/EEC, 95/26/EC, 2000/12/EC and 2000/43/EC. Amended by Act 4/2004 (entered into force 6 February 2004), Act 129/2004 (entered into force 31 December 2005), Act 130/2004 (entered into force 1 January 2005, see further on applicability in Article 21.; the EEA Agreement: Annex 9, Directive2002/87/EC and 2001/24/EC), Act 67/2006 (entered into force 24 June 2006), Act 108/2006 (entered into force 1 November 2006 by notice C 1/2006), Act 170/2006 (entered into force 1 January 2007), Act 55/2007 (entered into force 3 April 2007), Act 111/2007 (entered into force 1 November 2007; The EEA Agreement: Annex 9, Directive2004/39/EC), Act 144/2007 (entered into force 29 December 2007), Act 88/2008 (will enter into force 1 January 2009 except for Interim Provision VII, which took effect 21 June 2008), Act 96/2008 (entered into force 24 June 2008), Act 125/2008 (entered into force 7 October 2008), Act 129/2008 (entered into force 14 November 2008) and Act 44/2009 of 15 April 2009 (entered into force 22 April 2009).
Article 1 This Act shall apply to Icelandic financial undertakings and to the activities of foreign financial undertakings in Iceland. For the purposes of this Act, a “financial undertaking” shall mean an undertaking which has been granted an operating licence pursuant to Article 6, cf. Article 4.
Chapter II Operating licence
A. Granting of an operating licence
Article 2 Granter of operating licences
[The Financial Supervisory Authority shall consult with competent authorities in other member states in assessing an application for an operatinglicence from a financial undertaking which is:
a. a subsidiary of a financial undertaking or insurance company with an operating licence in another member state,
b. a subsidiary of the parent company of a financial undertaking or insurance company with an operating licence in another member state, or,
c. controlled by a party, either a natural person or legal entity, which has a dominant position in a financial undertaking or insurance company in another member state.
Consultation as provided for in the second paragraph shall include: information on the eligibility of shareholders and management, cf. Articles 42 and 52.
Consultation as provided for in the second paragraph shall furthermore apply to on-going surveillance that conditions for operation are satisfied.
[For the purposes of this Act, a “member state” shall mean a state which is a member of the European Economic Area (EEA), a party to the Convention establishing the European Free Trade Association, and the Faeroe Islands.]1)]2)
1)Act 108/2006, Article 74. 2)Act 130/2004, Article 1.
Article 3 Activities subject to operating licences
The following activities shall be subject to operating licences pursuant to this Act:
1. Receipt of repayable funds from the public:
2. Granting of credit which is financed by repayable funds from the public.
4. The issuing and handling of payment cards.
5. The issuing and handling of electronic money.
a. Reception and transmission of instructions from clients in relation to one or more financial instruments.
b. Carrying out instructions on behalf of clients.
c. Portfolio management.
d. Investment advice.
e. Underwriting in connection with the issue of financial instruments and/or placing of financial instruments.
f. Placing of financial instruments without underwriting.
g. operation of multilateral trading facilities (MTF).]1)
7. Operation of Undertakings for Collective Investment in Transferable Securities (UCITS).
The provisions of Chapter IV shall apply concerning other operating authorisations of financial undertakings.
[The following parties do not fall within the scope of the Act:
6. Persons providing services only in connection with managing staff investment funds.
7. Persons who are not engaged in business which is subject to licence under this Act as their main business, assessed on a group basis, and who deal on own account in financial instruments or who provide services to clients of their main business involving commodity derivatives or derivative instruments pursuant to sub-paragraph 2 of Point 2 of the first paragraph of Article 2 of the Act on securities transactions.
1)Act 111/2007, Article 1. 2)Act 144/2007, Article 1.
Article 4 Types of operating licences
A financial undertaking may be granted a licence to operate as:
1. A commercial bank, in accordance with Points 1-6 of the first paragraph of Article 3.A commercial bank must, however, always have an operating licence and provide services in accordance with Points 1 and 2 of the first paragraph of Article 3.
2. A savings bank, in accordance with Points 1-6 of the first paragraph of Article 3. A savings bank must, however, always have an operating licence and provide services in accordance with Points 1 and 2 of the first paragraph of Article 3.
3. A credit undertaking, in accordance with sub-paragraph b of Point 1 and Points 2-6 of the first paragraph of Article 3.A credit undertaking must always have an operating licence in accordance with sub-paragraph b of Point 1 and Point 2 of the first paragraph of Article 3. A credit undertaking shall be authorised to call itself an investment bank.
4. An electronic money undertaking, in accordance with Point 5 of the first paragraph of Article 3.
5. A securities company, in accordance with Point 6 of the first paragraph of Article 3.
6. [Asecurities brokerage pursuant to sub-paragraphs a and/or d in Point 6 of the first paragraph of Article 3.]1)
7. [UCITS management company in accordance with sub-paragraph c of Point 6 and Point 7 of the first paragraph of Article 3.]2)
1)Act 111/2007, Article 2. 2)Act 144/2007, Article 2.
Article 5 Application
An application for an operating licence must be made in writing and shall be accompanied by:
2. The company's Articles of Association.
4. Information on the internal organisation of the undertaking, including rules on supervision and work procedures.
6. Information on founders, shareholders or guarantee capital owners, cf. Chapter VI.
7. Information on the Board of Directors, managing director and other management officers.
8. Confirmation by an accountant that share capital or initial capital has been paid.
9. Information on close links between the undertaking and individuals or legal entities, cf. Article 18.
10. Other relevant information, as determined by the Financial Supervisory Authority.
Article 6 Granting of an operating licence
Article 7 Refusal of an operating licence
Grounds must be given for refusal of an application by the Financial Supervisory Authority and the applicant notified within three months of receipt of a complete application. A refusal must, however, always be received by an applicant within 12 months from the receipt of an application.
Article 8 Register of financial undertakings
1)Act 111/2007, Article 4.
B. Revocation of an operating licence
Article 9 Grounds for revocation
6. [if measures adopted on the basis of provisions concerning Financial Supervisory Authority intervention in the assets, rights and obligations of a financial undertaking pursuant to Article 100 (a) have not been successful or if a ruling has been rendered concerning the winding-up of the undertaking pursuant to Chapter XII;]1
7. if the undertaking seriously or repeatedly infringes in any other manner against this Act, rules, statutes or regulations adopted by virtue of it.
[Notwithstanding revocation of an operating license as provided for in Point 6 of the first paragraph, [a provisional Board of Directors, winding-up committee handling the winding-up of a financial undertaking, or trustee managing its bankruptcy proceedings] 2 may, with the approval and under the supervision of the Financial Supervisory Authority, continue to pursue specified activities subject to license insofar as this is necessary for the administration of the estate and disposal of its interests.]3
The Financial Supervisory Authority may prohibit a financial undertaking from pursuing certain activities for which it is authorised in accordance with Chapter IV. The provisions of the first and second paragraphs shall apply to such a prohibition.
1)Act 125/2008, Chapter II, Article 3. 2) Act 44/2009, Article 1 .3) Act 129/2008, Article 1.
Article 10 Notification of revocation and winding-up of a financial undertaking
Chapter III Establishment and Activities
Article 11 Requirements as to residence of founders
Only individuals and legal entities resident in Icelandcan be founders of financial undertakings.
[Citizens and legal persons of other states in the European Economic Area and members of the European Free Trade Association, as well as citizens and legal persons in the Faeroe Islands, are exempt from the conditions of residence in the first paragraph.]1)The Minister of Business Affairs is authorised to grant the same exemption to citizens of other states.
1)Act 108/2006, Article 75.
Article 12 Names
Only financial undertakings may use, in their company name or as a clarification of their activities, the words “bank”, “commercial bank”, “investment bank”, “savings bank”, “electronic money undertaking”, “securities company”, “securities brokerage” and “UCITS management company”, either alone or in combination with other words, in accordance with their operating licence.
If there is a danger of confusion between the names of a foreign and a domestic financial undertaking operating in Iceland, the Financial Supervisory Authority may require one of the undertakings to be specifically identified.
A financial undertaking may not identify its activities in a manner which is open to the interpretation that this could be the Central Bank of Iceland.
Article 13 Legal form
A financial undertaking must operate as a limited-liability company. The provisions of Chapter VIII shall apply to savings banks.
Article 14 Share capital and guarantee capital
The share capital of a commercial bank and credit undertaking, and the guarantee capital of a savings bank, cf. however Article 77, must amount to a minimum of ISK 450 million, but never less than the equivalent of EUR 5 million in ISK, on the basis of the current official exchange rate (buying rate).
b. execution of instructions on behalf of clients; or
[The capital base of a financial undertaking pursuant to Articles 84 and 85]2)shall at no time be less than the amount provided for in the first to sixth paragraphs.
The Financial Supervisory Authority may adopt more detailed rules under this Article.]1)
1)Act 111/2007, Article 5. 2)Act 170/2006, Article 1.
Article 15 Head office
A financial undertaking, which has been granted an operating licence in accordance with Article 6, must have its head office in Iceland.
Article 16 Auditing section
A financial undertaking must have an auditing section handling internal auditing. This provision shall not apply to securities brokerages and electronic money undertakings. The Board of a financial undertaking shall engage the director of the undertaking's auditing section, who shall be responsible for internal auditing on its behalf. Internal auditing shall be part of a financial undertaking's organisational structure and one aspect of its internal surveillance system. The Financial Supervisory Authority may, having regard to the nature and scope of the operation, grant an exemption from the operation of such an auditing section and set conditions for undertakings granted such exemptions.
Article 17 Risk management system
[A financial undertaking must at all times have in place a secure risk management system for all its activities. Financial undertakings shall have in place adequate and documented internal processes to assess the necessary size, composition and internal distribution of the capital base in light of the risks entailed by the business activity at any time. The internal processes shall be reviewed regularly for the purpose of ensuring that they are adequate in the light of the nature, scope and diversity of the business activity.
The Financial Supervisory Authority may adopt rules on systems for management of specific exposures in the activities of financial undertakings and financial conglomerates.]1)
1)Act 170/2006, Article 2.
Article 18 Close links
When two or more individuals or legal entities are permanently linked to the same person by a controlling connection, this shall also be regarded as close links between those parties.
Article 19 Good business practices and customs
Chapter IV Authorised Activities
A. Commercial banks, savings banks and credit undertakings
Article 20 Authorised activities of commercial banks, savings banks and credit undertakings
The activities of commercial banks and savings banks may include the following:
1. Acceptance of deposits and other repayable funds from the public.
2. Lending activities, including:
c. factoring and the purchase of debt instruments; and
6. Providing guarantees and commitments.
7. Trading for own account or for account of customers in:
a. money-market instruments (cheques, bills, other comparable instruments, etc.);
c. futures and swaps (options);
d. exchange and interest-rate instruments; and
8. Participation in securities issues and provision of services related to such issues.
11. Portfolio management and advice.
12. Safekeeping and administration of securities.
13. Credit reference (credit rating) services.
Commercial banks, savings banks and credit undertakings are authorised to trade in securities as provided for in Article 25.
Article 21 Other services and ancillary activities
Commercial banks, savings banks and credit undertakings may, pursuant to special agreement upon receiving the authorisation of the Financial Supervisory Authority, undertake to provide postal service on behalf of a party authorised to provide such service.
Article 22 Temporary activities and take-over of assets
Commercial banks, savings banks and credit undertakings may only pursue activities other than those listed in this Chapter on a temporary basis and for the purpose of concluding transactions or reorganising the activities of customers. A notification to this effect must be sent to the Financial Supervisory Authority.
Commercial banks, savings banks and credit undertakings may take over assets to secure payment of claims. Such assets must be sold as soon as this is feasible.
Article 23 Authorisation for insurance activities
B. Other financial undertakings
Article 24 Authorised activities of electronic money undertakings
Notwithstanding the provisions of the first paragraph and Chapter V, a foreign electronic money undertaking providing services in Icelandmay only issue electronic money. The same shall apply to an Icelandic electronic money undertaking providing services abroad.
Article 25 Authorised activities of securities undertakings
b. Execution of instructions on behalf of clients.
c. Dealing in financial instruments on own account.
f. Underwriting of financial instruments and/or placing of financial instruments.
g. Placing of financial instruments without underwriting.
h. Operation of multilateral trading facilities (MTF).
d. Services related to underwriting.
e. Foreign-exchange services where these form a part of the provision of investment services.
c. The provisions of Chapter IV (C) and Chapter X must be met.
Article 26 Authorised activities of securities brokerages
?1)
Article 27 Authorised activities of a management company
3. Custody and management of financial instruments in collective investment.
C. Holdings in undertakings and large exposures
Article 28 Maximum qualifying holdings
A financial undertaking is not permitted to own a qualifying holding in individual undertakings which are not financial undertakings or undertakings connected with the financial sector, amounting to more than 15% of the [capital base]1)of the financial undertaking concerned, net of the deductions provided for in the fifth paragraph of Article 85. “Undertakings connected with the financial sector” refers to undertakings which are not credit institutions and which operate primarily in acquiring holdings or pursue any of the activities referred to in Points 2 to 12 of the first paragraph of Article 20.
The aggregate of qualifying holdings pursuant to the first paragraph shall not exceed 60% of the [capital base]1)of a financial undertaking, net of the deductions provided for in the fifth paragraph of Article 85. The total book value of holdings acquired by a financial undertaking shall not exceed 100% of its [capital base]1). Holdings to be deducted when calculating the [capital base]1), and holdings in undertakings forming a consolidation, shall not be included in the calculation of the ratios referred to in the first paragraph and the first and second sentences of this paragraph. [The temporary holdings of a financial undertaking, excluding trading book holdings, in a company in connection with a financial restructuring designed to defend the claims of the financial undertakings shall be excluded in the calculations pursuant to the first paragraph and the first two sentences of this paragraph.]1)
Holdings of a financial undertaking may exceed the ratios referred to in the first paragraph or the first sentence of the second paragraph, provided that the amount in excess is deducted in calculating the [capital base]1)of the undertaking concerned. Should the holdings concurrently exceed the ratios referred to in both the first paragraph and the first sentence of the second paragraph, the greater of the excess amounts shall be deducted in calculating the [capital base]1)of the undertaking concerned.
?1)
Article 29 Own shares.
If, in connection with a public offer, a financial undertaking grants loans for purchase of its own shares or guarantee capital holdings for an amount exceeding 5% of the nominal value of the total share capital or guarantee capital of the undertaking in question, secure collateral must be provided for loans in excess of the above-stated proportion.
Article 30 Limits to large exposures
[Exposure resulting from one or more clients, who are internally linked to one another, shall not exceed 25% of a financial undertaking's capital base, cf. Articles 84 and 85. The aggregate of large exposures shall not exceed 800% of the capital base; a “large exposure” refers to any exposure amounting to 10% or more of the capital base.]1)
[The Financial Supervisory Authority shall set detailed rules on large exposures of financial undertakings and financial conglomerates.]3)
1)Act 170/2006, Article 4. 2)Reg. 216/2007. 3)Act 130/2004, Article 3.
Chapter V International Activities of Financial Undertakings
A. Activities of foreign financial undertakings in Iceland
Article 31 Branches of financial undertakings within the EEA
A foreign financial undertaking, which is established and holds an operating licence in another member state of the European Economic Area (EEA), may establish a branch in Icelandtwo months after receipt by the Financial Supervisory Authority of notification of the proposed activity from the competent authority in the undertaking's home state. The branch may pursue any of the activities covered by this Act, provided the undertaking is authorised to do so in its home state. [Swiss and Faeroese financial undertakings may establish branches in the manner provided for in this paragraph, provided that the same requirements are made of them as of financial undertakings established in a member state of the European Economic Area, and provided that a co-operation agreement has been concluded between the Financial Supervisory Authority and the competent Swiss or Faeroese authorities.]1)
The Financial Supervisory Authority shall confirm that the foreign undertaking is subject to supervision in its home state and check its authorisations to operate and activities.
The provisions of the Act on public limited companies, concerning branches of foreign limited-liability companies, shall not apply to branches as referred to in the first paragraph.
Article 32 Services provided by a financial undertaking within the EEA without establishing a branch
A foreign financial undertaking, which is established and has an operating licence in another member state of the EEA, may provide services in Icelandin accordance with this Act without establishing a branch. Such services may not commence until the Financial Supervisory Authority has received notification thereof from competent authorities in the undertaking's home state. Authorisations to provide services in Iceland from abroad in accordance with this Article may not, however, be more extensive than the operating authorisations held by the undertaking in its home state. [Swiss and Faeroese financial undertakings may provide services in the manner provided for in this paragraph, provided that the same requirements are made of them as of financial undertakings established in states of the European Economic Area, and provided that a co-operation agreement has been concluded between the Financial Supervisory Authority and the competent Swiss or Faeroese authorities.]1)
Article 33 Provision of services or establishment of a branch by a financial undertaking outside the EEA
The Financial Supervisory Authority may authorise a financial undertaking established in a state outside the European Economic Area to open a branch in Icelandor to provide services in this country without establishing a branch. The requirement for the granting of such authorisation is that the undertaking be authorised to pursue activity in its home state parallel to that which it proposes to pursue in Iceland and that such activity be subject to comparable supervision in the home state.
Article 34 [Recourses relating to the activities of foreign financial undertakings.]1)
If the Financial Supervisory Authority has reason to believe that a foreign financial undertaking operating in Iceland, with or without a branch, is in violation of the provisions of this or other acts of law, the Authority shall notify the competent authority in the home country, provided that the violation involves provisions which are not subject to regulation by the Financial Supervisory Authority as a host state. If the actions taken by the competent authority in the home country are insufficient to stop the unlawful conduct of the undertaking, the Financial Supervisory Authority, following notification of the competent authority of the home country, may take the actions necessary to protect investors and the sound operation of financial markets in Iceland. This includes the authority to prevent the non-compliant undertaking from conducting further business in Iceland. The Commission of the European Union shall be promptly notified of any such measures.
If the Financial Supervisory Authority has verified that the branch of a foreign financial undertaking with business operations in Icelandhas violated the provisions of this Act or other legislation which is subject to regulation by the Financial Supervisory Authority as host state, the Authority shall require the immediate cessation of the conduct in question. If the branch does not comply, the Financial Supervisory Authority shall take the actions necessary to prevent the unlawful conduct. The Financial Supervisory Authority shall notify the competent authority in the home state of its actions. If the branch persists in its unlawful conduct, the Financial Supervisory Authority shall, following notification of the competent authority in the home state, take all necessary action to prevent the conduct in question or impose appropriate sanctions and, as necessary, prevent the non-compliant undertaking from conducting further business in Iceland. The Commission of the European Union shall be promptly notified of any such measures.]1)
Article 35 Regulation
The Minister shall issue a Regulation1)on authorisations of foreign financial undertakings to operate in Iceland and of Icelandic financial undertakings to operate abroad. The Regulation shall include provisions on supervision of and specific requirements for the branches and agents' offices of foreign financial undertakings, on authorisations of undertakings connected with the financial sector and subsidiaries of financial undertakings to pursue financial activities in Iceland and on authorisations for Icelandic undertakings connected with the financial sector to pursue financial activities abroad.
1)Reg. 307/1994, reg. 308/1994, cf. 497/2004; reg. 244/2004.
B. Activities of Icelandic financial undertakings abroad
Article 36 Notification of the establishment of a branch
[An Icelandic financial undertaking intending to operate a branch in another EEA member state, a member state of the European Free Trade Association or the Faeroe Islandsshall notify the Financial Supervisory Authority of such intention in advance.]1)
Article 37 Notification of service without the establishment of a branch
[A financial undertaking, intending to provide services in accordance with this Act in another EEA member state, a member state of the European Free Trade Association or the Faeroe Islandswithout opening a branch, shall notify the Financial Supervisory Authority of such intention in advance.]1)The notification must indicate which state is concerned and what the proposed activities will involve.
Article 38 Activities outside the EEA
The Financial Supervisory Authority may prohibit activities as provided for in the first paragraph if it has legitimate grounds to presume that the management and financial status of the financial undertaking concerned is not sufficiently sound. The undertaking must be notified of the position of the Financial Supervisory Authority as promptly as possible.
Article 39 Purchase of shares in a foreign financial undertaking
Chapter VI Holdings and Exercising Holdings
Article 40 Approval of the Financial Supervisory Authority
The provisions of this Chapter shall apply as appropriate to savings banks.
[Article 40 a“Indirect share” in the understanding of Article 40 means that a party and any party acting in concert with that party have acquired or jointly control a qualifying holding in the understanding of the Act.
Article 41 Application to the Financial Supervisory Authority
1. The name and address of the applicant.
2. The name of the financial undertaking in which the applicant intends to invest.
3. The size of the holding or voting rights in which the applicant intends to invest.
4. Plans for changes in the pursuits of the financial undertaking.
5. Financing of the investment.
6. The financial position of the applicant.
7. The proposed commercial relationship of the applicant with the financial undertaking.
8. The applicant's experience of financial activities.
10. Any punishment to which the applicant has been sentenced and whether he/she is the object of a criminal investigation.1)
11. Close links of the applicant to other legal entities.
1)This Point was amended by Act 88/2008, Article 234. The amendment takes effect on 1 January 2009, according to Article 232 of the same Act.
Article 42 Evaluating the qualification of applicants
1. The financial position of the applicant and parties with which he/she has close links.
2. The knowledge and experience of the applicant.
4. The size of the holding or voting rights in which the applicant intends to invest.
[If an applicant is a financial undertaking or insurance company licensed to operate in another state of the European Economic Area, the parent company of such a party, a natural person or legal entity which controls the party, and if such a holding results in the company invested in being deemed to be a subsidiary of or controlled by the party in question, the Financial Supervisory Authority shall, in assessing the eligibility of the applicant for a qualifying holding, consult with the competent authorities of the said state, as provided for in the provisions on assessment for an operating license application, cf. the second and third paragraphs of Article 2.Consultation pursuant to the foregoing shall furthermore apply to on-going surveillance that conditions for eligibility are satisfied.]2)
1)This Point was amended by Act 88/2008, Article 234. The amendment takes effect on 1 January 2009, according to Article 232 of the same Act. 2)Act 130/2004, Article 4.
Article 43 Response to an application
A decision by the Financial Supervisory Authority as provided for in the first paragraph shall be made in writing and be received by an applicant within one month of the day it received satisfactory information together with supporting documentation. Should a decision by the Financial Supervisory Authority fail to reach an applicant within this period it shall be deemed to have approved the application. Grounds must be given for the rejection of an application by the Financial Supervisory Authority.
Article 44 Utilisation of authorisation
Authorisation to acquire or supplement a qualifying holding in a financial undertaking shall be valid for six months after the approval of the Financial Supervisory Authority has been given. If an applicant does not avail him-/herself of the authorisation during that time he/she must seek the approval of the Financial Supervisory Authority once more, cf. Articles 40 and 41.
Article 45 Remedies if authorisation is not applied for
If a party fails to seek authorisation of the Financial Supervisory Authority when purchasing or increasing a qualifying holding, despite being required to do so pursuant to Article 40, the voting rights entailed by those shares which exceed the authorised limits shall be invalid. In such case they shall not be included in calculations of how large a proportion of share capital is represented by voting rights at shareholders' meetings. The Financial Supervisory Authority shall notify the financial undertaking concerned of the invalidity of voting rights. The Financial Supervisory Authority must also require the party concerned to submit an application together with supporting documents as provided for in Article 41.If the requested documentation is received within the time limit specified, the Financial Supervisory Authority shall take a decision on the application as provided for in Article 43.Should documentation not be received within four weeks of the time it was requested, or should the Financial Supervisory Authority refuse the party concerned authorisation to acquire or supplement a qualifying holding, the latter must sell that part of the holding which is in excess of authorised limits.The Financial Supervisory Authority shall set a deadline for so doing, with this time limit being at least two months. If the holding has not been sold by the specified time, the Financial Supervisory Authority may apply per diem fines in accordance with the Act on the official supervision of financial activities. If the Financial Supervisory Authority does authorise the party concerned to acquire or supplement a qualifying holding these shares shall once again confer voting rights.
Article 46 Remedies if an application is rejected
Should a party acquire or supplement a qualifying holding, despite the Financial Supervisory Authority refusing its application to do so, the voting rights entailed by those shares in excess of the authorised limits shall be invalid. In such case they shall not be included in calculations of how much share capital is represented by voting rights at shareholders' meetings. The Financial Supervisory Authority shall notify the financial undertaking concerned of the invalidity of voting rights. Once this has been done the party concerned must sell that portion of the holding in excess of the authorised limits. The Financial Supervisory Authority shall set a deadline for so doing, with this time limit being at least two months. If the holding has not been sold by the specified time, the Financial Supervisory Authority may apply per diem fines in accordance with the Act on the official supervision of financial activities.
Article 47 Notification by an owner of sale of a qualifying holding
Should the owner of a qualifying holding intend to reduce the shareholding so that he/she will no longer own a qualifying holding, he/she must notify the Financial Supervisory Authority in advance, indicating what the holding will be. Should this holding fall below the limits specified in Article 40, or decrease so extensively that the financial undertaking ceases to be a subsidiary of the parent company concerned, notification thereof must also be given.
Article 48 Notification by financial undertakings of change of ownership
At least once a year, each financial undertaking must notify the Financial Supervisory Authority of shareholders who have qualifying holdings in the company and of the shareholdings of each of them.
Article 49 Remedies if an owner is ineligible to exercise a qualifying holding
1. Decide that these shares shall not entail voting rights.
In assessing whether to take measures as provided for in the first paragraph, regard shall be had for the aspects listed in Article 42.Furthermore, special regard shall be had as to whether the position or conduct of the party in question would be liable to lessen public confidence in the financial undertaking in question, were it to be publicly known.
Chapter VII Board of Directors and Personnel
Unless otherwise provided for in this Act, the provisions of the Act on public limited companies shall apply to the board of a financial undertaking.
Article 51 Number of board members
An equal number of regular members and alternates shall be appointed to the board of a financial undertaking.
Article 52 Eligibility of board members and managing director
Members of the board and the managing director of a financial undertaking shall be legally competent. They shall not, in the preceding five years, have been declared bankrupt, nor, in connection with business operations, have been sentenced by a court of law for any criminal act under the General Penal Code, the [Competition Act],1)this Act or legislation on public limited companies, private limited companies, accounting, annual accounts, bankruptcy or taxes, or any special legislation governing parties who are subject to public surveillance of financial activities.
In addition to the above requirements, board members and the managing director must possess sufficient knowledge and experience to be able to fulfil their position in a satisfactory manner. They may not have conducted themselves in any manner which would give cause to expect them to abuse their position or injure the undertaking.
Article 53 Eligibility of personnel in securities trading
The examination committee on securities trading shall be responsible for an examination in securities transactions which shall be normally held once each year. The Minister of Business Affairs shall appoint the examination committee for a four-year term. To cover the costs of holding the examination, examinees shall pay a fee as determined by the Minister. Decisions of the examination committee are final administrative rulings.
The examination committee on securities trading may entrust an independent party with grading an examination. In addition, the examination committee on securities trading may appoint external examiners to review the examination of an examinee. Details on the holding of the examination in securities trading, including the examination requirements and authorisation for granting exemptions from specific sections of such an examination or from the examination as a whole, shall be laid down in a Regulation1).
1)Reg. 633/2003, cf. 521/2007.
Article 54 Division of responsibility between the board and managing director. Carrying out of the board's tasks
The Articles of Association of a financial undertaking must provide for the division of responsibility between the board and managing director, having regard for the provisions of the Act on public limited companies.
The board shall adopt its own rules of procedure, prescribing the implementation of its tasks in detail. These rules shall discuss in particular the authorisation of the board to take decisions on individual dealings, the implementation of rules on special eligibility of board members, handling of information on individual customers by the board, participation of board members in the boards of subsidiaries and affiliated companies, and the implementation of rules on handling business dealings with board members. These rules must be forwarded to the Financial Supervisory Authority.
Article 55 Participation of board members in handling issues
The board of a financial undertaking may not involve itself in decisions on individual dealings, unless their scope is substantial in relation to the size of the undertaking. Individual board members must not involve themselves in decisions on individual dealings.
2. dealings with competitors of the parties referred to in Point 1.
The same shall apply to dealings with parties personally or financially connected to board members.
Commercial dealings of board members, and of undertakings where they hold responsible positions, must be placed before the board of the financial undertaking, or the chairman of a company's board, for approval or refusal. The board of a financial undertaking may, however, adopt general rules on handling of such cases, prescribing in advance what business proposals require, or do not require, special discussion by the board before they can be dealt with, cf. Article 54.
Article 56 Participation of personnel in business operations
The managing director of a financial undertaking may not sit on the board of a commercial undertaking or participate in business operations in other respects. The board of an undertaking may grant authorisation for such on the basis of rules adopted by it and approved by the Financial Supervisory Authority. A holding in an undertaking is deemed to be participation in business operations, except in the case of an insubstantial holding which confers no direct influence on the management of the undertaking. Rules adopted in accordance with the provisions of Article 54 shall apply to board membership of managing directors in a financial undertaking's subsidiaries or affiliated companies, and on the authorisation of other personnel to participate in business operations.
Article 57 Dealings of personnel with financial undertakings
An agreement by a financial undertaking for loans, guarantees, options or similar dealings with a managing director shall be subject to the approval of its board. A decision thereupon must be recorded. The provisions of this Article shall also apply to the spouse of a financial undertaking's managing director.
Dealings between a financial undertaking and its personnel shall in other respects comply with rules adopted by the undertaking's board.
Article 58 Confidentiality
The board of directors of a financial undertaking, managing directors, auditors, personnel and any persons undertaking tasks on behalf of the undertaking shall be bound by an obligation of confidentiality concerning any information of which they may become aware in the course of their duties concerning business dealings or private concerns of its customers, unless obliged by law to provide information. The obligation of confidentiality shall remain even after their employment ceases.
Anyone receiving of information of the sort referred to in the first paragraph shall be bound by an obligation of confidentiality in the same manner as described therein. The party providing information shall remind the recipient of the obligation of confidentiality.
Article 59 Exemption from the obligation of confidentiality due to risk management and supervision on a consolidated basis
Notwithstanding the provisions of Article 58, information may be communicated to the parent company of a financial undertaking if the parent company is also a financial undertaking in the understanding of this Act or a holding company in the financial sector, cf. the fourth paragraph of Article 97.Such communication of information may, however, only take place to the extent necessary for risk management and may not include the private affairs of individual customers.The same shall apply to communication of information due to supervision on a consolidated basis.
The Financial Supervisory Authority shall set detailed rules on authorised communication of information as provided for in the first paragraph.
Article 60 Customer approval for communication of confidential information
Information on customers, as referred to in Article 58, may be communicated to outside parties after receiving the written approval of the customer involved. The approval must state what information it applies to, to what parties information on this basis may be communicated and for what purpose the information is to be communicated.
Chapter VIIISavings Banks
Guarantee capital owners of a savings bank may not be fewer than 30 in number.
At the initial meeting, each guarantee capital owner shall have one vote. The initial meeting shall approve the Articles of Association for the savings bank. These must include provisions concerning in particular the savings bank in question, such as:
2. location of the savings bank and legal venue;
3. total amount of guarantee capital, division into guarantee capital holdings and voting rights;
4. rules on change of ownership of guarantee capital holdings and on increases to guarantee capital;
5. election of the board of directors of the savings banks and its functions;
6. amendments to the Articles of Association; and
7. winding-up of a savings bank and disposal of own funds in this connection.
If the activities of a savings bank are bound to a specific geographical area guarantee capital owners must be resident, operate businesses or pursue other activities in this area, cf., however, Article 11.
Article 62 Guarantee capital certificates
Guarantee capital certificates shall be issued representing the registered guarantee capital holdings and signed by the board of the savings bank. They may not be handed over until each holding has been paid up in full. Guarantee capital certificates must be issued in the name of the owner and any assignment of such to a bearer shall not be considered valid by the savings bank. A guarantee capital certificate must state:
1. the name of the savings bank and its address;
2. the number and nominal value of the holding;
3. the name, address and identification number of the guarantee capital owner;
4. the date of issue of the guarantee capital certificate;
5. the text of Articles 64 and 65 of this Act; and
6. specific points concerning the rights and obligations of guarantee capital owners.
A register of the guarantee capital owners must be kept, to which all of them shall have access.
Article 63 Rights of guarantee capital owners
Guarantee capital owners shall only receive a dividend on their paid-up guarantee capital.
Guarantee capital shall not be refunded to guarantee capital owners except as provided for in the provisions of Articles 65 and [ [103a]1) ] 2).
1)Act 130/2004, Article 5. 2) Act 44/2009, Article 2.
Article 64 Saleor mortgage of guarantee capital holdings
Guarantee capital holdings in a savings bank may not be sold or otherwise assigned without the approval of the board of the savings bank. If the savings bank's board is of the opinion that a prospective purchaser of a guarantee capital holding is seeking to acquire a qualifying holding in a savings bank, the board must refer the matter to the Financial Supervisory Authority, cf. Chapter VI. A guarantee capital holding in a savings bank may not be mortgaged unless the mortgaging is authorised in the savings bank's Articles of Association subject to the approval of the board.
Should the savings bank board refuse to grant approval, or if a new owner fails to seek approval within the time limit specified, the savings bank's board must redeem the guarantee capital holding in accordance with the provisions of Article 65.
Article 65 Redemption of guarantee capital holdings
Article 66 Increase in guarantee capital
The price to be paid by a new guarantee capital owner for a holding shall be the nominal value plus the unutilised authorisation for the revaluation of guarantee capital, as provided for in Article 67.
Article 67 Revaluation of guarantee capital
New guarantee capital shall be revaluated proportionally based on its time of payment within the year.
Article 68 Disposition of earnings
Profits of a savings bank shall be disposed of as follows:
2. In addition to dividend payments as provided for in Point 1, an AGM may decide, having received the proposals of the board of a savings bank, to dispose of up to 10% of each year's profits to raise the value of the guarantee capital of the bank; raising the value of guarantee capital in accordance with this point, however, may never exceed 5% annually. The authorisation for revaluation in accordance with this Point may not be deferred from one year to the next. Revaluation in accordance with this Point may not result in the book value of own funds, after deducting guarantee capital, becoming less than it was at the end of the year 2000. New equity capital shall be revaluated proportionally in accordance with this Point based on its time of payment within the year. Profit shall be calculated on the revalued guarantee capital at the end of each accounting year.
3. Profit which is not disposed of in accordance with Points 1 and 2 shall be placed in a reserve account.
Article 69 Indicative guidelines on interest and service charges
Savings banks may jointly entrust a party on their behalf to draw up indicative guidelines on interest rates and service charges, provided such does not violate the provisions of the Competition Act, cf. Chapter IV of that Act.
Article 70 Division of holdings and voting rights
Should the assignment of a guarantee capital holding, or increase in guarantee capital, result in a single guarantee capital owner, or a guarantee capital owner and a party with whom he/she is [acting in concert in the understanding of Article 40 (a)],1)acquiring or exercising a qualifying holding in the savings banks, in the understanding of this Act, the board of directors of the savings bank shall not approve the assignment without the prior approval of the Financial Supervisory Authority and the fulfilment of one of the following conditions:
a. that this is part of a necessary financial reorganisation of the savings bank in question and it appears evident that such financial reorganisation cannot be accomplished without this guarantee capital owner acquiring a qualifying holding;
b. [that it is clearly demonstrated that the acquisition of the guarantee capital holding is part of strengthening co-operation among savings banks in Iceland or savings banks within the European Economic Area].2)
c. [in case of involvement by the Treasury pursuant to Article 2 of Act Authorising Treasury Disbursements due to Unusual Financial Market Circumstances etc.]3)
The guarantee capital owners shall have equal voting rights unless otherwise determined in a savings bank's Articles of Association. Individual guarantee capital owners may never, however, on their own behalf or on the behalf of others, exercise more than 5% of the total voting rights in a savings bank, whether the control upon which such voting rights are based derives directly or indirectly from a share in the guarantee capital of the savings bank. The provisions of Article 71 shall apply to voting rights if a local authority is the only guarantee capital owner. Voting rights may not be exercised for guarantee capital certificates owned by a savings bank itself. [If the Treasury is a guarantee capital owner in a savings bank, the Minister of Finance shall exercise voting rights for the Treasury’s guarantee capital in the savings bank. The same shall apply to voting rights for shareholdings in a savings bank which has been incorporated as a limited-liability company.]3)
1)Act 67/2006, Article 13. 2)Act 4/2004, Article 1. 3)Act 125/2008, Chapter II, Article 4.
Article 71 Local authority savings banks
The provisions of the first paragraph of Article 61 and the third paragraph of Article 70, concerning voting rights in a savings bank, shall apply neither to those savings banks where local authorities or regional councils (héraðsnefndir) are the only guarantee capital owners upon the entry into force of this Act, nor to their mergers, cf. [Article 106.]1)If a regional council is one of the guarantee capital owners, the voting rights of each party shall be limited to 1/5of the total quantity of votes in the savings bank
Article 72 Board of directors
The board of directors of a savings bank shall be comprised of five members. Guarantee capital owners shall elect three board members while the local authorities or regional councils concerned shall appoint two board members in accordance with detailed provisions in the savings bank's Articles of Association. The Articles of Association may provide for the guarantee capital owners to elect the entire board of a savings bank. The board of directors shall elect a chairman from among its members. As many alternates may be chosen as there are regular members, following the same rules as apply to the election of regular members. Election of the board shall be by proportional representation if so requested.
Article 73 Conversion of a savings bank to a limited-liability company
The provisions of the first sentence of the second paragraph of Article 3 of Act No. 2/1995, on Public Limited Companies, shall not apply to the number of founders of a limited-liability company as provided for in the first paragraph. The provisions of the first paragraph of Article 20 of the same Act, on the minimum number of shareholders, shall not apply to a limited liability company as provided for in the first paragraph until the point where the conversion of the savings bank to a limited-liability company, as provided for in the first paragraph, takes place.
A savings bank which is converted to a limited-liability company in accordance with the provisions of this Article must have the words "hlutafélag" (limited company) or the abbreviation "hf." (PLC) in its name in addition to "sparisjóður" (savings bank).
A savings bank which is converted to a limited-liability company in accordance with the provisions of this Article need not issue a call notice to creditors. A change in the registration of ownership in registers of liens, resulting from the conversion of a savings bank to a limited liability company, shall be exempt from stamp duty.
If a savings bank is converted to a limited-liability company the provisions of Articles 61-68 and Articles 70-72 shall be replaced by the provisions of Chapter VII of this Act and the Act on public limited companies as applicable, unless otherwise provided for in the preceding provisions of this Article.
Article 74 Division of share capital in a savings bank
In converting a savings bank to a limited liability company, as provided for in Article 73, guarantee capital owners shall only receive shares in the limited-liability company as recompense for their guarantee capital holding. The total share capital received by guarantee capital owners in the savings bank shall amount to the same proportion of its share capital, following the conversion, as their guarantee capital, revalued in accordance with Article 67, comprises of the estimated market value of the savings bank.The market value of the savings bank, together with the recompense for guarantee capital holdings, shall be evaluated by an independent body based on the same point in time as the change in the legal form of the savings bank. In evaluating the proportion of guarantee capital, regard shall be had for the dividend to be expected from the guarantee capital holding in accordance with Article 68, on the one hand, and the dividend to be expected from and risk of shares in the savings bank, on the other. Following its conversion to a limited-liability company, that portion of the share capital of the savings bank which is not allocated to guarantee capital owners, in accordance with the above, shall become the property of a self-governing foundation established in accordance with Article 76.
The provisions of Articles 120-128, together with the provisions of Article 131 of Act No 2/1995, on Public Limited Companies, shall otherwise and as applicable apply to the conversion of a savings bank to a limited liability company as provided for in the preceding provisions of this Article.
Article 75 Voting rights in a savings bank converted to a limited-liability company
[A self-governing foundation shall, however, exercise voting rights in accordance with its shareholding.]1)
Article 76 A self-governing foundation as shareholder in a savings bank
If a decision is taken to change a savings bank to a limited-liability company, in accordance with the provisions of Article 73, the savings bank must take the initiative in establishing a self-governing foundation which, upon the change, shall become the owner of that portion of share capital in the savings bank which is referred to in Article 74.The principal purpose of the self-governing foundation shall be to encourage the prosperity and growth of activities of the savings bank. The Financial Supervisory Authority must approve the Articles of Association of the foundation. [Prior to a meeting of guarantee capital owners, as provided for in the first paragraph of Article 73, no binding decisions may be taken on behalf of the self-governing foundation.]1)
[The board of a self-governing foundation as provided for in the first paragraph shall include two representatives of the municipality where the savings bank is domiciled when it is converted to a limited company, one representative appointed by the Minister of Finance and two representatives appointed by the Minister of Business AffairsThe Board so comprised shall elect its Chairman and represent the interests of the self-governing foundation from the date of the guarantee capital owners' meeting, as provided for in the first paragraph of Article 73.Its term of office shall be four years unless otherwise provided for in the Articles of Association. At least two months prior to the end of the Board's term of office, its Chairman shall obtain new appointments as provided for in the first sentence.
Prior to a meeting of guarantee capital owners, as provided for in the first paragraph of Article 73, the savings bank shall have obtained appointments as provided for in the second paragraph of this Article.]1)
Allocations may only be made from the assets of a self-governing foundation, as provided for in the first paragraph, or the property remaining upon its winding-up disposed of, to cultural or charitable pursuits in the operating region of the savings bank in question at the time of its conversion to a limited liability company. Provisions of law concerning self-governing foundations pursuing commercial operations shall apply in other respects to a self-governing foundation as provided for in the first paragraph. A self-governing foundation established in accordance with this Article shall be exempt from income tax...,2)subject to compliance with the conditions of the first sentence, concerning allocation to cultural or charitable pursuits.
1)Act 4/2004, Article 3. The amendment took effect on 6 February 2004, but does not apply to savings banks where a meeting of guarantee capital holders has already adopted a resolution on incorporation as a limited liability company pursuant to Article 73 of the Act, cf. Article 5 of Act 4/2004. 2)Act 129/2004, Article 143.
Article 77 Minimum initial capital
Chapter IX Electronic Money Undertakings
Article 78 Electronic money
"Electronic money" shall mean monetary value, as represented by a claim on the issuer which is stored in an electronic medium, issued in exchange for an amount of funds not less than the monetary value issued and accepted as means of payment by undertakings other than the issuer.
Article 79 Redeemability of electronic money
A contract as provided for in the third paragraph may stipulate a minimum threshold for redemption. Such a threshold may not exceed ISK 500.
Article 80 Capital adequacy requirements
1. the current amount of its financial commitment due to outstanding electronic money; or
1. the current amount of its financial commitment due to outstanding electronic money; or
An electronic money undertaking must send the Financial Supervisory Authority calculations twice each year showing that the provisions of this Article have been complied with, together with the necessary accompanying documents in accordance with detailed rules adopted by the Financial Supervisory Authority.
Article 81 Limitations on investments
Investments of electronic money undertakings must at least correspond to its financial commitments due to outstanding electronic money. An electronic money undertaking may only invest in liquid assets or claims in accordance with rules1)set by the Financial Supervisory Authority on limits to investments of electronic money undertakings. The rules shall, for instance, specify what assets and claims an electronic investment undertaking may invest in, evaluation of the value of assets, limits on market exposure and maximum investments.
Article 82 Limits to scope of application
Chapter X Liquid Assets and Own Funds
Article 83 Liquid assets
Financial undertakings must at all times strive to have sufficient liquid assets available to be able to pay out withdrawals of deposit funds and other payments involved in the activities of the undertaking concerned.
Article 84Definition of own funds
[The capital base of a financial undertaking as defined in the fourth paragraph at any time shall correspond to a minimum of 8% of the risk base. The board of directors and managing director of a financial undertaking shall regularly assess the equity requirements of the undertaking with reference to its level of risk, and the conclusion of such assessment, which shall not fall below the provisions of the first sentence of this paragraph, shall constitute the ratio of the capital base to the risk base. The Financial Supervisory Authority may require a financial undertaking which does not meet the provisions of this Article to take corrective action in a timely manner. In order to ensure compliance, the Financial Supervisory Authority may require:
a. a capital base in excess of 8% of the risk base;
b. improvements of internal processes;
c. depreciation of assets in the calculation of the capital base;
d. restrictions or limitations on the business activities of the financial undertaking;
e. reduction of the risks entailed by the business activities of a financial undertaking.
The risk base is the aggregate of weighted risk factors, such as credit risk, equity risk, interest risk, currency risk, commodity risk and operating risk, entailed by the business activities of a financial undertaking. The Financial Supervisory Authority will lay down detailed rules1)on risk factors, risk weightings and the calculation of risk base. Securities undertakings which are not licensed [pursuant to sub-sections (c) and (f) of Point 1 in the first paragraph of Article 25, securities brokerages]2)and management companies of undertakings for collective investment in transferable securities are exempted from assessment of operating risk pursuant to this Article. Financial undertakings are permitted, with the approval of the Financial Supervisory Authority, to employ internal assessment procedures in assessing risk factors in the calculation of their risk base. The Financial Supervisory Authority will establish further rules on requirements that financial undertakings are required to meet in order to be permitted to employ internal assessment procedures.
The capital base requirement provided for in the first paragraph shall also apply to consolidated accounts. The Financial Supervisory Authority will establish rules3)on the calculation of capital base and risk base for financial groups based on Council Directive 2002/87/EC on the supplementary supervision of credit institutions, insurance undertakings and investment firms in a financial conglomerate.
The capital base pursuant to the first paragraph shall consist of three factors, tier 1 capital, tier 2 capital and tier 3 capital, and deductible items pursuant to Article 85. If asset items are based on an interim financial report, the report shall be endorsed as audited or examined by an auditor. The following restrictions shall apply to the individual tiers:
1. Tier 1 capital shall amount to a minimum of one-half of the capital base prior to deductions according to Article 85.
2. Tier 2 capital shall amount to a maximum of 50% of tier 1 capital.
3. Tier 3 capital shall amount to a maximum of 50% of tier 1 capital. Furthermore, tier 3 capital shall amount to a maximum of 4.8% of the risk-weighted base with respect to market exposures of trading book items, as provided in Article 28, and currency risk.]4)
Tier 1 capital comprises paid-in share capital, reserves, share premium account, the revaluation account pursuant to inflation accounting principles, and retained earnings, net of the book value of own shares/guarantee capital certificates, goodwill and other intangible assets, as well as any loss and approved dividend allocations. In addition, account shall be taken of minority shares in the [equity]4) of subsidiaries in accordance with consolidated accounting principles.
Tier 2 capital shall be a total of Points 1 and 2:
2. The revaluation account, according to cost-basis accounting principles.
Tier 3 capital shall consist of short-term subordinated loans taken by a financial undertaking against the issue of special debt instruments which state clearly that the repayment period of the loan is not less than two years and that, in the event of the bankruptcy of the financial undertaking concerned or its winding-up, repayment may be obtained following all claims against the financial undertaking other than the repayment of share capital or guarantee capital. [Furthermore, a provision shall be made to the effect that payments may neither be made nor interest paid on the loan if the capital adequacy ratio of the financial undertaking falls below the required minimum provided for in the first paragraph or if the repayment of principal or payment of interest results in a fall of the capital adequacy ratio below the cited minimum. The Financial Supervisory Authority shall be notified if such payment has the result that the capital base as a ratio of the risk base falls below a limit which is 2% above the minimum provided for in the first paragraph.]4)The Financial Supervisory Authority may authorise particular financial undertakings to include profits from trading book transactions in tier 3 capital, net of foreseeable charges and net losses on other activities, provided none of these amounts has been included in tier 1 capital.
Notwithstanding the provisions of the first to seventh paragraphs, the [capital base]4)of a securities undertaking, securities brokerage and UCITS management company shall never amount to less than the equivalent of 25% of its fixed operating expenses for the preceding accounting year. The Financial Supervisory Authority may grant exemptions from this requirement if the operations of the undertaking have been changed fundamentally between years. During its first year of operation, the [capital base]4)of a securities undertaking, securities brokerage and UCITS management company shall never amount to less than the equivalent of 25% of its budgeted fixed operating expenses. The Financial Supervisory Authority may require a change to be made to the operating budget if it is of the opinion that the budget does not properly reflect the activities proposed.
The Financial Supervisory Authority may prescribe in its rules5)that items other than those listed in the fifth to seventh paragraphs may be included in a financial undertaking’s [capital base]4).
[Financial undertakings shall report publicly on their risks, risk management and capital adequacy. The Financial Supervisory Authority will establish further rules on such reporting.
The Financial Supervisory Authority is permitted to establish rules on disclosures by financial undertakings to clients concerning their credit rating when a decision on lending is based on such a rating and the rating is also used to assess credit risk in calculating the risk base using the internal assessment method.
1)Reg. 530/2004, cf. reg. 177/2006. 2)Act 111/2007, Article 10. 3)Reg. 215/2007, reg. 920/2008. 4)Act no. 170/2006, Article 6. Financial undertakings other than undertakings that have been authorised to use the internal assessment method in assessing risk factors are permitted, in calculating their own funds and risk base in the period from 1 January to 31 December 2007, to exercise the provisions applicable to own funds and risk base at year-end 2006, cf. Act 170, Interim Provision I. The capital adequacy requirement of a financial undertaking that has been authorised to use the internal assessment method in assessing credit risk, or a more advanced method in assessing operating risk, shall, in the years 2007, 2008 and 2009, at a minimum, correspond to 95%, 90% and 80%, respectively, of the capital adequacy requirement that would have resulted from the provisions on own funds and risk base effective at year-end 2006, cf. Act 170/2006, Interim Provision II. 5)Reg. 156/2005.
Article 85 Deductions from own funds
Shareholdings and subordinated claims in other financial undertakings or in undertakings connected with the financial sector, cf. the first paragraph, or in insurance companies or holding companies in the insurance sector, cf. the fourth paragraph, which are included in the consolidated accounts of the financial undertaking in question or in the exercise of provisions on the surveillance of financial conglomerates, shall not be deducted from the [capital base]1) of the undertaking in question.
Holdings and subordinate claims in insurance companies and holding companies in the insurance sectors, as well as items listed in Points 4 and 5 of the first paragraph of Article 29 of Act No. 60/1994, which the financial undertaking owns as a result of holdings in the above companies, shall be deducted from the [capital base pursuant to Article 84.]1) However, the deduction relating to holdings in insurance companies shall be limited to an amount corresponding to the share in the minimum solvency margin of the insurance company in question. In the case of financial conglomerates, however, the provisions of the third paragraph of Article 84 on the calculation of capital adequacy ratio shall apply.]2)
Furthermore, the part of the securitised positions assessed by 1,250% risk weighing in the calculation of the risk base shall be deducted from the capital base pursuant to Article 84.
A 50% part of the aggregated total of the deducted items pursuant to this Article shall be deducted from the results of the calculation of tier 1 capital pursuant to Article 84 and 50% shall be deducted from the result of the calculation of tier 2 capital pursuant to Article 84. If the deduction pursuant to the first sentence exceeds the amount of tier 2 capital, the excess shall be deducted from tier 1 capital.]1)
1)Act 170/2006, Article 7. 2)Act 130/2004, Article 7.
Article 86 Initial measures due to insufficient own funds
If the board or managing directors of a financial undertaking have reason to expect that its [capital base]1)will be less than the minimum required by law, they must immediately notify the Financial Supervisory Authority. The auditor of the undertaking concerned has a comparable obligation if he/she has reason to expect that its management has not fulfilled their obligations as provided in the first sentence of this paragraph.
If the Financial Supervisory Authority receives a notification as provided for in the first paragraph, or has other reason to believe that the [capital base]1)of a financial undertaking may be less than the minimum provided for in Article 84, the Financial Supervisory Authority shall call for a financial statement immediately from the board of directors of the undertaking, which must submit the statement within a reasonable time limit. The Financial Supervisory Authority may prescribe that such a financial statement be endorsed by an auditor.
If, in a financial statement of the type mentioned in the second paragraph, it is revealed that the [capital base]1)of a financial undertaking does not meet the requirements of Article 84, the board of directors of the undertaking shall immediately call a meeting of shareholders or guarantee capital holders to take a decision, and shall then submit to the Financial Supervisory Authority a report stating the measures they propose to take in response to the situation. The report shall be submitted within a time limit set by the Financial Supervisory Authority.
Once the Financial Supervisory Authority has received the documentation provided for in the third paragraph, the Authority may grant the financial undertaking concerned a time limit of up to six months to increase its [capital base]1)to the minimum provided for in Article 84. If there are cogent reasons for so doing, the Financial Supervisory Authority may extend this period by up to an additional six months. If the report provided for in the third paragraph is not received within the specified time limit, if the remedies proposed in the report are not satisfactory in the opinion of the Financial Supervisory Authority, or if the time limit provided for in this paragraph expires, the operating licence shall be revoked, cf. Article 9.
1)Act 170/2006, Article 8.
Chapter XI Annual Accounts, Auditing and Consolidated Accounts
Article 87 Drafting and attestation of annual accounts
The board of directors and managing director of a financial undertaking must compile annual accounts for each accounting year. The annual accounts must include a profit and loss account, balance sheet, statement of cash flow and explanatory notes. A report shall also be compiled by the board, which shall be an integral part of the annual accounts. The accounting year for financial undertakings shall be the calendar year.
The annual accounts shall be signed by the board of directors and managing directors of financial undertakings. If a member of the board or managing director of a financial undertaking has objections concerning the annual accounts, he/she must make a written explanation accordingly when signing them.
Article 88 Good accounting practices
The Financial Supervisory Authority shall, after consultation with the Icelandic Accountancy Council, set rules1)on the layout of annual accounts, the contents of individual items of the profit and loss account and the balance sheet, and of off-balance-sheet items and on the assessment of individual items.
1)Reg. 834/2003, reg. 97/2004, reg. 102/2004.
Article 89 Report of the Board of Directors.
The report of the board shall, in addition, provide information on the following:
1. events of significance following the end of the accounting period;
2. expected future development of the undertaking; and
3. actions which will be of significance for its future development.
In their reports, boards shall make proposals on the disposition of profits in the undertaking concerned or measures to meet losses.
Article 90 Auditing
The annual accounts of a financial undertaking must be audited by an accountant or accounting firm.
An auditor as provided for in the first paragraph must be elected at the AGM of a financial undertaking for a one-year term.
If at all possible, the same party shall be elected as auditor of a parent company, affiliate and subsidiary. The auditor of the parent company shall, in addition, audit the consolidated accounts.
Article 91 Qualifications of auditors
An auditor may not be in debt to the undertaking whose accounts he/she audits, neither as principal debtor nor as loan guarantor. The same shall apply to his/her spouse.
Article 92 Disclosure requirements of auditors
[If an auditor becomes aware of substantial flaws in operations or matters concerning internal control, loan collateral, or other matters which could weaken the financial position of the undertaking in question, or aspects which could result in his/her refusal to endorse the accounts, or in an endorsement with reservations, or if an auditor has reason to believe that there has been any violation of laws, regulations or rules which apply to the undertaking, the auditor must notify its board of directors and the Financial Supervisory Authority. This applies also to comparable issues that come to the knowledge of an auditor in the course of auditing for a company with close links to the financial undertaking in question, cf. the second paragraph of Article 18.
Article 93 Good auditing practices
In collaboration with the Association of Certified Public Accountants and other parties concerned, the Financial Supervisory Authority shall ensure that a definition of state-of-the-art in good auditing practices in auditing financial undertakings is always available. The Financial Supervisory Authority shall set rules1)on auditing accounts of financial undertakings.
Article 94 Special auditing
The provisions of the first paragraph shall also apply to subsidiaries of a financial undertaking, as well as to holding companies in the financial sector or mixed holding companies as referred to in Article 97 and subsidiaries of such companies.
Article 95 Submission and publication of annual accounts
The annual accounts of a financial undertaking, together with the report of the board of directors, shall be available at the place of business of the undertaking concerned and be given to any party with commercial interests who requests them within two weeks of its approval by the AGM.
Article 96 Interim financial statements
A financial undertaking must compile and publish interim financial statements in accordance with rules1)set by the Financial Supervisory Authority.
The Financial Supervisory Authority may grant exemptions from provisions on compiling interim financial statements.
1)Reg. 834/2003.
Article 97 Consolidated accounting
An undertaking shall be considered as a parent undertaking if it:
1. controls the majority of votes in another undertaking;
5. has holdings in another undertaking and holds a dominant position in it.
The parent company and its subsidiaries form a consolidation.
[A “holding company in the financial sector” shall mean an undertaking linked to the financial sector, which is not a mixed holding company with financial activities, whose subsidiaries are either exclusively or principally financial undertakings or undertakings linked with the financial sector and at least one subsidiary is a financial undertaking.
A “mixed holding company” shall mean a parent company which is not a holding company in the financial sector, a financial undertaking or mixed holding company with financial activities, having at least one subsidiary is a financial undertaking.]1)
[A “mixed holding company with financial activities” shall mean a parent company which is not subject to supervision but which together with its subsidiaries, at least one of which is subject to supervision and has its head office in a Member State, and other entities forms a financial conglomerate.]1)
The Financial Supervisory Authority shall, after consultation with the Icelandic Accountancy Council, set detailed rules2)on the compilation of consolidated accounts for consolidations where the parent company is a financial undertaking or holding company in the financial sector.
1)Act 130/2004, Article 8. 2)Reg. 834/2003.
Chapter XII [Financial Reorganisation, Winding up and Merger of Financial Undertakings.]1)
1)Act 130/2004, Article 12.
[A. Financial reorganisation of credit institutions]1)
[Article 98 Financial reorganisation
Financial reorganisation of credit institutions shall mean measures intended to maintain the credit institution's financial position or to restore it to normal and which could affect prior rights of third parties, including measures which could conceivably involve a suspension of payments, suspension of enforcement measures or a reduction of claims.If a credit institution's head office is in Iceland, financial reorganisation shall mean an authorisation for suspension of payments or to seek debt composition as provided for in the Act on bankruptcy etc., No. 21/1991.
The Act on bankruptcy etc., No. 21/1991, shall apply to a credit institution's authorisation to seek suspension of payments and debt composition and to the implementation of such measures, unless otherwise provided for in this Act.
[If a financial undertaking has been granted a debt moratorium, it is sufficient to publish a meeting notification, as provided for in the second paragraph of Article 13 and the fifth paragraph of Article 17 of the Act on Bankruptcy etc., in an advertisement in at least two daily newspapers in Iceland and in each state where branches have been operated.]1)
[?.1) ] 2)
1)Act 44/2009, Article 3. Despite Article 3, subparagraph a, Article 98(3) of Act No. 161/2002 as amended with Art. 2 of Act No. 129/2008 shall remain valid in its original form towards financial undertakings enjoying a debt moratorium on the date which Act No. 44/2009 entered into force, including as regards extension of a debt moratorium, cf. Act 44/2009, Article 10. 2) Act 130/2004, Article 9.
[Article 99 Financial reorganisation of a credit institution with head offices in Iceland and branches in another EEA state.
[If a court of law in Icelandgrants to a credit institution permission for suspension of payment or composition with creditors such permission shall automatically extend to all branches operated by the credit institution in another member state.]1)
Icelandic law shall apply concerning the legal effect, procedure and implementation of the decision, with the following exceptions:
a. An employment contract shall be governed by the law of the state which applies to the employment contract and employment relationship.
b. A contract for the use or purchase of real property shall be governed by the law of the state where the property is located.
c. Rights of a credit institution in respect of real property, a vessel or aircraft shall be governed by the law of the state where official registration has been effected.
e. If the credit institution has acquired an asset with a reservation of title to ownership, the credit institution's authorisation for financial reorganisation shall not affect the seller's right based on the reservation of title, provided the asset is situated in another member state.
f. If a credit institution has sold an asset, the authorisation for financial reorganisation shall not affect the buyer's rights, provided the asset is in another member state and delivery has already taken place when the authorisation is granted.
g. The legitimacy of a credit institution's disposal of real property, a vessel or an aircraft, which is subject to official registration, as well as of transferable securities or other securities registered in a central securities depository, shall be governed by the law of the state where the asset is located or where official registration has been effected.
h. The legal effect of a ruling on financial reorganisation on pending lawsuits, concerning an asset or other right which a credit institution has disposed of, shall be governed by the law of the state where the lawsuit was initiated.
i. The enforcement of right to title, including rights to mortgaged financial instruments, which are electronically registered shall be governed by the law of the state where the registration is effected.
j. A netting agreement shall be governed by the law of the state which applies to such agreement.
k. Without prejudice to sub-paragraph i, a repurchase agreement shall be governed by the law of the state which applies to such agreement.
l. Without prejudice to sub-paragraph i, transactions on a regulated securities market shall be governed by the law of the state which applies to such transactions.
m. Payment and settlement instructions in payment and settlement systems shall be governed by the law of the state which applies to the system concerned.
n. Notwithstanding the provisions of sub-paragraphs d and e, the provisions of Chapter III of the Act on conclusion of contracts, power of attorney and invalid legal instruments, No. 7/1936, on invalid legal instruments, may be applied unless the law of the host state does not allow this.
The court shall ensure that the Financial Supervisory Authority is notified immediately of any request received from a credit institution for authorisation to suspend payments or seek composition with creditors.The Financial Supervisory Authority shall forward information on the request and the response to it to the competent authorities and creditors of the credit institution in the states concerned, as provided for in rules2)set by the Minister.
Mandatory notifications to known foreign creditors of a credit institution in connection with suspension of payments or composition with creditors shall be as provided for in rules2)set by the Minister.]3)
1)Act 108/2006, Article 80. 2)Reg. 872/2006. 3)Act 130/2004, Article 9.
[Article 100 Financial reorganisation of a credit institution with its head office abroad and a branch in Iceland
[A branch which is operated in Icelandby a credit institution with a head office in another member state will not be automatically granted authorisation for financial reorganisation in Iceland. If the competent authority in another member state decides on the financial reorganisation of a credit institution which has a licence and is established in that state, the decision will automatically extend to branches operated by the institution in Iceland.]1)
[Should it be deemed necessary to carry out financial reorganisation of the Icelandic branch of a credit institution established in another member state, notice of such reorganisation shall be sent to the Financial Supervisory Authority.]1)The Financial Supervisory Authority shall forward the notification to the supervisory authorities of the home state.
A case may arise where application is made forauthorisation to suspend payment, or for authorisation to seek composition with creditors, on the basis of the second paragraph of Article 6 of the Act on bankruptcy etc., for a branch which a credit institution, established in a state outside of the European Economic Area, operates in Iceland. The District Court judge shall then notify the Financial Supervisory Authority of such request. If the credit institution concerned operates branches in other states of the European Economic Area, the Financial Supervisory Authority shall notify the supervisory authorities in those states of the request. The courts shallendeavour to co-ordinate actions with the authorities of other host states.]2)
1)Act 108/2006, Article 81. 2)Act 130/2004, Article 9.
[Article 100 a [Takeover of a financial undertaking by a provisional Board of Directors
If a financial undertaking faces such financial or operating difficulties as make it probable that it will not be able to fulfil its commitments or satisfy minimum capital requirements, its Board of Directors may voluntarily request that the Financial Supervisory Authority take over direction of the undertaking. The Financial Supervisory Authority must decide on such request without delay. If the Financial Supervisory Authority accedes to such request, the authority of the financial undertaking’s Board of Directors becomes null and void, together with rights of shareholders or guarantee capital owners to take decisions in the undertaking’s affairs by virtue of their holdings. The Financial Supervisory Authority shall concurrently appoint a provisional Board of Directors of three or five persons to exercise those rights provided for by law and the undertaking’s Articles of Association which its Board of Directors and shareholders´ meeting or meeting of guarantee capital holders would otherwise have held, cf. however Point 4 of the second paragraph of Article 101.
The provisional Board of Directors must, as soon as possible, take the necessary measures to obtain an overview of the financial undertaking’s financial situation. While the provisional Board controls the undertaking the same limits shall apply concerning execution or other enforcement remedies against the undertaking as would apply under a debt moratorium. The provisional Board of Directors may only take actions which concern material interests of the undertaking if they are urgently necessary.
Control of the financial undertaking by the provisional Board of Directors concludes automatically once three months have elapsed from its appointment unless:
1. the provisional Board of Directors has already submitted a request for the winding-up of the undertaking to a District Court as provided for in Point 3 of the second paragraph of Article 101; in such case, its mandate remains in force until a final decision has been reached on the request;
2. the undertaking has been granted a debt moratorium or authorisation to seek composition with creditors; in such case the mandate of the provisional Board of Directors remains in force until one month after the expiry of such authorisation; or
3. the provisional Board of Directors has previously, with the approval of the Financial Supervisory Authority, held a shareholders’ meeting or meeting of guarantee capital owners and a new Board of Directors has been elected for the company to replace the provisional Board of Directors.
If the control of a financial undertaking by a provisional Board of Directors concludes automatically when its mandate period expires, without the undertaking having been wound up, the undertaking’s operating license shall be revoked immediately unless a new Board of Directors has been previously elected as provided for in Point 3 of the third paragraph.]1) .]2)
1)Act 44/2009, Article 4. If the Financial Supervisory Authority had appointed a Resolution Committee for a financial undertaking prior to entry into force of Act 44/2009, based on Article 5 of Act No. 125/2008 and the Resolution Committee is still active, but the undertaking is not enjoying a debt moratorium, the Resolution Committee shall from that date automatically become Provisional Board for that undertaking within the meaning of Article 100a, cf. Act 44/2009, Interim Provision. 2)Act 125/2008, Chapter II, Article 5.
[B.]1)Winding up.
1)Act 130/2004, Article 9.
[Article 101]1) Conditions for and initiation of winding-up proceedings
A financial undertaking shall be wound up:
1. at the request of the Financial Supervisory Authority, if the latter has revoked the undertaking’s operating license or refused to grant a time limit as provided for in the fourth paragraph of Article 86, or the time limit granted pursuant to this provision has expired without the undertaking having increased its capital base above the minimum provided for in Article 84;
2. at the request of the Financial Supervisory Authority, the undertaking’s Board of Directors or the provisional Board of Directors, if it must be wound up pursuant to its Articles of Association;
3. at the order of the undertaking’s Board of Directors or provisional Board of Directors if it cannot completely fulfil its obligations to creditors when they fall due and the undertaking’s payment difficulties are not deemed to be temporary in nature;
4. at the request of the undertaking’s Board of Directors and with the approval of the Financial Supervisory Authority if a decision has been taken by a shareholders’ meeting or meeting of guarantee capital owners to wind up the company with a motion to this effect supported by at least 2/3 of votes cast and by shareholders or guarantee capital owners controlling at least 2/3 of the share capital or guarantee capital represented by voters at the meeting.
A request for the winding-up of a financial undertaking must be submitted to the District Court where a civil suit against it would be heard in its legal venue. The request must be prepared and presented to the court in the same manner as a petition for bankruptcy proceedings.
Once the court has passed its verdict that the financial undertaking is to be wound up, a District Court judge will appoint a winding-up committee comprised of up to five persons. Upon its appointment the Committee shall assume the rights and obligations held by the undertaking’s Board of Directors and shareholders’ meeting or meeting of guarantee capital owners, cf. however, the third paragraph of Article 103. Unless otherwise provided for in this Act, the rules concerning trustees in bankruptcy proceedings shall apply to the winding-up committee, its tasks and the members of the committee.
The reference date in winding-up a financial undertaking shall be determined by the same rules as apply to general bankruptcy procedures; however, it may also be determined by the date upon which the Financial Supervisory Authority set the undertaking a time limit, pursuant to the fourth paragraph of Article 86, or appointed it a provisional Board of Directors as provided for in Article 100 a, or the date when the District Court received a winding-up request, as provided for in the second paragraph, if no prior event has occurred to determine the reference date.]1)
1)Act 130/2004, Article 9. 2) Act 44/2009, Article 5. Notwithstanding subparagraph 5, the reference date of a financial undertaking´s winding-up proceedings shall be determined by paragraph 2 of Interim Provision of Act 125/2008, if applicable, cf. Act 44/2009, Interim Provision III.
[Article 102]1) [Processing of claims etc.
The same rules shall apply to the winding-up of a financial undertaking as apply generally to bankruptcy proceedings concerning reciprocal contractual rights and claims against it, with the exception that a court order for its winding-up shall not automatically result in claims against it falling due.
Once a winding-up committee has been appointed for a financial undertaking, the committee must without delay publish a notice to creditors of the winding-up in the Legal Gazette (Icel. Lögbirtingablað). The same rules shall apply concerning the contents of the notice to creditors, the time limit for submitting claims and notices or advertisements for foreign creditors as apply to general bankruptcy proceedings.
The same rules apply to the winding-up of a financial undertaking as apply to priority of claims against any estate under bankruptcy proceedings, with the exception that claims to deposits, as defined in the Act on Deposit Guarantees and an Investor Compensation Scheme, shall be included in priority claims as referred to in the first and second paragraphs of Article 112 of the Act on Bankruptcy etc. To the extent that the priority of claims can be determined under that Act by the date the court ruling on bankruptcy proceedings is issued, the date of the court ruling on the winding up of a financial undertaking shall apply.
Provisions of Chapter XVIII of the Act and Part 5 of the Act on Bankruptcy etc. shall apply concerning processing of claims against a financial undertaking upon its winding-up, including the effect of failure to submit claims; meetings held by the winding-up committee to discuss recognition of claims submitted are called creditors’ meetings. If, following the expiration of the time limit for submission of claims, the winding-up committee considers it probable that the undertaking’s assets will suffice to fully cover its debts, the committee is not obliged at that point to make a decision as to the ranking of claims by priority.
Once the time limit for submission of claims has expired, the winding-up committee shall assess whether it appears that a financial undertaking’s assets will suffice to cover its obligations. A report on this assessment must be submitted and presented to the first creditors’ meeting held after the expiry of the time limit for submission of claims.
Following the conclusion of the first creditors’ meeting held after the expiry of the time limit for submission of claims, the winding-up committee may pay recognised claims, in full or in part, in one or more payments, insofar as it is ensured that the assets of the financial undertaking are sufficient to cover a payment of at least as much to all other claims with the same priority of rank which have not been finally rejected in the winding-up. Care must also be taken to ensure that all creditors holding recognised claims with the same priority receive payment at the same time, although derogations may be permitted with the approval of those who do not receive payment or pursuant to a decision by the winding-up committee if a creditor offers to waive its claim in return for partial payment thereof, the amount of which is regarded as definitely lower than other creditors of equal rank will receive at a later stage, taking into consideration for instance whether their claims will bear interest until paid.]2)
1)Act 130/2004, Article 9. 2) Act 44/2009, Article 6.
[Article 103]1) [Disposition of the interests of a financial undertaking etc.
When winding-up a financial undertaking, the winding-up committee shall dispose of its interests following the same rules as apply to administration of an estate by a trustee during bankruptcy proceedings, with the exceptions resulting from the provisions of this Article. Any disputes arising concerning such dispositions shall be resolved in accordance with provisions of the Act on Bankruptcy etc.
The winding-up committee shall endeavour to obtain as high a value as possible for the financial undertaking’s assets, for instance, by waiting if necessary for outstanding claims to mature rather than realising them at an earlier date, unless it is deemed evident that the interests of creditors and, as the case may be, of shareholders or guarantee capital owners are better served by disposing of such rights at an earlier stage to enable the conclusion of winding-up proceedings. To this end the winding-up committee may disregard a resolution by a creditors’ meeting which it considers contrary to this objective.
The winding-up committee shall call a creditors’ meeting for the same purpose as a trustee holds a meeting with creditors of an estate during bankruptcy proceedings. If the winding-up committee has concluded, in the report referred to in the fifth paragraph of Article 102, that the assets of a financial undertaking appear likely to be sufficient to cover its obligations, the winding-up committee shall, in tandem with creditors' meetings, hold meetings with shareholders or guarantee capital owners to seek their opinions on disposition of the undertaking’s assets.
If it is not evident that the financial undertaking’s assets will be sufficient to fulfil its obligations in full, reversal of its dispositions may be demanded according to the same rules as apply to reversal of dispositions by an insolvent company under bankruptcy proceedings.]2)
1) Act 130/2004, Article 9. 2) Act 44/2009, Article 7.
[Article 103a Conclusion of winding-up proceedings
If a winding-up committee has completed payment of all recognised claims against a financial undertaking and, as the case may be, put aside funds for payment of disputed claims and realised its assets as necessary, it shall conclude the winding-up proceedings either by:
1. returning the undertaking to control of its shareholders or guarantee capital owners, if a meeting of these parties called by the winding-up committee has approved, with the votes of persons controlling at least 2/3 of its share capital or guarantee capital, having the undertaking recommence its activities and a new Board of Directors has been elected to take over from the winding-up committee, provided that the Financial Supervisory Authority has given its consent thereto and that the undertaking fulfils other legal requirements to recommence its activities; or
2. paying to the shareholders or guarantee capital owners their portion of the remaining value of assets, in accordance with a scheme for distribution which shall comply with the provisions of Chapter XXII and Part 5 of the Act on Bankruptcy etc.; in the case of a savings bank, however, assets remaining following payment of guarantee capital shall be disposed of in accordance with its Articles of Association and these assets may not be distributed to guarantee capital owners, cf. the fourth paragraph of Article 63.
Winding-up proceedings may be concluded as referred to in Point 1 of the first paragraph even if payment of all recognised claims has not been completed if creditors who have not yet received satisfaction agree to this.
If the financial undertaking’s assets do not suffice for full payment of claims which have not been finally rejected in the winding-up proceedings, the winding-up committee may, when it considers the time ripe to do so, seek composition with creditors to conclude the proceedings. The winding-up committee shall then draft a composition proposal, following the rules of Article 36 of the Act on Bankruptcy etc. and call for a creditors meeting to vote on the proposal. The provisions of the second paragraph of Article 149 and of Articles 151-153 of the same Act shall apply as appropriate when seeking composition with creditors; in such case the winding-up committee shall perform the role which a trustee in bankruptcy proceedings would otherwise have fulfilled and shall call creditors’ meetings to seek composition. If a composition proposal is approved, the winding-up committee shall request confirmation of the proposal in accordance with the rules of Chapter IX of the same Act. If the composition proposal is confirmed the winding-up committee shall, as necessary, fulfil any obligations to creditors it includes and conclude the winding-up proceedings as provided for in the first and second paragraphs.
If it is established that a financial undertaking’s assets are insufficient to fulfil its obligations completely, and the winding-up committee considers it evident that there will be no basis for seeking composition with creditors, as referred to in the third paragraph, or a composition proposal has not been approved or a request for its confirmation has been rejected, then the winding-up committee shall demand that the District Court which appointed it place the undertaking’s estate in bankruptcy proceedings. A creditor may do the same if its claim has been recognised in winding-up proceedings and either attempts by the winding-up committee to seek composition with creditors have been unsuccessful or the creditor demonstrates that the legal conditions for seeking composition with creditors do not exist, or such a large number of creditors are opposed to composition that there is no possibility of achieving composition based on available information on the undertaking’s financial situation. To advance such a claim, however, a creditor must demonstrate that it has lawful interests at state in achieving bankruptcy rather than allowing the winding-up of the undertaking to continue.
If the estate of a financial undertaking is declared bankrupt, all actions taken during the winding-up proceedings concerning claims against the undertaking, including the notice to creditors and the processing of claims submitted shall remain valid, but the trustee shall have an advertisement published in the Legal Gazette stating that the estate has been placed in bankruptcy proceedings. In other respects the general rules on bankruptcy proceedings shall apply, with the exceptions that provisions of the second paragraph of Article 103 shall apply mutatis mutandis, and that the date the court ruling on the winding-up of the financial undertaking was issued shall replace, with regard to legal effect, the date the ruling on bankruptcy was issued. ]1)
1)Act 44/2009, Article 8.
[Article 104 Winding up of a credit institution with head offices in Iceland and branches in another EEA state
[Should an Icelandic court decide on the winding up of a credit institution which is established and licensed to operate in Iceland, this authorisation shall automatically apply to any branches operated by the credit institution in other member states.]1)The legal effect, procedure and implementation of the decision shall be governed by Iceland law, with those exceptions listed in the second paragraph of Article 99.
The court shall ensure that the Financial Supervisory Authority is notified immediately of the decision on winding up.
[If a known creditor of the credit institution is resident in another Member state, the liquidator shall, without delay, inform the creditor of the commencement of the winding up.]1)The notification shall state the time limits for lodging claims, where lodgement of claims shall be made and the consequences of failure to lodge claims, as provided for in rules2)set by the Minister.]3)
1)Act 108/2006, Article 82. 2)Reg. 872/2006. 3)Act 130/2004, Article 11.
[Article 105 Winding up of a credit institution with its head office abroad and branches in Iceland
[A branch operated in Icelandby a credit institution with its head office in another member state cannot be granted independent authorisation for winding up in Iceland. If the competent authority in another member state decides on the winding up of a credit institution which is located and established in that state, the decision will automatically extend to branches operated by the institution in Iceland. The winding up of a credit institution as provided for in this Article shall mean collective proceedings opened and supervised by an administrative or judicial authority in another member state, intended to realise assets under the supervision of those authorities.]1)
Should a petition for bankruptcy proceedings be advanced, based on the second paragraph of Article 6 of the Act on bankruptcy etc., for a branch which a credit institution, established in a state outside of the European Economic Area, operates in Iceland, the District Court judge shall notify the Financial Supervisory Authority of such petition.If the credit institution concerned operates branches in other states of the European Economic Area, the Financial Supervisory Authority shall notify the supervisory authorities in those states of the petition.]2)
1)Act 108/2006, Article 83. 2)Act 130/2004, Article 11.
[C.]1)Merger.
[Article 106]1)[A merger of a financial undertaking with another undertaking is permitted only with the approval of the Financial Supervisory Authority. The transfer of individual operating units of financial undertakings to other undertakings by other means, such as sale, is also subject to the approval of the Financial Supervisory Authority. For the purposes of this provision, “operating units” shall mean viable units of a financial undertaking, e.g. branches.
[A merger of a savings bank with another undertaking shall only be authorised if the savings bank has previously been incorporated as a limited-liability company in accordance with the provisions of Chapter VIII, except in the case where the merger involves two or more savings banks which have not been incorporated as a limited-liability company or companies.]2)
Mergers of financial undertakings shall otherwise be subject to provisions of the Act on public limited companies, as appropriate, and agreements between the parties concerned.
[The Financial Supervisory Authority shall announce mergers or transfer of operating units of financial undertakings in the Legal Gazette. The announcement must specify when the merger or transfer takes effect, the names of the undertakings concerned, the time limit for submitting objections to the transfer of deposits, conceivable changes to the payment locations for debt instruments and other aspects which need be made known to customers in particular.]2)
1)Act 130/2004, Article 11. 2)Act 96/2008, Article 11
Chapter XIII Supervision
A. General authorisations for supervision
[Article 107]1) The Financial Supervisory Authority
[The Financial Supervisory Authority shall supervise the activities of financial undertakings and undertakings connected to the financial sector to which the provisions of this Act apply, as well as activities of Icelandic financial undertakings abroad, unless otherwise provided for by law or international agreements to which Icelandis a party. Furthermore, the Financial Supervisory Authority shall supervise subsidiaries, affiliated undertakings and funds pursuing the activities listed in Chapter IV, to the extent required by activities subject to supervision, in addition to supervising the owners of qualifying holdings pursuant to Chapter VI. The supervision shall be as provided for in this Act and the Act on the official supervision of financial operations.
The Financial Supervisory Authority may demand documentation and information of any kind from natural or legal persons owning or planning to acquire and exercise holdings in financial undertakings in order to evaluate whether they are subject to the notification obligation provided for in Chapter VI and whether they are considered eligible to exercise a qualifying holding. The Financial Supervisory Authority may require the same information from natural persons or legal persons who have sold a share or intermediated in a transaction involving a share. Provisions of law concerning confidentiality do not restrict the obligation to provide information and access to data.]2)
[The Financial Supervisory Authority shall oversee dealings by a financial undertaking with its subsidiaries and affiliated companies, companies which control or have holdings in the financial undertaking, and other subsidiaries and affiliated companies of such companies. Furthermore, the Financial Supervisory Authority shall keep track of dealings between a financial institution and individuals with holdings of 20% or more in the above-mentioned companies. Financial undertakings shall provide the Financial Supervisory Authority with a report on such dealings in accordance with its specific instruction. Where the dealings are made with enterprises or individuals in other states, co-operation between supervisory authorities shall be as provided for in international agreements to which Iceland is a party and co-operation agreements concluded by the Financial Supervisory Authority on their basis.
The Financial Supervisory Authority may, at the request of supervisory authorities in another state, verify information from parties in Iceland subject to supplementary supervision of financial conglomerates.The supervisory authorities concerned may participate in efforts to verify such information.]3)
Should the Financial Supervisory Authority be of the opinion that activities covered by this Act are pursued without the required authorisation, it may demand from the parties concerned or parties subject to supervision such data and information as are necessary to determine whether such is the case. It can demand that such activities cease immediately. In addition, it may make public the names of parties regarded as offering services without the required authorisation.
Provisions of the Act on the official supervision of financial operations on daily fines and on searches and seizure of documents may be applied for obtaining information and carrying out supervision as provided for in this Article.
1)Act 130/2004, Article 11. 2)Act 67/2006, Article 14. 3)Act 130/2004, Article 13.
[Article 108]1) Assistance to authorities of other EEA states
If a financial undertaking, which has received an operating licence in Iceland and pursues activities in another state of the European Economic Area, violates the laws of that state and the competent authorities of that state take measures comparable to those listed in Article 34, the Financial Supervisory Authority shall assist the authorities in that state in their exchanges with the management of the financial undertaking concerned.
[The Financial Supervisory Authority shall notify the appropriate foreign authorities of suspension of payments, composition with creditors or bankruptcy of domestic credit institutions operating branches in other states of the European Economic Area.]3)
1)Act 130/2004, Article 11. 2)Act 108/2006, Article 84. 3)Act 130/2004, Article 14.
B. Supervision on a consolidated basis
[Article 109]1)The provisions of Part C of Chapter IV and of Chapter X shall apply to consolidations where the parent company is a financial undertaking or a holding company in the financial sector. The parent company shall be responsible for implementing this provision. [The provisions of Article 52 on eligibility of board members and managing directors, and of Articles 84 and 85 on own funds shall also apply to holding companies in the financial sector.]2) [The provisions of Article 30 and Articles 84-86 shall also apply to financial conglomerates, as referred to in the third paragraph.]2)
If a financial undertaking or holding company in the financial sector, alone or jointly with other undertakings in the consolidation, owns a holding in an affiliated company, which is a financial undertaking or undertaking in the financial sector, and that undertaking is operated in co-operation with other undertakings, which are not part of the consolidation, in applying the provisions of the first paragraph on own funds a proportional consolidation method shall be used, having regard for the size of the holding in the undertaking in question. If the responsibility of the financial undertaking or holding company for the affiliated company in question is not limited to the share of its holding or voting rights, the provisions of traditional consolidated accounting shall apply. An "affiliated company" as referred to in this paragraph shall mean a company, not a subsidiary, in which another company and its subsidiaries own a holding and have substantial influence on, or in which the direct or indirect holding amounts to 20% or more of own funds or voting rights.
[The Financial Supervisory Authority shall ensure that financial conglomerates comply with the provisions of this Act.A financial conglomerate shall mean a group of companies, or companies which have close connections, cf. Article 18, where there is a regulated entity at the head of the group and at least one entity within in the group operates in the financial sector and another entity operates in the insurance sector and where the consolidated and/or aggregated activities in the financial sector, on the one hand and, on the other hand, comparable activities in the insurance sector are both considered significant according to rules set by the Financial Supervisory Authority.Where there is no regulated entity at the head of the group, but the group's activities occur primarily within the financial or insurance sector, as defined in rules set by the Financial Supervisory Authority, the group shall be considered a financial conglomerate.Each sub-group which fulfils the conditions of the second sentence shall be regarded as a financial conglomerate.The Financial Supervisory Authority shall set detailed rules3)on the definition of financial conglomerates and their supervision.]2)
The Financial Supervisory Authority may decide that the provisions of the first paragraph of this Article and the [ninth and tenth paragraphs of Article 97]2)shall also apply in other instances involving a financial undertaking which alone or jointly with another party has such ownership links to an undertaking that it is deemed necessary to apply these provisions.
The provisions of the first paragraph of this Article and the [ninth and tenth paragraphs of Article 97]2)shall not apply to undertakings in which a financial undertaking has temporarily acquired a holding, either to ensure the enforcement of a claim or due to reorganisation of the undertaking, nor to enterprises pursuing insurance activities.The Financial Supervisory Authority may decide, however, that the provisions in question shall apply.
The Financial Supervisory Authority may grant an exemption from the provisions of the first and second paragraphs of this Article and the [ninth and tenth paragraphs of Article 97]2).
1)Act 130/2004, Article 11. 2)Act 130/2004, Article 15. 3)Reg. 920/2008.
Chapter XIV Penalties
[Article 110]1) [Administrative fines
The Financial Supervisory Authority may impose administrative fines on any party violating:
4. the second paragraph of Article 21 on the obligation to report ancillary activities;
5. Article 22 on temporary activities and take-over of assets;
6. the first sentence of the second paragraph of Article 26 on the maximum value of the financial instruments which a securities brokerage may preserve on its own account;
8. Article 29 on holding and pledging own shares;
9. the first and third paragraphs of Article 30 on limits to large exposures;
14. the second paragraph of Article 54 on the obligation to adopt rules of procedure;
16. Article 56 on the participation of personnel in business operations;
17. the first paragraph of Article 57 on the dealings of personnel with a financial undertaking;
18. Article 58 on confidentiality;
19. the fourth paragraph of Article 63 banning the refunding of guarantee capital to guarantee capital holders;
25. Article 81 on limitations on the investments of electronic money undertakings;
27. the first paragraph of Article 86 on initial measures due to insufficient own funds;
28. Article 87 on the drafting and attestation of annual accounts;
29. the first paragraph of Article 88 on good accounting practices;
30. Article 89 on the report of the board of directors;
31. Article 91 on qualifications of auditors;
32. Article 92 on the disclosure requirements of auditors;
33. Article 95 on the submission of annual financial reports to the Financial Supervisory Authority;
35. Article 107 on the supervisory powers of the Financial Supervisory Authority;
36. a settlement between the Financial Supervisory Authority and a party, cf. Article 111.
Fines imposed on a natural person may range in amount from ISK 10 thousand to ISK 20 million.Fines imposed on a legal person may range in amount from ISK 50 thousand to ISK 50 million. The determination of fines shall, inter alia, take account of the seriousness of the violation, its duration, the extent of co-operation of the violating party and whether the violation is repeated. Decisions on administrative fines shall be made by the board of directors of the Financial Supervisory Authority and are enforceable by law. Fines shall accrue to the State Treasury, net of collection costs. If administrative fines are not paid within a month from the decision of the Financial Supervisory Authority, penalty interest shall be paid on the amount of the fine. The determination and calculation of the penalty interest shall be governed by the Act on interest and price indexation.
1)Act 130/2004, Article 11. 2)Act 55/2007, Article 7.
[Article 111]1)[If a party has violated the provisions of this Act, or the decisions of the Financial Supervisory Authority based on the Act, the Authority is permitted to conclude the matter by a settlement with the consent of the parties to the case, provided that no major violation is involved which is subject to punitive sanctions. A settlement is binding for the party involved once it has been accepted and its substance confirmed by the party’s signature. The Financial Supervisory Authority will establish further rules2)on the implementation of this provision.]3)
1)Act 130/2004, Article 11. 2)Reg. 1245/2007. 3)Act 55/2007, Article 8.
[Article 112]1)[In proceedings directed against a natural person which may potentially conclude with the imposition of an administrative fine or formal charges to the police, a person reasonably suspected of violation of the law is entitled to refuse to answer questions or surrender documents or any other effects unless it is possible to exclude the possibility that this may have significance for the determination of his or her violation. The Financial Supervisory Authority shall advise the suspect of this right.]2)
1)Act 130/2004, Article 11. 2)Act 55/2007, Article 9.
[Article 112 aThe power of the Financial Supervisory Authority to impose administrative fines pursuant to this Act shall lapse when five years have passed from the time that the conduct ceased.
1)Act 55/2007, Article 10.
[Article 112 b Fines or imprisonment
2. the second paragraph of Article 21 on the obligation to report ancillary activities;
3. Article 22 on temporary activities and take-over of assets;
4. the first sentence of the second paragraph of Article 26 on the maximum value of the financial instruments which a securities brokerage may preserve on its own account;
6. the second paragraph of Article 29 on the obligation to provide secure collateral for loans granted in connection with a public offer for the purchase of shares in itself or guarantee capital in excess of a specific proportion of the total amount of share capital;
7. Article 30 on limits to large exposures;
11. Article 56 on the participation of personnel in business operations;
12. the first paragraph of Article 57 on the dealings of personnel with a financial undertaking;
13. Article 58 on confidentiality;
17. the first paragraph of Article 86 on initial measures due to insufficient own funds;
18. Article 87 on the drafting and attestation of annual accounts;
19. the first paragraph of Article 88 on good accounting practices;
20. Article 89 on the report of the board of directors;
[Article 112 cViolations of this Act which are subject to fines or imprisonment are subject to sanctions whether committed by intent or negligence.
Direct or indirect profit gained by a violation of the provisions of this Act which is subject to fines or imprisonment may be confiscated by a judgment of a court of law.
[Article 112 dViolations of this Act are subject to criminal investigation only following charges submitted by the Financial Supervisory Authority to the police.1)
The police and prosecuting authority are permitted to supply the Financial Supervisory Authority with information and documents obtained by the police and relating to the violations specified in the second paragraph. The police is permitted to participate in actions taken by the Financial Supervisory Authority relating to investigation of the violations specified in the second paragraph.
1)The paragraph was amended by Act 88/2008, Article 234. The amendment will take effect on 1 January 2009, according to Article 232 of the same Act. 2)Act 55/2007, Article 10.
Chapter XV Miscellaneous provisions
[Article 113]1) Registration of accounts by name
[Article 114]1) Lost documents
[Article 115]1) Exemption from stamp duty
[Article 116]1) Exempted funds and exemption from legal form
Despite the authorised activities of the Harbour Improvement Fund in accordance with the Harbours Act, No. 23/1994, of the Housing Financing Fund in accordance with Act No. 44/1998, on Housing Affairs, and the Tourism Fund in accordance with Act No. 117/1994, on the Organisation of Tourism Affairs, these funds shall not be considered as financial undertakings in accordance with this Act.
1)Act 130/2004, Article 11.
Chapter XVI Entry into force, etc.
[Article 117]1) Transposition
This Act introduces into Icelandic law provisions of the Directives of the European Parliament and the Council Nos. 2000/12/EC, relating to the taking up and pursuit of the business of credit institutions, 93/6/EEC, on the capital adequacy of investment firms and credit institutions, [2004/39/EC on markets in financial instruments]2), 86/635/EEC, on the annual accounts and consolidated accounts of banks and other financial institutions, 107/2001/EC, amending Directive 85/611/EEC on undertakings for collective investment in transferable securities (UCITS), 95/26/EC, amending various Directives in the field of financial services, with a view to reinforcing prudential supervision, 2000/28/EC, amending Directive 2000/12/EC concerning the definition of a credit institution, and 2000/46/EC, on the taking up and pursuit of the business of electronic money institutions.
1)Act 130/2004, Article 11. 2)Act 111/2007, Article 12.
[Article 118]1) Entry into force.
This Act shall enter into force on 1 January 2003. The words "financial instrument" in this Act shall mean securities as defined in Act No. 13/1996, on Securities Transactions.
1)Act 130/2004, Article 11.
Interim provisions
I.Commercial banks, savings banks, credit institutions other than commercial and savings banks, electronic money undertakings, securities companies and securities brokerages currently operating shall retain their operating licences upon the entry into force of this Act. Within six months they must notify the Financial Supervisory Authority what activities as provided for in Article 3 and Chapter IV they pursue upon the entry into force of the Act. The notification shall be made in such form as the Financial Supervisory Authority requests.
II.Financial undertakings must send the Financial Supervisory Authority rules in accordance with Chapter VII within twelve months from the entry into force of this Act.
III. Securities brokerages operating as private limited-liability companies must change their operations to a public limited company within twelve months of the entry into force of this Act.
[IV. ...1). .]2)
1) Act 44/2009, Article 9. Notwithstanding that provision, Interim Provision IV of Act 161/2002 cf. Article 4 of Act 129/2008, shall remain valid in its original form towards financial undertakings enjoying a debt moratorium at the date of entry into force of Act 44/2009, including as regards extension of a debt moratorium, cf. Act 44/2009 Article 10.
2) Act 129/2008, Article 4.
[V. The following special rules shall apply to financial undertakings benefiting from a moratorium upon the entry into force of this Act.
1. The authorised debt moratorium shall continue in spite of the entry into force of this Act and may be extended as provided for in the rules referred to in the second paragraph of Article 10.
2. The moratorium shall be subject to provisions of the first paragraph of Article 101, Articles 102, 103 and Article 103 a of the Act, cf. the first substantive paragraph of Article 5 and Articles 6, 7 and 8 of this Act, as if the winding-up of the undertaking had been ordered by a court ruling on the date this Act enters into force; the winding-up proceedings shall, however, be alluded to as an authorised debt moratorium as long as that authorisation is valid, cf. Point 1. Once this authorisation expires, the undertaking shall, without a specific court ruling, automatically be deemed to be in winding-up proceedings following the general rules, cf. however, Points 3 and 4. Provisions of Chapter IV of the Act on Bankruptcy etc. shall not apply to such a debt moratorium as referred to here; the Appointee shall, however, monitor dispositions of the Resolution Committee as provided for in Article 103 of the Act, cf. Art. 7 of this Act.
3. The Resolution Committee of a financial undertaking, appointed by the Financial Supervisory Authority prior to the entry into force of this Act based on Article 5 of Act No. 125/2008, shall continue its work with its name unaltered and fulfil the role intended for the winding-up committee in the third paragraph of Article 9, the second sentence of the fourth paragraph of Article 101, the first sentence of the fifth paragraph of Article 102 and the first to third paragraphs of Article 103 of the Act, cf. Articles 1, 5, 6 and 7 of this Act. Should a seat on the Resolution Committee become vacant following the entry into force of this Act, the Financial Supervisory Authority shall appoint a person to fill such position if deemed necessary, having regard to the tasks still unconcluded by the Committee.
4. To carry out tasks of the winding-up committee other than those referred to in Point 3, a District Court judge shall, following a written request from the Resolution Committee, appoint such a committee in accordance with the instructions in the first and third sentences of the fourth paragraph of Article 101 of the Act, cf. Art. 5 of this Act. The person serving as the undertaking’s Appointee during the debt moratorium shall also automatically take a seat on this committee and shall remain in this position even after the debt moratorium has concluded.]1)
1)Act 44/2009, Interim provision II.
[VI. In order to limit damage or risk of damage to financial markets, the Financial Supervisory Authority may take special measures in accordance with the instructions in this Provision if it considers such necessary in view of exceptional circumstances or events. Exceptional circumstances or events refers to particular financial and/or operational difficulties experienced by a financial undertaking, including the probability that it will not be able to fulfil its commitments to customers or creditors, the probability that the premises for revocation of its operating license exist, or the likelihood that the undertaking cannot satisfy minimum capital requirements, and other remedies available to the Financial Supervisory Authority are unlikely to prove successful. Exceptional circumstances can also apply where a financial undertaking has requested or been granted a debt moratorium or authorisation to seek composition with creditors.
In the circumstances or events specified in the first paragraph, the Financial Supervisory Authority may call a shareholders’ meeting or a meeting of guarantee capital owners. The Financial Supervisory Authority’s representative shall chair the meeting and have the right to speak and make proposals. Under these circumstances, the Financial Supervisory Authority is not bound by provisions of the Act on Public Limited Companies or of a financial undertaking’s Articles of Association on calling meetings, advance notice of meetings or proposals to amend the Articles of Association.
In extreme circumstances, the Financial Supervisory Authority may assume the powers of a shareholders’ meeting or meeting of guarantee capital owners for the purpose of taking decisions on necessary measures, including limiting the decision-making power of the Board, dismissing the Board in whole or in part, taking over the assets, rights and obligations of a financial undertaking in whole or in part, or disposing of such an undertaking in whole or in part, including merging it with another undertaking. Such measures shall not be subject to provisions of the Act on Securities Transactions on mandatory bid obligations, nor the provisions of the Act on Financial Undertakings on advertisement of financial undertakings’ mergers in the Legal Gazette. The Financial Supervisory Authority is authorised to transfer all rights insofar as necessary in such instances. Should the Financial Supervisory Authority conclude that a merger of the financial undertaking concerned with another optimally safeguards the interests at stake, the provisions of the Competition Act and merger provisions of this Act shall not apply to such merger. A decision by the Financial Supervisory Authority to take over the operations of a financial undertaking shall be notified to the Board of the latter and grounds given in writing. The Financial Supervisory Authority must make the announcement public. If the financial undertaking operates branches or has services in another country such notification must be sent to the competent supervisory authorities in that country.
If the Financial Supervisory Authority dismisses the entire Board of a financial undertaking, a provisional Board of Directors must be appointed for the undertaking immediately. In other respects the provisions of Articles 100 a shall apply to such a Board of Directors and its tasks.
If necessary, the Financial Supervisory Authority may limit or prohibit disposal of a financial undertaking’s capital or assets. The Financial Supervisory Authority is authorised to take custody of assets that are to satisfy the financial undertaking’s obligations, have their value assessed and dispose of them as necessary for payment of claims fallen due. Furthermore, the Financial Supervisory Authority may cancel sale of assets executed within one month prior to special measures taken by the Authority as provided for in this Article.
Provisions of Chapters IV-VII of the Public Administration Act shall not apply to the above proceedings and decisions of the Financial Supervisory Authority.
The Treasury shall be liable for costs of implementing actions by the Financial Supervisory Authority based on this Provision.
This Provision shall expire as of 1 July 2010. ]1)
1)Act 44/2009, Interim provision IV.