Regulation No 34/2002 on the maximum of loans and guarantees of credit institutions.....

This Regulation applies to loans, securities assets, holdings and guarantees of credit institutions and undertakings in securities services on account of individual client or financially connected parties, and furthermore to other obligations of the same parties towards credit institutions and undertakings in securities services, hereinafter referred to as exposures, and the evaluation of the risk attached to such obligations. The Rules also apply to a consolidation of a credit institution, or an undertaking in securities services, and undertakings in operations covered by Article 44 of the Commercial and Savings Banks Act.

For the purposes of this Regulation the following definitions shall apply:
Exposure: asset items and off-balance sheet items as referred to in items A, B and C in Annex I to this Regulation, excluding asset items deductible from own funds, according to own funds provisions of the acts on the institutions covered by this Regulation.
Own funds: own funds according to own funds provisions of the acts valid for the credit institution or the undertaking in securities services in question, this does not, however, apply to the own funds Part C according to the own funds provisions of the same acts.
Financially connected parties:
a. two or more individuals or legal persons who, unless shown otherwise, constitute a single exposure because one of them has, directly or indirectly, control over the others; or
b. two or more individuals or legal persons who are to be regarded as constituting a single exposure because they are so financially interconnected that financial difficulties encountered by one of them would be likely to result in repayment difficulties for the other or others.
International development banks: the World Bank, the International Finance Corporation, the European Bank for Reconstruction and Development, the European Investment Fund, the Inter-American Investment Corporation, the Nordic Investment Bank, the African Development Bank, the Inter-American Development Bank, the Asian Development Bank, the Caribbean Development Bank and the Council of Europe Resettlement Fund.
Undertakings in securities services: securities companies and securities brokerages according to the Act on Securities Transactions.
Credit institution: commercial banks and savings banks, cf. Act No 113/1996 and credit institutions other than commercial banks and savings banks No 123/1993.
Large exposure: an exposure of a credit institution or undertaking in securities services on account of an individual client or financially connected parties amounting to 10 % or more of the own funds of the institution or undertaking.

Large exposures on account of individual clients or financially connected parties may not exceed the value of 25% of the own funds of a credit institution or securities undertaking. Should any portion of such large exposure be regarded as a position in a trading book, this position shall, in assessing the risk-weighted base, be treated as an excess risk, cf. provisions of Chapter 7 of Rules on the Solvency Ratio of Credit Institutions and Undertakings Engaged in Securities Services No. 693/2001.
The total amount of large exposures of a credit institution or an undertaking in securities services may not exceed 800% of an institution's own funds.
The provisions of the first and second paragraphs shall not apply to large exposures of a credit institution or an undertaking in securities services incurred on account of undertakings in the activities referred to in Article 44 of the Commercial and Savings Banks Act which form a consolidation with the institution or the undertaking in question.

When calculating the proportions referred to in the first to third paragraphs of Article 3, the items below may be excluded in the context specified. Individual items apply to both credit institutions and undertakings in securities services except otherwise specified:
1. Claims on, or claims guaranteed by, treasuries and central banks in Zone A, cf. Annex II to this Regulation, and claims on, or claims guaranteed by the European Union.
2. Claims on, or claims guaranteed by, treasuries and central banks in Zone B, cf. Annex II to this Regulation, provided that these claims are denominated and funded in the national currency of the states concerned.
3. A credit institution's claims secured by collateral in cash deposits and certificates of deposit issued by the credit institution itself or a credit institution which is a parent undertaking or a subsidiary undertaking of the credit institution.
4. Claims secured by collateral in securities issued by parties specified in Point1.
5. Up to 80% of claims on, or claims guaranteed by, Icelandic municipalities and municipalities and regional authorities in Zone A, cf. Annex II.
6. Claims on credit institutions, undertakings in securities services within the European Economic Area, recognised undertakings in securities services outside the European Economic Area, organised securities exchanges and recognised clearing houses and claims guaranteed by the same parties with a maximum residual maturity of one year. Up to 80% of claims with a residual maturity of one to three years may be excluded, while up to 50% of claims with a residual maturity of three years or longer may be excluded. The provisions on claims with a residual maturity of over one year are subject to the condition that such claims be in the form of debt instruments issued by a party mentioned in the first sentence of this Point and that these debt instruments are negotiable on a market operated by duly accredited parties and that their prices are registered daily. Claims of Icelandic savings banks on, or guaranteed by, Icebank Ltd. with a residual maturity of over one year, however, may be excluded up to a percentage of 80%. The provisions of this subparagraph do not apply to subordinated claims.
7. Claims, adequately secured by mortgages in a finished residential property used or rented by the borrower, amounting to up to 50% of the real estate assessment value of the Valuation Office of Iceland.
8. Claims guaranteed with collateral in securities not specified in Points 4 and 5, provided that they are not issued by a client of a credit institution or an undertaking in securities services or a group of connected parties. The securities must be registered on an organised securities exchange, cf. Point 14 of the first paragraph of Article 2 of the Act on Securities Transactions, No 13/1996. The securities must be valued at market price and have a value exceeding that of the risks guaranteed. The excess value required shall be 100%. In the case of stocks, however, it shall be 150% and 50% in case of debt securities issued by credit institutions, municipalities, cf. Point 5, the European Investment Bank and international development banks. The provisions of this Point do not apply to subordinated claims.
9. Such portion of underwritten securities corresponding to the reductions specified in the first paragraph of Article 32 of Rules on the Solvency Ratio of Credit Institutions and Undertakings Engaged in Securities Services No. 693/2001.
10. 50% of the off-balance-sheet items referred to in item B.3. in Annex I to this Regulation.
11. Off-balance-sheet items referred to in item B.4. in Annex I to this Regulation with the exception of unused overdraft facilities, provided that a credit facilities contract or a comparable commitment to a client or financially connected parties, does not lead to a situation where an exposure on account of the same parties exceed the limits specified in Article 3.
12. Exposures incurred in connection with foreign exchange transactions in the ordinary course of settlement during the 48 hours following payment and risks in the case of transactions for the purchase or sale of securities, incurred in the ordinary course of settlement during the five working days following payment or delivery of the securities, whichever is the earlier.

If the exposures of a credit institution or an undertaking in securities services exceed the limits provided for in the first to third paragraphs of Article 3, they shall be reported to the Financial Supervisory Authority which is then authorised, where circumstances warrant, to allow the credit institution a limited period of time within which to comply with the limits currently in force.
Without prejudice to the provisions of the first to third paragraphs of Article 3, the provisions of Chapter 7 of Rules on the Solvency Ratio of Credit Institutions and Undertakings Engaged in Securities Services No. 693/2001 shall apply regarding permission to exceed the limits in question.

A credit institution and an undertaking in securities services shall make use of/have at their disposal a sound management and information system and internal control mechanisms which identifies and records all large exposures and subsequent changes to them in order to monitor them.

Credit institutions and undertakings in securities services shall at least semi annually, i.e. pr. 30 June and pr. 31 December, submit to the Financial Supervisory Authority in a form prescribed by it, a report on any large exposures of individual clients or financially connected parties.
A report in accordance with paragraph 1 of this Article shall have reached the Financial Supervisory Authority not later than 30 days from the accounting date.

This Regulation, which is issued by virtue of the authorisation in the first paragraph of Article 46 of Act No 113/1996 on Commercial Banks and Savings Banks, the fifth paragraph of Article 8 of Act No 123/1993 on Credit Institutions other than Commercial Banks and Savings Banks, and the second paragraph of Article 21 of Act No 13/1996 on Securities Transactions, shall enter into force immediately. As of the same date, Regulation No 571 of 25 October 1996, on maximum limits for loans and guarantees by credit institutions and undertakings engaged in securities services shall be repealed

A. Balance sheet items.

B. Off-balance-sheet items other than interest-rate and foreign currency

b) acceptances,
c) asset sale and repurchase guarantees where the credit risk remains with the institution, and
d) other items carrying high risk.

a) documentary credits issued and confirmed,
b) warrantees and indemnities (including tender, performance, customs and tax bonds) and guarantees not having the character of credit substitutes,
c) undrawn credit facilities (agreement to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of more than one year,
d) note issuance facilities (NIFs) and revolving underwriting facilities (RLTFs), and
e) other items carrying medium risk.

a) documentary credits in which underlying shipment acts as collateral and other similar transactions, and
b) other items carrying medium risk.

a) undrawn credit facilities (undrawn overdraft facilities, agreement to lend, purchase securities, provide guarantees or acceptance facilities) with an original maturity of up to and including one year or which may be cancelled unconditionally at any time without notice, and
b) other items carrying low risk.

C. Interest-rate and foreign exchange contracts.

a) single-currency interest-rate swaps,
b) basis-swaps,
c) forward-rate agreements,
d) interest-rate futures,
e) interest-rate options purchased, and
f) other contracts of similar nature.

a) cross-currency interest-rate swaps,
b) forward foreign-exchange contracts,
c) currency futures,
d) currency options purchased, and
e) other contracts of a similar nature.

a) equities,
b) precious metals except gold,
c) commodities other than precious metals, and
d) other contracts of a similar nature.

D. Calculation of risks in connection with interest-rate and foreign exchange

Zone A shall include the following countries.((1) Countries forced to renegotiate their foreign debts are excluded from Zone A for a period of five years from the date of so doing.1)