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Chapter IX, 14 of December 2010 BANKS AND FINANCIAL CONGLOMERATES

Chapter IX, 14 of December 2010 BANKS AND FINANCIAL CONGLOMERATES. Accounts of Banks (1). Directive 86/635/EEC

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Chapter IX, 14 of December 2010 BANKS AND FINANCIAL CONGLOMERATES

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  1. Chapter IX, 14 of December 2010 BANKS AND FINANCIAL CONGLOMERATES

  2. Accounts of Banks (1) Directive 86/635/EEC • Act on Commercial Banks and Savings Banks No 43/1993 and Act on Credit Institutions other than Commercial Banks and Savings Banks No 123/1993, now a revised Act on Financial Undertakings No 161/2002 (http://eng.efnahagsraduneyti.is/laws-and-regulations//nr/2974) • Rules No 554/1994 on the Annual Accounts of Commercial Banks, Savings Banks and other Credit Institutions (cease to apply with Rules No 692/2001) • Rules No 692/2001 on the Annual Accounts of Credit Institutions (cease to apply with Rules No 834/2003) • Rules No 834/2003 on the Annual Accounts of Credit Institutions (http://www.fme.is/lisalib/getfile.aspx?itemid=3154) • The legislation is therefore fully transposed into Icelandic law LRK

  3. Accounts of Banks (2) Directive 2001/65/EEC • Act No 28/2004 amending Act on Annual Accounting No 144/1994 now a revised Act on Annual Accounting No 3/2006 (not available in English) • The legislation is therefore fully transposed into Icelandic law LRK

  4. Branch Accounting Directive 89/117/EEC • Act on Commercial Banks and Savings Banks No 43/1993 and Act on Credit Institutions other than Commercial Banks and Savings Banks No 123/1993, now a revised Act on Financial Undertakings No 161/2002 • The legislation is therefore fully transposed into Icelandic law LRK

  5. Desposit Guarantee Schemes Directive 94/19/EC and Directive 2009/14/EC EU question: • When does Iceland plan to implement Directive 2009/14? • What is the situation with the Deposit Guarantee Fund in Iceland? Has it been recapitalised? • How is Iceland preparing to align in particular on the issue of funding of the DGS? KG

  6. Winding up Directive 2001/24/EC • Implemented with: • Act No. 161/2002 on Financial Undertakings: http://eng.efnahagsraduneyti.is/laws-and-regulations//nr/2995 • Act on bankruptcy No. 21/1991http://eng.domsmalaraduneyti.is/laws-and-regulations/english/nr/6570 • Regulation No. 872/2006 on the notification and publication of decisions on the financial reorganisation and winding up of credit institutions http://eng.efnahagsraduneyti.is/laws-and-regulations//nr/2961 • Regulation No. 1049/2008 amending Regulation No. 872/2006 on the notification and publication of decisions on the financial reorganisation and winding up of credit institutions http://eng.efnahagsraduneyti.is/laws-and-regulations//nr/2962 KG

  7. Financial conglomerates (1) • Act No 130/2004 amending Act No. 161/2002 on Financial Undertaking and Act No. 60/1994 on Insurance Activities • Rules of FME No. 920/2008 on supplementary supervision of financial conglomerates (English translation available on www.fme.is) SFJ

  8. Financial conglomerates (2) • Initiatives in the pipeline • Financial Conglomerates Directive • The FME will amend it's rules No. 920/2008 when a new directive has been published • Amend existing legislation on financial undertakings and insurance activity if needed • According to current draft directive, identification of financial conglomerates in Iceland becomes less likely SFJ

  9. Business of Credit Institutions (1) Overview • Emergency Act of October 2008 • “Old” banks > “New” banks • Regulatory Reform • Next Steps Main Features of the Emergency Act • Special Measures of the FSA (FME) • Powers of Shareholder’s Meetings • Taking over of Operations • Disposing of or Merging • Appointment of Resolution Committee • Deposit Guarantee Scheme • Priority of Claims KG

  10. Business of Credit Institutions (2) Regulatory Reform • Assessment • Laws & Regulations on Financial Undertakings • Supervision • Organisation/Structure Amending Act on Financial Undertakings (1) • Internal Auditing • Increased responsibilities • Qualification requirements • Duty to include notifications in board’s minutes • Regular reporting to the FSA (FME) • External Auditing • Limitation on duration of contracts KG

  11. Business of Credit Institutions (3) Amending Act on Financial Undertakings (2) • Credit Registry • Micro/macro supervision • Reporting to the FME on each “borrower” above certain thresholds • Duty of non-financial undertakings to disclose their obligations to the FME • FME to aggregate and share with CBI • Bank Secrecy & Confidential Information • Cooperation between supervisory entities • Own Shares as Collateral • Lending against collateral in own shares prohibited • Same applies to derivative agreements KG

  12. Business of Credit Institutions (4) Amending Act on Financial Undertakings (3) • Lending • Ban on lending to those holding qualifying holdings • Limitations on lending to entities having close links with the financial undertaking • Risk Management & Large Exposures • More detailed definitions on “Close Links” and “Group of Connected Clients” • Increased powers of the FME • Status of risk management within financial undertaking KG

  13. Business of Credit Institutions (5) Amending Act on Financial Undertakings (4) • Implementing Directive 2007/44/EC • Board of Directors/ Managers • Increased responsibilities • Qualification requirements • Education • Personal finances • Conflict of interests • Ban on Chairman of the board of directors as part of the management team KG

  14. Business of Credit Institutions (6) Amending Act on Financial Undertakings (5) • Remuneration • Conflict of interests • Based against the entity as a whole • Long-term • Golden handshakes & Parachutes • Next Steps • Up-streaming • Poison pills • Further powers to the FME • Early Intervention • Revision of Resolution Regime KG

  15. Business of Credit Institutions (7) Commission Directive 2006/29/EC Directive 2006/48/EC EU question: We understand that further reforms of the administrative structure of both the Central Bank and the FME are planned for early 2011 with a view to reinforce the supervision of financial operations and increase financial stability. What is the state of play of these reforms? KG

  16. Business of Credit Institutions (8) Directive 2006/48/EC • Act on Financial Undertakings No 161/2002, with later amendments • Rules No 216/2007 on large exposures incurred by financial undertakings (http://www.fme.is/lisalib/getfile.aspx?itemid=3925) • Rules No 215/2007 on the capital requirement and risk weighted assets of financial undertaking (http://www.fme.is/lisalib/getfile.aspx?itemid=3926) • Amended by Rules No 1167/2008 (not available in English) • Rules No 156/2005 on additional own funds items for financial undertakings (http://www.fme.is/lisalib/getfile.aspx?itemid=3155) • Options and national discretions • Position of the Financial Supervisory Authority (FME): http://www.fme.is/lisalib/getfile.aspx?itemid=7003 LRK

  17. Business of Credit Institutions (9) Directive 2006/48/EC • Guidelines No 2/2010 on best practices regarding liquidity management of financial undertakings (not available in English) • Guidelines No 3/2008 on internal auditing units of financial undertakings (not available in English) • Guidelines No 2/2007 on stress-testing, concentration and interest rate risk for financial undertakings (not available in English) • Guidelines No 1/2007 on harmonization of the application of the Supervisory Review Process for financial undertakings (not available in English) • Guidelines No 1/2002 on internal control and risk management of financial undertakings (not available in English) LRK

  18. Business of Credit Institutions (10) Directive 2006/48/EC Work in progress: • Guidelines on the evaluation of connections between parties within the meaning of rules on large exposures (see attachment No 3 available in English) • Guidelines on exception from internal auditing units of financial undertakings • Guidelines on qualifying holdings outside the financial sector LRK

  19. Business of Credit Institutions (11) EU question:We understand that Act. No. 75/2010 amending Act No. 161/2002 on financial undertakings is to be integrated by further measures to be adopted by the FME and by an agreement between the FME and the Central Bank on the operation of the large exposures registry. Have these measures been adopted? Further measures which will be adopted by the FME: • Four provisions in Act. No 161/2002 authorize the FME to set forth further rules and four provisions obliges the FME to set further rules (see attachment No 1) • Work in progress • Good business practices and customs • Loans secured by mortgage on shares or guarantee capital certificates issued by the undertaking (regarding calculations on the amount of the exposure) • Remuneration policies LKB

  20. Business of Credit Institutions (12) EU question:We understand that Act. No. 75/2010 amending Act No. 161/2002 on financial undertakings is to be integrated by further measures to be adopted by the FME and by an agreement between the FME and the Central Bank on the operation of the large exposures registry. Have these measures been adopted? Agreement between the FME and the Central bank: • The FME and the Central bank have an agreement with mutual obligations of information sharing, but with some restrictions. The agreement is being revised to strengthen the cooperation. The revision is in the final stages. According to the final draft of the new MoU the institutions will intensify their exchange of information and cooperation. Specific attention is put on cooperation in analysing systemic risk factors contributing to increased financial stability • See attachment: Draft - Cooperation Agreement between the Central Bank of Iceland and the Financial Supervisory Authority LKB

  21. Business of Credit Institutions (13) Credit registry: • There has been some discussion on making specific reference to the operation of the large exposures registry in the revised agreement mentioned earlier, although no decision has been reached concerning the matter. The Central bank and the FME are currently working on the design of the large exposures registry. The aim is to finish the work on the registry summer/fall 2011. • The current status on the credit registry is that only decisions regarding collection of information have been made. The FME will collect information regarding exposures over 300 m. ISK (about 2 m. EUR) and further work concerning the database is almost finished. The credit registry will only be accessible to the FME. However it is possible that the Central Bank will also have access to it in the future. Financial undertakings can therefore not send requests regarding exposure to clients. LKB

  22. Business of Credit Institutions (14) Commission Directive 2007/18/EC • Article 1, point 1 concerning exemptions from 2006/48/EC was not implemented into Act on Financial Undertakings No 161/2002 for the same reason as Directive 2006/29/EC (as mentioned before) • Article 1, point 2 was implemented into Rules No 1167/2008 amending Rules No 215/2007 on the capital requirements and risk weighted assets of financial undertakings LRK

  23. Business of Credit Institutions (15) Directive 2007/44/EC • Act No 161/2002 on Financial Undertakings • Act No 56/2010 on Insurance Activities EU question:Has Iceland already implemented Directive 2007/44 on the prudential assessment of acquisitions? If not, what is the timeframe for implementation? • As mentioned above the Directive 2007/44/EC has been implemented into Acts No 161/2002 and Act No 56/2010 and is therefore fully transposed into Icelandic law • The FME has published a list that specifies the information requested for the purpose of assessment (see attachment. Not available in English) • These lists are based on Guidelines for the Prudential Assessment of Acquisitions and Increases in Holdings in the Financial Sector required by Directive 2007/44/EC LKB

  24. Business of Credit Institutions (16) Directive 2007/44/EC Lists that specify the information requested for the purpose of assessment based on the Directive 2007/44 on the prudential assessment of acquisitions. • Information requested from individuals (up to 20%) http://www.fme.is/lisalib/getfile.aspx?itemid=7697 • Information requested from individuals (20% to 50%) http://www.fme.is/lisalib/getfile.aspx?itemid=7695 • Information requested from individuals (50% to 100%) http://www.fme.is/lisalib/getfile.aspx?itemid=7696 • Information requested from legal entities (up to 20%) http://www.fme.is/lisalib/getfile.aspx?itemid=7700 • Information requested from legal entities (20% to 50%) http://www.fme.is/lisalib/getfile.aspx?itemid=7699 • Information requested from legal entities (50% to 100%) http://www.fme.is/lisalib/getfile.aspx?itemid=7696 LKB

  25. Business of Credit Institutions (17) Commission Directive 2009/83/EC • Work in progress • Expected to enter into force no later than spring 2011 Directive 2009/111/EC • Work in progress • Expected to enter into force no later than spring 2011 • See attachment No. 4: CRD II implementation table LRK

  26. Capital Adequacy (1) Directive 2006/49/EC • Act on Financial Undertakings No 161/2002 • Rules No 215/2007 on the capital requirement and risk weighted assets of financial undertaking (amended by Rules No 1167/2008) • Rules No 216/2007 on large exposures incurred by financial undertakings • Options and national discretions • Position of the Financial Supervisory Authority (FME): http://www.fme.is/lisalib/getfile.aspx?itemid=7003 Directive 2008/23/EC • Not EEA relevant, therefore not implemented into Icelandic law LRK

  27. Capital Adequacy (2) Commission Directive 2009/27/EC • Work in progress • Expected to enter into force no later than spring 2011 Commission Directive 2009/111/EC • Work in progress • See attachment No. 4: CRD II implementation table EU questions: What is Iceland's implementation timeframe for the CRD II (Directive 2009/111) and the two linked comitology Directives 2009/27 and 2009/83? • Changing: • Act on Financial Undertakings No 161/2002 • Rules No 215/2007 on the capital requirement and risk weighted assets on financial undertakings • Rules No 216/2007 on large exposures incurred by financial undertakings LRK

  28. Credit Rating Agencies • Regulation (EC) No 1060/2009 KG

  29. Initiatives in the Pipeline Directive ... (CRD III) Increased Capital Requirements (CRD IV, Basel III) Financial Conglomerates Directive (FICOD) Crisis Management Directive EU questions:How is Iceland preparing to align with these future legislation? What does Iceland have in place now to facilitate alignment? KG

  30. Attachments • No. 1 - Provisions in Act No 161/2002 on Financial Undertakings concerning the authorization and duties of the FME to make more specific rules and regulations along with an overview of FME´s guidelines • No. 2 - Draft: Cooperation Agreement between the Central Bank of Iceland and the Financial Supervisory Authority • No. 3 - Guidelines on the evaluation of connections between parties within the meaning of rules on large exposures • No. 4 - CRD II implementation table

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