Iceland: Financial Sector Assessment Program-Technical Note on Detailed Assessment on Basel Core Principles for Effective Banking Supervision

Much progress has been achieved in strengthening Iceland’s banking regulatory and supervisory framework since the IMF’s prior BCP assessment was undertaken in 2014. The Ministry of Finance and Economic Affairs (Iceland) (MoFEA) together with the Central Bank of Iceland (CBI) undertook a thorough legislative reform agenda which included the transposition of the EU legislative framework and EBA guidelines into Icelandic banking law, enacted a new law for banking resolution as well as established the Resolution Authority within CBI, and adopted new liquidity requirements (Basel III). Further, CBI fully implemented its risk based supervisory framework, adopting supervisory methodology that focuses on high-impact financial institutions, ensuring deep analysis by off-site supervisors on capital, liquidity, business model analysis, as well as governance and internal controls. CBI, together with other relevant agencies, also developed and implemented a new AML/CFT legislative and supervisory framework for banks (applicable to all regulatory institutions that CBI now regulates since the merger with the FSA).