Financial Crime World

Bank Security Measures Tightened in the Faroe Islands: New Counter-Cyclical Capital Buffer Activated to Mitigate Systemic Risk

Strengthening Financial Sector Resilience

In a bid to bolster the financial sector’s resilience to potential risks, the Minister for Industry, Business and Financial Affairs has activated a counter-cyclical capital buffer on the Faroe Islands, effective from March 31st this year. This decision was recommended by the Systemic Risk Council, which advises the government on banking regulations.

Key Details

  • The new buffer requirement will take effect in 12 months, giving financial institutions sufficient time to adjust their capital buffers accordingly.
  • The government has three months to either comply with the recommendation or provide a statement explaining why it won’t be implemented.

Background and Context

The Faroe Islands, a self-governing region within Denmark, adopts Danish financial regulations, including EU directives, through special decrees that take into account its unique circumstances. The rules governing the Systemic Risk Council came into force in the Faroe Islands on February 1st, 2015, while those related to determining the countercyclical capital buffer took effect on July 1st of the same year.

What is a Countercyclical Capital Buffer?

A countercyclical capital buffer is a key tool used by regulators to mitigate systemic financial risks. The rate varies depending on the developments in the financial system and is assessed quarterly by the Systemic Risk Council, which publishes its findings based on key indicators. The assessment also takes into account other factors such as policies and additional information.

Current Buffer Rate

The current countercyclical capital buffer rate in the Faroe Islands stands at 1%, with the Minister for Industry, Business and Financial Affairs setting the rate every quarter for the region, Denmark, and Greenland.

Expected Outcomes

This move is expected to enhance the overall stability of the financial sector in the Faroe Islands and reinforce its ability to withstand potential shocks. By tightening bank security measures, the government aims to mitigate systemic risk and ensure a more resilient financial system.