Financial Crime World

New System for Financial Stability: Decisions Made by Simple Majority Vote

A new system for financial stability has been proposed, giving the Financial Stability Council (FSC) a broad mandate to address emerging macroeconomic disequilibria and structural distortions that could lead to financial instability.

Key Responsibilities

  • Identify potential sources of instability
  • Determine necessary actions to take
  • Recommend concrete steps by others
  • Oversee liquidity support from the Central Bank of Iceland (CBI)
  • Provide solvency support from the government, with the guiding principle being to keep public funds to a minimum

In the event of a financial crisis, the FSC, chaired by the Prime Minister, will coordinate measures to address the situation. The CBI will be responsible for liquidity support, while the government will provide solvency support.

Provisions for Risk Management and Regulation

  • Creation of tools needed to address risks to the stability of the financial system
  • Authority for relevant ministers to establish rules and standards on the basis of proposals from the FSC
  • Right and obligation for the FSC and its member institutions to comment on proposed changes in legislation, rules, or regulations in their field of competence

Allocation of Responsibilities

  • CBI: responsible for liquidity support, foreign exchange exposures, integrity of short-term repo markets, etc.
  • Financial Market Authority (FME): oversees institutional risk and has sole responsibility for resolution
  • Clear financial stability objectives have been defined in statute for both the CBI and the FME, with specific regulatory and supervisory tasks allocated to each institution

Governance Arrangements

The changes in the regulatory architecture will create more powerful institutions, making it essential to establish clear and compatible governance arrangements. Decisions will be made by simple majority vote, with the Chair having the deciding vote in the event of a tie.

These new measures are designed to enhance financial stability and ensure that the financial system is better equipped to withstand future shocks.