Financial Institution Security Measures in Iceland: Central Bank Takes Lead Role in Promoting Financial Stability

In its bid to ensure financial stability and security in Iceland, the Central Bank of Iceland has taken a proactive role in promoting a safe and effective financial system. As part of this effort, the bank is tasked with overseeing payment and securities settlement systems to guarantee their reliability and effectiveness.

What is Financial Market Infrastructure?

Financial market infrastructure refers to the “plumbing” or road system of the financial markets. According to experts, it encompasses multilateral systems among participating institutions used for clearing, settling, or recording payments, securities, derivatives, and other financial transactions. The Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) define it as such.

Central Bank’s Oversight Role

The Central Bank’s oversight role involves monitoring the evolution, functioning, and operational security of systemically important financial market infrastructure. This includes conducting regular appraisals of the security and efficacy of such systems based on internationally recognized guidelines for best practice.

Systemically Important Financial Market Infrastructure in Iceland

In Iceland, interbank systems and securities settlement systems are categorized as systemically important financial market infrastructure due to their significant impact on the financial system. The two-component interbank system is the largest and most important payment system in the country, with all financial institutions required to participate either directly or indirectly.

Compliance with International Standards

The Central Bank’s interbank system and the Nasdaq CSD SE securities depository have been recognized as systemically important financial market infrastructure by the Financial Stability Committee. To ensure compliance with international standards, these systems must adhere to the BIS/IOSCO Core Principles for Financial Market Infrastructures (PFMI).

Promoting Financial Stability through Policy-Making and Regulatory Roles

In addition to its oversight role, the Central Bank has a key role in promoting financial stability through policy-making, regulatory, catalyst, operational, and oversight roles. The bank’s Financial Stability Department assesses the interbank system’s compliance with the PFMI Core Principles, assigning one of five categories to each principle.

Cybersecurity: A Critical Aspect of Financial Market Infrastructure Operations

The high share of electronic payment intermediation in Iceland makes cybersecurity a critical aspect of financial market infrastructure operations. To address this concern, the Central Bank has provided guidance on cyber resilience for financial market infrastructures.

Conclusion

Overall, the Central Bank of Iceland is committed to promoting financial stability and security through its oversight role in the country’s financial market infrastructure. By ensuring compliance with international standards and best practices, the bank aims to maintain a safe and effective financial system that supports economic growth and development.