Financial Crime World

Iceland’s Regulatory Framework: A Study of the Financial Supervisory Authority and Economic Crime Division

Iceland’s financial regulatory framework has faced several challenges in recent years, including a lack of experienced staff to regulate its large and internationally active banking system. Despite these challenges, the Financial Supervisory Authority (FME) has made progress in strengthening its resources.

Challenges Faced by the FME

A recent report by Jannári (2009) highlighted the difficulties faced by the FME in regulating Iceland’s banking system. The agency has acknowledged the need to strengthen its staff and resources.

  • One notable case where the FME charged an insider with trading on confidential information ended with a not-guilty verdict in 2001, leaving many employees at the FME disappointed and frustrated.
  • This incident was seen as a missed opportunity to set a legal precedent for insider fraud.

Progress Made by the FME

Despite these challenges, the FME has made progress in recent years. The agency:

  • Handled 860 new cases in 2003, which increased by over 30% to 1179 in 2007.
  • Gained additional administrative powers to impose fines on violators of securities market regulations.

The Directorate of Tax Investigations

The Directorate of Tax Investigations is another key player in Iceland’s regulatory landscape. Established in 1993, the directorate investigates alleged tax crimes and prepares major cases for criminal proceedings.

  • Recent reports have highlighted concerns about the rapid growth of Icelandic corporations and their use of offshore accounts to avoid taxes.
  • A significant increase in total assets of foreign companies in Iceland has raised suspicions of major tax evasion by Icelandic corporations.

The Economic Crime Division

The Economic Crime Division of the National Commissioner of the Icelandic Police plays a crucial role in investigating and prosecuting economic crimes. Established in 1997, the division reports to the FME, Central Bank of Iceland, and other regulatory agencies.

  • Despite facing challenges related to resources and funding, the division has seen a higher percentage of economic crimes brought to trial and concluded with sentencing compared to neighboring countries.

Conclusion

While Iceland’s regulatory framework faces challenges related to resource constraints and lack of experienced staff, there are signs of progress in recent years. The FME and Economic Crime Division have made efforts to strengthen their capabilities, and the Directorate of Tax Investigations continues to play a vital role in investigating alleged tax crimes. However, further action is needed to address the growing concerns about tax evasion by Icelandic corporations.

Statistics

  • Number of new cases handled by the FME: 860 (2003), 1179 (2007)
  • Increase in total assets of foreign companies in Iceland: almost 50-fold between 2002 and 2007
  • Percentage of economic crimes brought to trial and concluded with sentencing: higher in Iceland compared to neighboring countries

Sources

  • Jannári, 2009. “The Financial Supervisory Authority and the Regulation of the Banking System in Iceland.”
  • Morgunblaðið, 2001. “Tax policies and the Icelandic business environment.”
  • Morgunblaðið, 2008, September 27th. “Economic Crime Division faces funding challenges.”
  • Thorláksson, 2008. “The Circulation of Capital and the Role of Tax Havens in the Icelandic Economy.”