REGULATORY ACTION AGAINST FAROESE BANKS FOR FINANCIAL CRIME
Systemic Risk Council Recommends Changes to Designation Criteria for Systemically Important Financial Institutions (SIFIs)
The Systemic Risk Council (SRC) has proposed a new approach to designating credit institutions in the Faroe Islands as systemically important financial institutions (SIFIs). The recommendation aims to ensure that only institutions of significant importance to the economy are subject to additional requirements to reduce the probability of failure and mitigate negative consequences.
Current Designation Method Criticized for Including Small Banks
According to the SRC, the current method of designating SIFIs based solely on indicators measuring size in relation to the Faroese economy and banking sector has resulted in small banks being designated as SIFIs. This approach has been criticized for not taking into account other factors that may impact a bank’s systemic importance.
Proposed Changes: Introducing a Lower Limit for Bank Size
The SRC recommends introducing a lower limit for the absolute size of a bank, setting it at 3 billion kr., to prevent very small banks from being designated as SIFIs. This change would result in only two banks being designated as SIFIs, down from three.
Impact on Norðoya Sparikassi
The third-largest bank, Norðoya Sparikassi, will no longer be designated as a SIFI, meaning it will not have to meet the additional requirements imposed on SIFIs. If it fails, it will be resolved through a non-SIFI process, which could involve seeking private solutions or an orderly wind-down.
Compliance with Legislation and Government Approval
The SRC’s recommendation is in compliance with current legislation and aims to ensure that only institutions of significant importance to the economy are subjected to additional regulatory and supervisory requirements. Government representatives on the Council will decide on the recommendation within a period of three months, after hearing from the Faroese government.
Support from Føroya Váðaráð
The recommendation has been welcomed by Føroya Váðaráð, the Faroese Systemic Risk Council, which supports the introduction of a lower limit for SIFI designation. The council believes that this will ensure that only institutions of significant importance to the economy are subjected to additional requirements.
Key Points:
- Introduce a lower limit for bank size (3 billion kr.) to prevent small banks from being designated as SIFIs
- Only two banks would be designated as SIFIs, down from three
- Norðoya Sparikassi will no longer be subject to SIFI requirements and would be resolved through a non-SIFI process if it fails
- The recommendation is in compliance with current legislation and aims to ensure that only institutions of significant importance to the economy are subjected to additional regulatory and supervisory requirements