Financial Crime World

Regulatory Bodies for Financial Services in Faroe Islands Overhaul SIFI Designation Criteria

The Systemic Risk Council has recommended to the government of the Faroe Islands that a lower limit be introduced for designating credit institutions as systemically important financial institutions (SIFIs). The current criteria for SIFI designation are based on indicators measuring an institution’s size relative to the Faroese economy and banking sector.

Current Criteria vs. New Recommendation

The current criteria for SIFI designation are based on:

  • Size of the institution relative to the Faroese economy
  • Size of the institution relative to the Faroese banking sector

In contrast, the Systemic Risk Council recommends introducing a lower limit to ensure that only institutions of significant importance to the economy are designated as SIFIs. This change is expected to reduce the number of SIFIs in the Faroe Islands from three to two.

New Criterion: 3 Billion Krónur

The council has analyzed the Faroese banking sector and assessed that the bankruptcy of a major bank could have significant negative consequences for the economy. Therefore, it recommends setting a lower limit for SIFI designation at 3 billion krónur, adjusted annually to account for positive growth in the sector.

Impact on Regulatory Requirements

The introduction of this new criterion is expected to affect the regulatory requirements for Norðoya Sparikassi, which will no longer be subject to additional supervision and regulations as a SIFI. However, the council’s dialogue with the Faroese Risk Council has confirmed that the resolution of Norðoya Sparikassi would not have systemic implications.

Government Response

The government of the Faroe Islands is required to respond to the recommendation within three months, either by implementing the change or providing a statement explaining why it will not be implemented. The Systemic Risk Council’s chairman, Lars Rohde, emphasized that the recommendation is in compliance with current legislation.

Next Steps

Representatives from the Faroese government on the council have taken note of the recommendation and will discuss it further before making a decision.