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Simple Majority Vote to Decide Fate of Financial System
In a groundbreaking move, the government has announced that decisions will be made by simple majority vote, with the Chair having the deciding vote in the case of a tie. This new system aims to promote swift and effective decision-making in the financial sector.
New Mandate for Financial Stability Council
The government is also introducing the Systemic Stability Act, which gives the Financial Stability Council (FSC) a broad mandate for financial stability policy and well-defined responsibilities and powers. The FSC will be responsible for:
- Identifying emerging macro-economic disequilibria and structural distortions likely to lead to financial instability
- Determining the action needed to address these issues and taking action when possible
- Recommending concrete action by others if necessary
Coordinating Measures During Financial Crises
In the event of a financial crisis, the FSC, with the Prime Minister in the Chair, will coordinate measures to deal with the crisis. The Central Bank of Iceland (CBI) will be responsible for liquidity support and the Government for solvency support. However, the guiding principle will be to keep use of public funds to an absolute minimum, relying on effective resolution methods instead.
Proposing Creation of New Tools
The Systemic Stability Act will also propose the creation of new tools needed to address risks to the stability of the financial system and authorise or require the discretionary use of these tools. The relevant minister(s) will be able to establish rules and standards on the basis of proposals from the FSC.
New Roles and Responsibilities
As part of the reforms, the FSC, CBI, and Financial Management Authority (FME) will need to clarify their respective roles and allocate responsibilities for:
- Systemic stability
- Financial regulation
- Prudential supervision
- Market efficiency and continuity
- Financial infrastructure
- Financial crime and consumer protection
- Resolution
Clear Objectives and Responsibilities
To achieve this, the government will define clear financial stability objectives for both the CBI and FME, as well as give them specific regulatory and supervisory tasks. The FME will be responsible for oversight of all institutional risk and ensuring that institutions are structured and operated so that they can be resolved easily without disrupting the financial system.
Licensing Authority
The FME will retain licensing authority for financial undertakings but will require consultation with the CBI on the authorization of banks.
New Governance Arrangements
These changes in the regulatory architecture will create more powerful institutions. To ensure effective governance, clear and compatible arrangements will be established to promote swift and effective decision-making in the financial sector.