Foreign exchange balance

In accordance with the authorisation found in Article 13 of the Act on the Central Bank of Iceland, no. 36/2001, the Central Bank has issued the Rules on Foreign Exchange Balance, no. 950/2010.

The Rules on Foreign Exchange Balance, no. 950/2010, took effect on 1 January 2011, and are issued in accordance with Article 13 of the Act on the Central Bank of Iceland, no. 36/2001, with subsequent amendments, which authorises the Central Bank to set rules on credit undertakings’ foreign exchange balance. Such a balance shall, in addition to exchange rate linked assets and liabilities, cover off-balance sheet exchange rate linked assets and liabilities, such as options and forward contracts. The Rules supplanted the previous Rules on Foreign Exchange Balance, no. 707 of 14 August 2009.

The purpose of the rules is to limit foreign exchange risk by preventing credit institutions’ foreign exchange balances from exceeding defined limits. The rules extend to credit institutions – i.e., commercial banks, savings banks, and other institutions and associations that have been granted operating licences pursuant to the Act on Financial Undertakings, no. 161/2002, with subsequent amendments, and are collectively referred to as financial undertakings in the Rules on Foreign Exchange Balance. A financial undertaking’s permissible open foreign exchange balance in individual foreign currencies is 15% of its capital base, and the permissible total foreign exchange balance is 15% of the capital base. Financial undertakings submit monthly reports on their foreign exchange balances; in addition, market makers in the interbank foreign exchange market submit daily reports on their foreign exchange balance. Each financial undertaking’s reporting includes itemised information on the current and forward balances of foreign assets and liabilities.

 

Rules and template

1. Rules on Foreign Exchange Balance: The Rules and other rules can be found here: Law and rules.