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Money is an important driver of economic activity. Payment intermediation and payment systems are the economic support mechanisms used to transfer funds for individuals, firms, and institutions. Payment intermediation is carried out through payment systems and is executed in various ways, depending on payment medium used. The most common payment instruments currently in use are electronic instruments of various sorts, banknotes, coin, and cheques.

Structure of payment intermediation and payment and settlement systems in Iceland
Electronic payment intermediation promotes transparency and efficiency. A large proportion of payment intermediation is carried out electronically in Iceland, based on widely used payment systems, many of which are interconnected. Monetary transactions involving various payment instruments are routed in different ways through the payment and settlement systems that collectively handle the intermediation, settlement, and registration of the transactions. Many financial institutions offer payment intermediation and provide related financial services. Because the largest systems are based on the computer equipment of the Icelandic Banks’ Data Centre (RB), Iceland's payment intermediation infrastructure is highly centralised and linked in various ways to RB’s activities. This long-established arrangement is founded on decades of cooperation between commercial banks and savings banks. Its advantages include enhanced coordination, oversight, and operating efficiency. However, the arrangement may entail the risk of contagion between systems if a problem arises.

The most important payment and settlement systems are the Real-Time Gross Settlement (RTGS) system, the netting system, and the securities settlement system. The Central Bank of Iceland carries out the day-to-day operation of the RTGS system, while Greiðsluveitan ehf. handles the netting system and the Icelandic Securities Depository operates the securities settlement system. The technical operation of these systems is carried out at RB. The Central Bank of Iceland oversees payment intermediation and the above-specified payment and settlement systems because of the importance of these fundamental elements of the economy, both for the economy as a whole and for financial stability.

Systems that transfer large sums of money and valuables between financial institutions are usually considered most significant and therefore systemically important. If the payer and payee are not customers of the same credit institution, payment is generally made between their respective institutions in accordance with the payment instructions. All interbank payments in Icelandic krónur are finally settled through the participants accounts in the Central Bank of Iceland.

Definitions
The Payment Services Act, no. 120/2011, defines payment systems as follows: Systems used to transfer funds by means of formal, standardised processes and collective rules concerning handling, netting, and/or settlement of payments.

The Security of Transfer Orders in Payment Systems Act, no. 90/1999, defines payment systems as follows: A formal arrangement of three or more participants that is based on collective rules and a standardised arrangement for the execution of transfer orders among them, provided that at least one of the participants has a main office in Iceland, and that fulfils set requirements and has been approved and notified to the EFTA Surveillance Authority (ESA).

In Iceland, only two payment systems fall under the provisions of Act no. 90/1999: the Central Bank of Iceland RTGS system and the Greiðsluveitan ehf. netting system. The third system that is considered systemically important is the Icelandic Securities Depository’s securities settlement system.

Real-Time Gross Settlement System (RTGS)
The RTGS system is a payment system that handles the settlement of all payment instructions between participants/financial institutions in amounts of 10 million Icelandic krónur or more. Seven financial institutions are members of the system. The RTGS system receives payment instructions from these members. In addition, the final settlement from netting systems takes place through the RTGS system. The system is the largest and most important payment system in Iceland; therefore, its operation is subject to stringent security requirements. The daily administration of the system is in the hands of the Central Bank of Iceland, as are settlement, collateral, and system oversight. The Bank provides RTGS system members with access to credit and is required to promote financial stability and impartiality in the markets More.

Netting system
The netting system is a payment and settlement system for monetary transactions involving amounts less than 10 m.kr. It is considered systemically important. It operates 24 hours a day and transmits payments between financial institutions and their customers. The banks’ internal computer systems handle internal settlement, while the netting system transmits payments between banks. The day-to-day administration of the system is carried out by Greiðsluveitan ehf. More.

Securities settlement system
The securities settlement system handles the settlement of securities transactions in Icelandic krónur and is systemically important because it forms the foundation for securities trading in Iceland. The Icelandic Securities Depository administers the securities settlement system. The system settles each day’s transactions by posting the results of transactions to the accounts of RTGS system participants. More.

The above-specified systems carry out settlement and payment intermediation for transactions in Icelandic krónur. They are housed and operated on the premises of the Icelandic Banks’ Data Centre, but their daily administration is in the hands of various parties. The Central Bank of Iceland is required to foster the security of systemically important systems, as well as coordinating them and ensuring their stability. The Central Bank’s role is to monitor and carry out appraisals of systemically important systems in Iceland, sometimes in collaboration with domestic and foreign institutions in the field. This is consistent with the Bank’s tasks related to financial stability and is in line with internationally recognised rules. See, for instance, the following reports:Central bank oversight of payment and settlement systems (BIS & CPSS, 2005) and the Lamfalussy report (Report of the Committee on Interbank Netting Schemes of the Central Banks of the Group of ten countries. BIS, 1990). The Financial Supervisory Authority and the Central Bank of Iceland have concluded a cooperation agreement that clarifies the division of tasks and the role of each of the two institutions. See the Cooperation agreement.