The Central Bank of Iceland oversees and monitors domestic payment intermediation. In order to achieve set objectives concerning future development, efficiency, and security in payment intermediation, the Central Bank works closely with Icelandic financial institutions and parties involved in payment intermediation, as well as collaborating with the other Nordic countries and the EU Member States.
In the past few years, the European Central Bank (ECB) has been active in the field of payment intermediation. The ECB’s declared objectives are to foster the free movement of goods, capital, services, and workers, and to promote progress, efficiency, and security in payment intermediation in euros. Payment and settlement systems in euros have been required to serve the ECB’s aims and comply with the EU’s policies on the integration of markets and security. The ECB is working on four large projects in the field of payment intermediation and payment systems. The Central Bank of Iceland and Icelandic financial institutions have followed these projects and have been involved in three of them. Below is a brief description of these projects.
TARGET2 is the European Central Bank’s real-time gross settlement system, which settles payment instructions in euros. It supplanted the ECB’s TARGET system, which was launched with the adoption of the euro in January 1999. TARGET became the third-largest payment system in the world, with over 1,000 financial institutions as direct participants and over 50,000 financial institutions as indirect participants. In comparison, as of April 2012, the Icelandic RTGS system had seven financial institutions as direct participants. Despite the striking difference in size, the scope of the TARGET system is comparable to that of Iceland’s RTGS system. TARGET2 supports the ECB’s monetary management in euros and services financial undertakings with settlement in euros, while the Icelandic RTGS system carries out settlement in Icelandic krónur and supports the Central Bank of Iceland’s monetary management. The TARGET2 system is a centralised system operated jointly by the central banks of Italy, Germany, and France. The structure of TARGET2 was redesigned with the aim of achieving better integration in a constantly growing market area and to guarantee scalability, efficiency, and security in payment intermediation. Emphasis is placed on providing users with the same service irrespective of their location within the euro area.
Single Euro Payments Area (SEPA)
The aim of the SEPA project is to create a coordinated payment intermediation area within the EU Member States, where users of the euro can use electronic payment intermediation throughout the area in transactions both with and within the EMU.
The objective was to create a coordinated market area in Europe, the Single Market. The preparation phase took a number of years and required a vast amount of work. The Maastricht Treaty of 1992 was a turning point in the unification process. The first step toward creating a coordinated payment intermediation area was crystallised in the establishment of the euro area. The euro area is backed by the European Central Bank, founded in 1998, and the euro, the official currency of the European Union. The euro was brought into circulation in January 1999, and the distribution of notes and coin began in January 2002. Today the euro has the highest turnover of all currencies in the world. By 1 January 2008, 15 EU Member States had become members of the European Monetary Union: Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Italy, Ireland, Luxembourg, Malta, Holland, Portugal, Slovenia, and Spain. Not all EU Member States have adopted the euro. Six nations outside the EU adopted the euro unilaterally: the Vatican, Monaco, San Marino, Andorra, Montenegro, and Kosovo. While the European Central Bank (ECB) is responsible for monetary policy in the euro area, the Bank works closely with the central banks of the 15 Member States mentioned above. It is possible to remit payment with euro notes and coin anywhere in the euro area; however, attempts to pay with payment cards or by other electronic means are often accompanied by problems similar to those that existed before the adoption of the euro.
The SEPA project
Participants in the SEPA project are 31 in number: Iceland, Liechtenstein, Norway, Switzerland, and the 27 Member States of the European Union. SEPA will enable payers to use electronic payment instruments to send and receive payments in euros anywhere in the area, as well as across borders, without having to use numerous bank accounts or payment cards. The project is divided into three main phases: SEPA Credit Transfer, SEPA Direct Debit, and SEPA Cards Framework. The first phase, SEPA Credit Transfer, was launched on 28 January 2008. The banks hope SEPA will bring about greater streamlining of operations in the future. The SEPA Credit Transfer project is based on the SEPA Credit Transfer Rulebook, with a co-ordinated regulatory framework, and on the ISO 20022 XML standard, as well as the IBAN and BIC standard for bank account identification.
Further information on SEPA can be found on the following websites:
The ECB is developing a new securities settlement system called Target2-Securities (T2S). In Europe are many companies that offer services related to securities transactions and settlement. In the opinion of the ECB, the European securities market is unnecessarily fragmented and complicated. The Bank’s aims are to simplify the settlement model and meet the needs of the market – that is, buyers and sellers of European securities – more effectively, to expand the market, and create a homogeneous market environment for securities trading. In order that this can take place, stakeholders must agree on the framework of the project, as well as the rules and standards by which it is to operate. The project was launched in 2007, and implementation is scheduled to begin in 2015. It was decided to invite several non-EU countries to participate, and considerable work was invested in preparing contracts and adapting participation requirements on behalf of the EU and the invitees. After thoroughly examining the offer, the Central Bank of Iceland decided against participation because of the extraordinary conditions created by the capital controls. The Central Bank has indicated an interest in reconsidering T2S membership once the controls have been lifted, however. Further information on the project can be found on the website of the European Central Bank: