08.01.2016

Pension funds receive limited authorisation for foreign investment

Pension funds receive limited authorisation for foreign investment

The Central Bank of Iceland has decided to grant an exemption from the Foreign Exchange Act, no. 87/1992, to pension funds that have operating licenses according to Chapter V or Chapter XI of Act no. 129/1997 and other domestic custodians of third-pillar pension savings that have received confirmation from the Ministry of Finance on the basis of Article 10 of the same Act, thereby permitting them to invest in financial instruments issued in foreign currency. The authorisation thus conferred amounts to 20 b.kr., which will be distributed over the first four months of the year. In July 2015, these same parties were granted an exemption for foreign investment in the amount of 10 b.kr., which was spread over the second half of 2015.

Foreign currency inflows in 2015 and reduced uncertainty about developments in the balance of payments following creditors’ approval of composition proposals from the failed banks’ estates have created the scope to authorise pension funds and other third-pillar pension savings custodians to invest further in foreign-denominated financial instruments. Such investments represent an economic advantage, as they allow the pension funds to improve the risk diversification in their portfolios while reducing their accumulated foreign investment need once the capital controls have been lifted. This, in turn, reduces the risk of instability upon liberalisation of the controls. In the long run, these increased investment authorisations over the months to come will have no impact on the foreign exchange position, as it can be assumed that the pension funds’ foreign currency purchases in coming months will reduce their need to buy currency in the future.

The investment authorisation will be divided among pension funds and other custodians with a view to total assets, to be weighted at 80%, and premiums net of pension benefit payments, to be weighted at 20%. The calculations are based on information from the Financial Supervisory Authority’s Statistical Information 2015, which contains figures for 2014. The exemption will remain in effect through 30 April 2016.

Interested pension funds and third-pillar pension savings custodians are invited to request an exemption for the above-described investments by submitting an application to the Central Bank of Iceland Capital Controls Surveillance Unit. The exemption application form can be found on the following page (http://www.sedlabanki.is/lisalib/getfile.aspx?itemid=9087).

Applications should be sent to the Bank by postal mail at the following address:
Central Bank of Iceland
Att’n: Capital Controls Surveillance Unit
Kalkofnsvegur 1
150 Reykjavík

Further information can be obtained from Már Guðmundsson, Governor of the Central Bank of Iceland, at tel: +354 569-9600.

 

Press release no. 1/2016
8 January 2016

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