31.12.2016

Amendments to the Rules on Foreign Exchange, etc.

Amendments to the Rules on Foreign Exchange, etc.

At the turn of the year, important steps will be taken towards lifting controls on households and businesses, in accordance with the third phase of the authorities’ strategy, publicised in June 2015. From then onwards, residents and non-residents will be authorised to transfer deposits and securities to and from Iceland, to trade in securities abroad, and purchase or withdraw foreign currency in cash, up to a maximum of 100 m.kr. Also taking effect at the turn of the year are new Rules on Foreign Exchange, which provide for more extensive authorisations for foreign exchange transactions and cross-border movement of capital.

With these amendments, the restrictions placed on companies by the capital controls will be further reduced, and the vast majority of individuals will experience few or no restrictions as a result of the controls.

The Act Amending the Foreign Exchange Act, no. 87/1992, which entered into force on 21 October 2016, provided for the following main amendments upon its entry into force:

• Foreign direct investment was unrestricted but subject to confirmation by the Central Bank of Iceland.
• Investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans became permissible up to the equivalent of 30,000,000 kr., upon satisfaction of specified conditions.
• Individuals were permitted to purchase one piece of real estate per calendar year, irrespective of the purpose and the purchase price. 

Thus far, the first stage of liberalisation has proceeded smoothly. The number of submitted requests for exemptions from the Foreign Exchange Act has declined by half, foreign investment has increased, and execution has been simplified. 

The principal changes taking effect on 1 January 2017 are as follows:

• The ceiling on investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans will be raised to 100,000,000 kr.
• The requirement that foreign securities investments be held with custodians in Iceland is lifted, and cross-border transfer of custodianship of foreign securities will be unrestricted and not subject to the aforementioned maximum amount.
• Individuals’ authorisations to purchase and withdraw foreign currency in cash are expanded significantly, so that individuals will be permitted to purchase or withdraw foreign currency in cash up to the aforementioned maximum amount. Therefore, cash withdrawals will no longer be subject to the presentation of a travel ticket or a receipt verifying travel abroad.
• Transfers of deposits will be authorised up to the aforementioned maximum. This will enable residents and non-residents to transfer deposits and securities to and from Iceland and to trade in securities abroad within the limits specified in the Act.

Concurrent with the amendments to the Foreign Exchange Act, the Bank’s Rules on Foreign Exchange have also been updated; cf. the Rules on Foreign Exchange, no. 1266/2016, which take effect on 1 January 2017. Outflows following liberalisation of capital controls on households and businesses have been relatively modest hitherto, and there are few indications that this will change significantly in the wake of the amendments entering into force at the turn of the year. In view of the significant improvement in Iceland’s foreign exchange position due to strong foreign currency inflows, which stem from a surplus on the current account, and given that the probability of foreign currency outflows concurrent with further liberalisation of capital controls has diminished, it has been decided to grant further authorisations for foreign exchange transactions and cross-border movement of capital in the Rules on Foreign Exchange. The main changes are as follows:

• The reinvestment authorisation will no longer be subject to a time limit.
• Capital transfers from foreign financial undertakings’ domestic currency accounts (Vostro accounts) will be authorised it if is demonstrated that such transfers derive from the exercise of authorisations up to the aforementioned maximum amount.
• Investment in financial instruments issued in foreign currency between two resident entities will be authorised, up to the aforementioned maximum amount.

When the Rules on Foreign Exchange take effect, the Central Bank of Iceland will update its Guidelines on their implementation, so as to support financial undertakings and other parties in instances where notification to or confirmation from the Bank is required in connection with foreign exchange transactions and cross-border movement of capital. 

The Foreign Exchange Act, the Rules on Foreign Exchange, and the Guidelines can be found here.  (In Icelandic here)

Further information can be obtained by sending a query to the e-mail address gjaldeyrismal@sedlabanki.is or by calling +354 569 9600 during the Capital Controls Surveillance Unit legal staff members’ telephone hours, from 10:00 hrs. to 11:30 hrs. Monday through Friday.

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

 

No. 34/2016
31 December 2016

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