Electronic payment intermediation promotes transparency and efficiency. The proportion of payment intermediation carried out electronically is very high in Iceland. It is based on the use of payment systems, many of which are interconnected both directly and indirectly. Monetary transactions from various payment systems (or financial market infrastructure elements) are routed in differing ways through the payment and settlement systems that collectively handle the intermediation, settlement, and registration of the transactions. Monetary transactions accumulate in smaller systems and are transferred to larger systems, and many financial institutions offer payment intermediation and provide related financial services. Because the largest systems are based on the central software 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 an operating risk of contagion between systems if a problem arises.
Real-Time Gross Settlement (RTGS) System
Retail netting system
Securities settlement system
The most important payment and settlement systems are the RTGS system, the retail 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 hf. 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 transmit 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 financial institution, payment is generally made between their respective institutions in accordance with the payment instructions. All payments in Icelandic krónur that take place between financial institutions/participants in the RTGS and netting systems are finally settled through their accounts with the Central Bank.
The RTGS system was launched in 2001. The system handles real-time gross settlement of transactions in Icelandic krónur. This means that payment instructions in Icelandic krónur are entered simultaneously in the accounts of the payer and recipient, on the one hand, and in the relevant financial institutions’ accounts with the Central Bank of Iceland.
Payment instructions transmitted to the RTGS system fall into four categories:
- All payments in amounts of 10 million krónur or more from a customer’s account with one participant to a customer’s account with another participant. The Central Bank may authorise a lower amount.
- Payments made by one participant, from its own account with the Central Bank, to the account of another participant with the Central Bank, irrespective of the amount involved.
- Entries due to settlement in the Greiðsluveitan netting system, irrespective of the amount involved. Greiðsluveitan is owned by the Central Bank.
- Entries due to settlement in the Icelandic Securities Depository securities settlement system, irrespective of the amount involved.
The RTGS system plays a key role in the Icelandic financial system. Among the transactions settled in the RTGS system are those between the Central Bank and deposit-taking institutions, including those undertaken in connection with monetary policy conduct. Also settled in the RTGS system are transactions in the interbank markets for krónur and for foreign currency. In addition, it handles the settlement of two other important settlement systems – the Icelandic Securities Depository securities settlement system and the Greiðsluveitan retail netting system. Financial institutions must be RTGS system participants in order to operate in the Icelandic financial market.
Participation in the RTGS system
Regulatory instruments on payment intermediation and the RTGS system