The Bank focuses primarily on the macroeconomic environment of the financial system and on the system as a whole, including its strengths and weaknesses. The Bank’s oversight of systemically important financial infrastructure is aimed at promoting security, efficiency, and efficacy of core infrastructure in the Icelandic financial system, thereby safeguarding financial stability.
The Bank’s oversight role vis-à-vis systemically important financial infrastructure primarily entails the following:
- Monitoring the development, effectiveness, and operational security of such infrastructure by gathering information and communicating with system administrators who are legally responsible for system operations; for example, as regards deviations/incidents.
- Conducting regular appraisals of the security and effectiveness of systemically important infrastructure elements on the basis of internationally recognised guidelines for best practice; i.e., the Core Principles for Financial Market Infrastructures (PFMI) issued by Bank for International Settlements’ Committee on Payments and Market Infrastructures (BIS/CPMI) and the International Organization of Securities Commissions (IOSCO). The Core Principles are to be applied in a harmonised manner to various types of systemically important financial infrastructure.
- Recommending modifications to infrastructure and the infrastructure framework (including regulatory instruments) if necessary.
The Central Bank’s annual Financial Infrastructure report examines systemically important financial infrastructure, covering the above-listed factors as applicable. The Bank conducts regular reassessments of which infrastructure elements are considered systemically important, using the above-described criteria as a guideline. According to Act no. 66/2014, one of the tasks of the Financial Stability Council is to approve the definitions of systemically important financial infrastructure that could affect financial stability. The Central Bank of Iceland and the Financial Supervisory Authority are required by law to collaborate on matters relating to financial stability and potential systemic risk, including in the area of electronic payment intermediation (see Article 35 of Act no. 36/2001, Article 15 of Act no. 87/1998, and the current cooperation agreement between the two institutions). The institutions have cooperated, for instance, in carrying out an appraisal of the Icelandic Securities Depository hf. (ISD) securities settlement system vis-à-vis international guidelines on security of securities settlement.
What does the term financial market infrastructure mean?
What is meant by the term “systemically important”?
Systemically important financial market infrastructure in Iceland
The PFMI Core Principles