Oversight of financial market infrastructures

The Central Bank of Iceland is required by law to promote financial stability and sound and secure financial activities. The Bank shall also undertake such tasks as are consistent with its role as a central bank, such as promoting a safe, effective financial system, including domestic and cross-border payment intermediation.

Payment- and securities settlement systems are an important element of the financial system; therefore, it is important to guarantee that they function effectively and reliably. The Bank plays a multifaceted role in the field of payment intermediation, and various Bank departments are involved. Within the Financial Stability Department is a separate unit called Oversight of Financial Market Infrastructures.


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 activities aim at promoting security, efficiency, and efficacy of core infrastructures in the Icelandic financial system, or systemically important financial market infrastructures, thereby safeguarding financial stability.

The Central Bank’s oversight role vis-à-vis systemically important financial market infrastructures primarily entails the following:

  • Monitoring evolution, effectiveness, and operational security of such infrastructures through information gathering and communication with the system administrators.
  • Conducting regular appraisals of the security and efficacy of systemically important financial market infrastructures based on internationally recognised guidelines for best practice; i.e. the Core Principles for Financial Market Infrastructures (PFMI) issued by the Bank for International Settlements’ Committee on Payment and Settlement Systems (BIS/CPSS), today called the Committee on Payments and Market Infrastructures (BIS/CPMI) and the Technical Committee of the International Organization of Securities Commissions (IOSCO). The Core Principles shall be applied in a harmonised manner vis-à-vis various systemically important financial market infrastructures and the designation of infrastructure elements as systemically important shall be reviewed on a regular basis.
  • Recommending modifications to financial market infrastructures and their framework (including regulatory) if necessary.


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  • What does financial market infrastructures mean?

    Financial market infrastructures can be viewed as the plumbing or road system of the financial markets. The Bank for International Settlements (BIS) and the International Organization of Securities Commissions (IOSCO) describes the concept as follows:

    “The term financial market infrastructure (FMI) refers to a multilateral system among participating institutions, including the operator of the system, used for the purposes of clearing, settling, or recording payments, securities, derivatives, and/or other financial transactions. Such systems establish a set of common rules and procedures for all participants, set up a joint technical infrastructure and a specialised risk management framework appropriate to the risks they incur. They provide participants with centralised clearing, settlement, and recording of financial transactions (…) to allow for greater efficiency and reduced costs and risks. (…) Financial market infrastructures can promote increased transparency in particular markets. Some FMIs are critical in assisting central banks conducting monetary policy and promoting financial stability.”


  • What does systemically important mean?

     At any given time, systemically important financial market infrastructures apply in particular to payment systems that could catalyse and/or spread system-wide disruption. It can also be assumed that all securities depositories, securities settlement systems, central counterparties, and trade repositories are considered systemically important financial market infrastructures, at least in their respective jurisdictions.

    Financial market infrastructure can be either publicly or privately owned. To some extent, different criteria may apply to different types of financial market infrastructures. For example, securities depositories in Iceland are classified as licensed, supervised entities and are therefore subject to the Financial Supervisory Authority of the Central Bank of Iceland.

    Inadequate security and efficacy in the operation of systemically important financial market infrastructures could cause a chain reaction between participants and markets. Effective and reliable risk management of such financial market infrastructures is extremely important, as shocks in or related to the operation of such infrastructures could have severe societal repercussions. In modern economies and financial markets, it is therefore considered appropriate to subject systemically important FMIs to stringent requirements as regards professional work habits and operational set-up, and to entrust relevant authorities with an active role, with the particular aim of minimising potential systemic risk.

  • Systemically important financial market infrastructures in Iceland

    In terms of turnover and financial stability, the Central Bank of Iceland’s interbank systems are the largest and most important payment systems in the country. The Financial Stability Committee has designated the Central Bank’s interbank systems and the Nasdaq CSD SE securities depository as systemically important financial market infrastructures.

    The systemic importance of individual infrastructures for the Icelandic financial system is determined largely by the criteria listed below. It should be noted that payment service providers’ in-house systems or infrastructure elements pursuant to the Act on Payment Services, No. 120/2011 do not satisfy the conventional criteria for systemic importance:

    • Transaction volume.
    • Number and size or importance of system participants.
    • Potential for substitutability.
    • Connections with other financial market infrastructures.
    • Importance to or points of tangency with monetary policy.
    • Direct impact on the real economy.


    Systemically important financial market infrastructures are generally recognised and notified as such to the EFTA Surveillance Authority (ESA) pursuant to the Act on the Security of Transfer Orders in Payment Systems and Securities Settlement Systems, No. 90/1999. On the website of the European Commission is a list of all financial market infrastructures in the European Economic Area that are recognised under the Settlement Finality Directive 98/26/EC, which was incorporated into Icelandic law with Act No. 90/1999.

  • The PFMI Core Principles

    The aim is for systemically important payment- and settlement systems to comply with both international and domestic requirements. Chief among these are the PFMI Core Principles, European Union law and directives on payment intermediation, and the Icelandic regulatory framework. The systems in question shall be transparent, efficient, and secure, and their structure take account of the fact that they are intended to promote financial stability. In accordance with foreign models, the Central Bank of Iceland has important roles to play in promoting this:
    • Policy-making role – formulation of policy related to the systems development.;
    • Regulatory role – preparation and adoption of rules for the systems.;
    • Catalyst role – promotion of market solutions and assumption of initiative in matters related to payment and settlement systems.;
    • Operational role – operation of the RTGS system and execution of settlement in the netting- and securities settlement systems.;
    • Oversight role – oversight of the systems in accordance with international standards.


    According to Governor’s Decision No. 1242 of 18 October 2013, the criteria laid down in the BIS/IOSCO Core Principles for Financial Market Infrastructures (PFMI) shall form the basis of the Central Bank’s oversight and operation of systemically important financial market infrastructures in Iceland.

    Based on the system administrator’s self-evaluation, the Oversight of Financial Market Infrastructures Unit of the Central Bank’s Financial Stability Department assesses the interbank systems’ compliance with each of the 24 Core Principles, assigning one of the following categories to each:

    • Observed.
    • Broadly observed.
    • Partly observed.
    • Not observed.
    • Not applicable.


    The PFMI Core Principles


    In the interest of cybersecurity, the PFMI Core Principles have been described in the Guidance on cyber resilience for financial market infrastructures.