Exportation of securities issued in domestic currency

Exportation of securities issued in domestic currency is prohibited in the case of securities comparable to the investment options listed in Article 2, Items 1 and 3 of the Rules on Special Reserve Requirements for New Foreign Currency Inflows, no. 490/2016 – namely, the following:

1. Bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities.
2. Unit share certificates of funds that invest in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities, or that own domestic currency deposits held at deposit institutions in Iceland, if cash and deposits bearing annual interest of 3.00% or more constitute 10% or more of the funds’ assets.

However, if the parties concerned have satisfied the special reserve requirement in connection with their investment in the aforementioned securities, exportation remains permissible.


Investments and measures for which payment is made from a Vostro account

Cross-border movement of domestic currency is prohibited in cases involving measures comparable to those listed in Article 2, Items 1-5 of the Rules on Special Reserve Requirements for New Foreign Currency Inflows, no. 490/2016, when payment is remitted by withdrawal from an account owned by a foreign financial undertaking (Vostro account) – namely, the following:

1. Investments in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities.
2. Investments in unit share certificates of funds that invest in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities, or that own domestic currency deposits held at deposit institutions in Iceland, if cash and deposits bearing annual interest of 3.00% or more constitute 10% or more of the funds’ assets.
3. Deposits in domestic currency with deposit institutions in Iceland that bear annual interest of 3.00% or more.
4. Investments in the equity of a company that invests or allocates funds, directly or indirectly, in the manner described in Items (a) and (b) above.
5. Loans granted to a resident and used for investment for the benefit of the lending pursuant to Items (a)-(c) above.

However, if the parties have satisfied the special reserve requirement in connection with their investments according to the above, cross-border movement of the domestic currency is permissible.

It is only permissible to conduct derivatives transactions with financial undertakings in Iceland, where domestic currency is used in a contract against foreign currency, for the purpose of hedging against risk, provided that a foreign exchange imbalance exists over the duration of the derivative contract and the Central Bank of Iceland has confirmed that the transaction is a hedging instrument. It is required that such hedging instruments reflect the foreign exchange imbalance, and contracts shall be amended accordingly if the premises for them change; i.e., underlying assets are sold or debts settled prior to maturity. Derivatives transactions are also subject to the condition that the contracts may not be transferred, directly or indirectly, to a third party prior to maturity.

The term derivatives transactions refers to transactions with financial instruments pursuant to Article 2, Paragraph 1, Items 2(d)-2(h) of the Act on Securities Transactions.

Derivatives transactions due to hedging in connection with bonds issued abroad in domestic currency do not fall under the above-described exemption.

The Central Bank may revoke its confirmation that a transaction is a hedging instrument if it concludes that the premises for the hedging no longer exist.

The contents of requests for confirmation according to the above shall be as is provided for in Article 13 of the Rules on Foreign Exchange, no. 200/2017.

Foreign exchange transactions carried out between residents and non-residents without the intermediation of a financial undertaking are prohibited.

Borrowing and lending in foreign currency

Borrowing and lending in foreign currency between residents and non-residents are exempt from the restrictions laid down in the Foreign Exchange Act, except for loans in foreign currency granted by residents to non-residents, disbursed to a bank account with a financial undertaking in Iceland and allocated, directly or indirectly, to:

1. Investments in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities.
2. Deposits in domestic currency with deposit institutions in Iceland that bear annual interest of 3.00% or more.
3. Investments in unit share certificates of funds that invest in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities, or that own domestic currency deposits held at deposit institutions in Iceland, if cash and deposits bearing annual interest of 3.00% or more constitute 10% or more of the funds’ assets.
4. Investments in the equity of a company that invests or allocates funds, directly or indirectly, in the manner described above.

Once the Central Bank has confirmed that the loan has not been granted for the above-specified purpose, such lending shall be exempt from the restrictions provided for in the Foreign Exchange Act. The contents of requests for confirmation shall be as is provided for in Article 14 of the Rules on Foreign Exchange, no. 200/2017.

Repayments of loans in domestic and foreign currency between residents and non-residents are exempt from the restrictions provided for in the Foreign Exchange Act, except for repayments of foreign currency loans from residents to non-residents which are allocated, directly or indirectly, for the purposes described above.


Borrowing and lending in domestic currency

Borrowing and lending in domestic currency between residents and non-residents are exempt from the restrictions provided for in the Foreign Exchange Act, except for loans in domestic currency granted by residents to non-residents and disposed of, directly or indirectly, to:

1. Investments in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities.
2. Deposits in domestic currency with deposit institutions in Iceland that bear annual interest of 3.00% or more.
3. Investments in unit share certificates of funds that invest in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities, or that own domestic currency deposits held at deposit institutions in Iceland, if cash and deposits bearing annual interest of 3.00% or more constitute 10% or more of the funds’ assets.
4. Investments in the equity of a company that invests or allocates funds, directly or indirectly, in the manner described above.

Once the Central Bank has confirmed that the loan has not been granted for the above-specified purpose, such lending shall be exempt from the restrictions provided for in the Foreign Exchange Act. The contents of requests for confirmation shall be as is provided for in Article 14 of the Rules on Foreign Exchange, no. 200/2017.

Repayments of loans in domestic and foreign currency between residents and non-residents are exempt from the restrictions provided for in the Foreign Exchange Act, except for repayments of domestic currency loans from residents to non-residents which are allocated, directly or indirectly, for the purposes described above.

The use of foreign currency to settle transactions with the following financial instruments is prohibited:

1. Bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities.
2. Unit share certificates of funds that invest in bonds or bills issued in domestic currency and electronically registered pursuant to the Act on Electronic Registration of Title to Securities, or that own domestic currency deposits held at deposit institutions in Iceland, if cash and deposits bearing annual interest of 3.00% or more constitute 10% or more of the funds’ assets.
3. The equity of a company that invests or allocates funds, directly or indirectly, in the manner described in Items (a) and (b)