17 November 2008

Information on payment intermediation to Iceland via the Central Bank of Iceland

In view of the current circumstances, the Central Bank of Iceland wishes to explain how cross-border payments take place in instances where the Central Bank of Iceland acts as an intermediary.

The following is an example of a payment from the United Kingdom to Iceland; however, the example applies to all currencies and to payments both to and from Iceland.

References to sending payment to Iceland in foreign currency are somewhat misleading. Payments made in pounds sterling (GBP) never leave the United Kingdom's payment systems. The same applies to Denmark and the Danish krone (DKK), the Eurozone and the euro (EUR), and so forth. A payment intended for a recipient in Iceland is deposited to an Icelandic bank's account with a British bank in London. Then, on the basis of the information accompanying this deposit, the Icelandic bank transfers funds to the ultimate recipient.

At present, such deposits are made to the Central Bank of Iceland's account with National Westminster Bank. When the Central Bank receives information on such a payment, it transfers funds to the recipient's commercial bank and sends the payment information to that bank. The commercial bank then deposits the funds to the recipient's bank account.

Because the Central Bank is an additional intermediary in this instance, it could prove complicated to arrange for payments to Iceland via online banking. There are examples where this has caused problems and delayed payment. The Central Bank recommends strongly that the party remitting payment contact his bank and request a conventional transfer of funds if he is in doubt about how to fill out an international payment order on the Internet.

There have also been instances where payments are deposited to the Central Bank's accounts without any further information apart from the amount of the deposit, which appears on daily statements. This has resulted in delayed processing of payments. In order to enhance the likelihood that the Central Bank will receive prompt and correct information, the payer should request that his bank send each payment as an “International Customer Transfer” and that the Central Bank be sent a so-called SWIFT MT103 message. If this is done, funds can be transferred to the relevant commercial bank on the day the Central Bank receives the payment.

In other respects, the Bank makes reference to the payment instructions for various currencies, which can be found on the Central Bank website:

Payment instructions

This document provides the names and SWIFT codes of the banks with which the Central Bank has accounts. The Central Bank's SWIFT code is also shown, primarily because cross-border payment intermediation makes use of SWIFT codes to identify the various banks involved.

Finally, the Bank recommends strongly against using payment instructions that mention only the name of one of Iceland's three commercial banks and the name and account number of the recipient. This will cause the payment to be sent to an account at one of the old banks, whence it will probably be impossible to forward it. Those who have done this and have not received their payments should rescind the relevant payment orders and send them again in accordance with the above-specified instructions.

Further questions should be directed to sedlabanki@sedlabanki.is .