14 January 2022

Amendments to Rules on Current Accounts

The Rules on Current Accounts in the Central Bank of Iceland, no. 540/2007, have been amended and reissued as Rules no. 18/2022. The main substantive amendments pertain to financial institutions’ establishment and use of current accounts with the Bank. Other changes follow from regulatory and statutory amendments that have been made since the adoption of the previous version of the Rules.

In particular, the substantive amendments introduce more stringent requirements concerning participation in the transmission of the Central Bank’s monetary policy and include provisions preventing account owners from undermining financial stability. In order to hold a current account with the Central Bank, a financial institution must be an active participant in the transmission of the Bank’s monetary policy, such as by accepting deposits and granting loans to individuals and businesses. Furthermore, the financial institution’s activities may not, in the opinion of the Central Bank, disrupt financial stability or work in other respects against sound and secure financial activities. The Rules also contain a requirement that takes effect on 1 June 2022, entailing that at any given time, financial institutions may hold a maximum of 40% of their customer deposits in current accounts or term deposits with the Central Bank.

These amendments represent the further implementation of the decision concerning limitations on Central Bank facilities, published by the Bank on its website in October 2019 and stating the following, among other things: “The objective of Central Bank facilities and liquidity management is to promote monetary policy transmission along the yield curve. In view of this, the Bank considers it more consistent with its role as a central bank to channel interest rates through those financial institutions that can transmit them onwards to individuals and businesses in an effective and transparent manner through deposits and loans. Furthermore, the Central Bank is of the opinion that refraining from competing with financial institutions for deposits is more consistent with the substance of Article 17, Paragraph 2 of the Act on the Central Bank of Iceland. As such, deposit accounts with the Bank should not be a vehicle for investment or risk diversification beyond what is necessary for commercial banks, savings banks, and fiscal administration.”

Press release no. 3/2022,
14 January 2022