IIEffective Insolvency and Creditor Rights Systems
There is insufficient publicly available information that directly addresses Iceland's compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. However, in the absence of a formal, authoritative assessment of Iceland's compliance, there is information that suggests that the country's insolvency regime is reasonably well developed and has provided the flexibility and scope to deal with the fallout from the global economic downturn with some success. Given the profundity of Iceland's implication in that economic downturn, however, an Emergency Act amending Act on Financial Undertakings of 2002 was required, instituting a moratorium on the closure of financial institutions while the authorities worked to arrive at reasonable asset valuations. The remainder of Iceland's insolvency-related legislation is contained within the provisions of the Bankruptcy Act No. 21 of 1991, the Companies Act No. 2 of 1995, and the Private Companies Act No. 138 of 1995. The texts of these laws are available in English translation on the various ministerial websites relating to business affairs, industry, and the justice system. Iceland's performance on the World Bank's Doing Business – Closing a Business evaluation shows that Iceland ranks 12th among the 181 countries included in that study with regard to cost, time required, and returns to investors when closing a business. On all three indicators, Iceland outperforms the average enjoyed among member states of the Organization for Economic Cooperation and Development.
Read More
IDInternational Financial Reporting Standards
Iceland is a European Economic Area (EEA) member and therefore adheres to European Commission (EC) regulations. In line with the EC regulation No. 1606/2002, listed companies in Iceland are required to use the International Financial Reporting Standards (IFRSs) in their consolidated accounts, as adopted by the European Union (EU), states the 2008 EC report on the implementation of the Regulation No. 1606/2002. Further, Icelandic listed companies have also been required to prepare annual accounts in compliance with IFRSs beginning 2007. Entities such as small and medium sized enterprises (SMEs) and big companies may apply IFRSs in preparation of consolidated and annual accounts or follow Icelandic generally accepted accounting principles (GAAP) which primarily comprise principles set out in corporate law, and legislation on annual accounts, banks, insurance and pension funds with mandatory provisions on the accounting framework. A PricewaterhouseCoopers report on IFRSs adoption notes that although the Icelandic accounting standard-setter has no formal conversion plans, local GAAP has been moving towards IFRSs.
Read More
IIPrinciples of Corporate Governance
A 2004 paper by Áslaug Björgvinsdóttir explains that Iceland's legal environment went through many changes resulting in a new company and securities law regime which was harmonized with the European Union (EU) directives. This harmonization became necessary upon Iceland's membership in the European Economic Area in 1994. The first Act on Stock Exchanges, No. 11 was passed in 1993 and subsequent acts brought Icelandic regulation further into line with EU directives. For instance, Act on Competition No. 44 transposing EU directives on market abuse, takeovers and prospectuses came into force in 2005. In 2004, the Icelandic Stock Exchange in cooperation with the Icelandic Chamber of Commerce and the Confederation of Icelandic Employers published guidelines on good corporate governance in Iceland, which are implemented on a ‘comply or explain’ basis for registered companies. In line with European Commission regulation No. 1606/2002, listed companies in Iceland are required to use the International Financial Reporting Standards in their consolidated accounts, as adopted by the EU. Overall, the publicly available information does not sufficiently address Iceland's compliance with the Organization for Economic Cooperation and Development's Principles of Corporate Governance.
Read More
IDInternational Standards on Auditing
According to a 2006 Icelandic Association of State Authorized Public Accountants (FLE) self-assessment, the FLE does not have the explicit legal authority to establish the auditing standards in Iceland. However, FLE guidelines along with International Standards on Auditing (ISAs) are recognized as the basis for "good auditing practice" in various Icelandic laws. Iceland is a European Economic Area member and as such must adhere to the European Commission (EC) regulations. In the area of auditing, the Directive 2006/43/EC of the European Parliament and Council requires all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the EC. Although the international auditing standards are not yet defined, it is widely anticipated that ISAs as issued by the International Auditing and Assurance Standards Board will be adopted.
Read More
IDAnti-Money Laundering/Combating Terrorist Financing Standard
In 2006, the Financial Action Task Force assessed Iceland’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against the Financial Action Task Force’s (FATF) 40 plus 9 recommendations and special recommendations. At the time of the assessment, however, the country was in the process of implementing the European Union 3rd money laundering directive. For this purpose, the country had enacted a new (2006) AML/CFT Law that replaced its 1993 Law (amended in 1999). The FATF assessors, although aware of this change were unable to gauge the effectiveness of the 2006 AML/CFT Law owing to its relative newness. The FATF assessment concluded that Iceland’s legal requirements to combat money laundering and terrorist financing were comprehensive. However, the main concerns raised by the assessment were with regards to recommendation 5 (on customer due diligence, CDD) and recommendation 13 (on suspicious transaction reporting, STR), both for which the country is rated as only partially compliant by the FATF assessment. Both these recommendations are deemed core requirements by the FATF and require a compliance level of largely compliant or above. Commenting on the effects that the 2006 AML/CFT law would have on Iceland's CDD and STR requirements, the 2006 FATF report notes that CDD measures although improved by the 2006 Act still needs to be more comprehensive especially in regards to beneficial ownership. As for suspicious transaction reporting, the assessors noted that the requirements were "generally sufficient" in the new law, however, there were some concerns regarding the effectiveness of the system. Money laundering in Iceland is criminalized through Section 264 of the General Penal Code. The terrorist financing offence is defined in Section 100 (b) of the Code. Provisions for confiscation are contained in Section 69 of the Penal Code. Despite the weaknesses identified by the FATF assessors, it is evident from the FATF report that the Icelandic authorities are committed to improving the country's AML/CFT regime. In a 2008 report, the FATF lists Iceland as one of the jurisdictions which have undertaken to implement the FATF's 40 recommendations and nine special recommendations.
Read More
ENCore Principles for Systemically Important Payment Systems
The Real-Time Gross Settlement (RTGS) System, the FGM Netting System, and the Securities Settlement System are the three systemically important payment systems in Iceland. In 2001, the IMF evaluated the RTGS system and the FGM system in its Financial System Stability Assessment (FSSA) on Iceland, and found that the RTGS system “observed” or “largely observed” five out of the ten Core Principles for Systemically Important Payment Systems (CPSIPSs) promoted by the Committee on Payment and Settlement Systems (CPSS), while the FGM system “observed” or “largely observed” four of the ten CPSIPSs. The other principles were either materially not observed or not observed by Iceland. Similarly, the assessment found that the country did not observe the requirements for central bank responsibilities. In its 2001 report, the IMF recommended that the Central Bank of Iceland (CBI) and the Financial Supervisory Authority (FME) clarify their respective supervision and oversight roles of the payment systems; the CBI be empowered to issue payment system rules and regulations; payment system access criteria be published; adequate collateral be required for CBI lending to banks; and risk management be strengthened. In 2003 the IMF updated its FSSA and observed that the CBI has been assigned oversight responsibility over payment systems and rules-making powers by the 2001 Central Bank Act. The CBI has also strengthened RTGS risk management, required sufficient collateral security, and coordinated with the FME regarding system oversight and supervision. As the IMF comments in its latest 2008 FSSA update, Iceland has followed the recommendations set forth in the 2001 IMF FSSA and corrective actions for the payment system have been broadly implemented.
Read More
