Financial Services and Markets - Act No 131/1997 on electronic registration of title to securities

English translation

This Act shall cover the electronic issue of securities and registration of proprietary rights to them. Electronic issue of securities and registration of proprietary rights to them, with legal effect as provided for in this Act, is only permitted a central securities depository which has been granted an operating licence pursuant to this Act.
For the purposes of this Act the following definitions shall apply:
1. electronic security certificate: a transferable, electronically registered security, registration: issuing of electronic security certificates in a central securities depository and registration of [rights]1) to them,
2. central securities depository: a limited liability company which handles the registration of title to electronic security certificates,
3. account operator: an enterprise or institution which serves as intermediary in the registration of title to electronic security certificates in a central securities de-posi-tory,
4. final entry: final testing and entry of registration in a central securities depository in accordance with notification sent to it, account: list of final entries of an account holder of electronic security certificates in a central securities depository.
5. finality: final settlement of the transactions of account operators in electronic security certificates and full completion thereof, such as by clearing or monetary payments which form the basis for final entry in the account of a central securities depository.]1)
1) Article 1 of Act 32/2000
The Minister of Commerce shall grant a central securities depository an operating licence upon receiving the opinion of the [Financial Supervisory Authority].1) Appli-cation for an operating licence must be made in writing. Such a licence shall only be granted to registered limited-liability companies which fulfil the following conditions:

1. paid-up share capital shall be at least ISK 65 million, with such amount being indexed to the buying rate for the European Currency Unit (ECU) and based upon the official rate of exchange on the date of the entry into force of this Act;
2. an adequate operating budget is provided, based on sound operational premises, in addition to an organisational chart and description of security measures;
3. the conditions of Article 30 of this Act concerning a guarantee fund are fulfilled.

The applicant shall be informed in writing of the decision of the Minister con-cerning the application for an operating licence as promptly as possible and no later than three months after his receipt of the complete application. Rejection of such application by the Minister shall be reasoned. A central securities de-posi-tory may not commence operation until its share capital is fully paid-up. A central securities depository may not carry out activities other than those provided for in this Act or normally connected with such.
1) Article 20 of Act 84/1998 A central securities depository shall have at least three members on its Board of Directors, who shall be permanent residents of Iceland, be of legal age, have unblemished reputation, be competent to manage their own finances, and may not, during the last five years, have been convicted of an offence connected with a commercial activity which is punishable under the Criminal Code or Acts on limited-liability companies, private limited-liability companies, bookkeeping, annual accounts, bankruptcy or public levies. Nationals of States parties to the Agreement Establishing a European Economic Area are exempt from the residence requirement, provided that such nationals are residents of an EEA Member State. The Minister may grant this same exemption to residents of other states. Individuals and legal entities shall notify the [Financial Supervisory Authority]1) of any direct or indirect participation in a central securities depository representing at least 10% of its share capital or voting rights, or less if such entails a significant influence on the management of the company, and the extent of such participation. Should a shareholder with a holding in a central securities depository of the size indicated in the first paragraph exercise it in a manner to the detriment of the sound and secure operation of the central securities depository the Minister may, upon receiving a proposal from the [Financial Supervisory Authority]1), decide that this hold-ing shall not be entitled to voting rights or instruct the central securities depository to take suitable measures. Should the Minister decide, pursuant to the second paragraph, that holdings shall not be entitled to voting rights, such holdings shall be excluded in cal-cu-lations of the proportion of voting rights represented at shareholders' meetings.
1) Article 20 of Act 84/1998 A central securities depository is obliged to notify the [Financial Supervisory Author-ity]1) if it becomes aware of or suspects any violation of this Act or a Regulation issued by virtue of it.
1) Article 20 of Act 84/1998 The Board of Directors of a central securities depository shall adopt its own guidelines for operation. These guidelines shall provide, in particular, for the Board to adopt a position on company organisation, for example, with regard to accounting practices, internal checks and surveillance, computer systems and budgeting, and concerning the manner in which regular monitoring of the implementation of decisions taken by the Board on these questions shall be carried out and on their review.
Merger of a central securities depository with another company is prohibited except with the prior authorisation of the Minister, given upon receiving the opinion of [Financial Supervisory Authority].1) The same shall apply to any splitting up of a company into two or more companies.
1) Article 20 of Act 84/1998 The Board of Directors, Managing Director and other employees of a central securities depository, as well as its auditors, may not reveal any information which they have acquired in the course of their employment or due to their position concerning the situation of account owners, the central securities depository or its customers except upon the issuing of a court ruling to this effect. The obligation of confidentiality shall remain after employment ceases.
The provisions of the first paragraph shall not, however, prevent a central securities depository from concluding an agreement for co-operation with another company carrying out similar activities and providing information to the latter party, provided it is also bound by comparable provisions on con-fi-den-tiality. The audited annual accounts, attested to by the Board of the central securities depository, together with the annual report, shall be sent to the [Financial Supervisory Authority]1) within three months of the end of the financial year.
Should an auditor become aware of such flaws in the operation of a central securities depository that its accounts cannot be attested to without reservations or notes being attached to them, of faults in its internal checks, or of other aspects which could weaken the financial position of the enterprise in future operations, or if an auditor has reason to suspect any violation of Acts and Regulations, or rules applying to the company, the auditor shall immediately notify the Board of Directors of the central securities depository and the [Financial Supervisory Authority]1) of such. This shall also apply to any similar aspects of which the auditor of a central securities depository acquires information concerning enterprises closely connected with it. The provisions of this article shall be without prejudice to the auditors' obligations of confidentiality in accordance with the provisions of this or other Acts.
1) Article 20 of Act 84/1998 The following parties have the right to act as intermediaries in registration in a central securities depository:
1. the Central Bank of Iceland,
2. the National Debt Management Agency,
3. commercial banks and savings banks,
4. enterprises providing securities services,
5. lending institutions other than commercial banks and savings banks. Those parties listed in Article 10 and in Points 1–3 of the second paragraph of Article 12 shall conclude an agreement of association with a central securities de-pository, which shall be a condition for their authorisation to serve as inter-mediaries in the registration, or to have access to the central securities depository.
The Board of a central securities depository may conclude an agreement of association with the issuers of market securities on their authorisation to serve as intermediaries in the registration in the central securities depository of the issuing and first transfer of electronic security certificates issued by the parties in question in accordance with their authorisation to operate in the financial market.
[The Board of a central securities depository shall allow limited-liability companies which are registered there access to information held in a central securities depository on the registered owners of shares in the company concerned.]1) The same shall apply to access by Undertakings for Collective Investment in Transferable Securities (UCITS) to information on the owners of units in the collective investment undertakings concerned.
1) Article 2 of Act 32/2000 A Regulation,1) issued by the Minister, may provide for:

1. detailed rules on the basis for and carrying out of registration, as well as for the means through which individuals, employed by a central securities depository or account operator, are to carry out the tasks involved in registering rights in a central securities depository;
2. detailed rules on the registration of limited proprietary rights to electronic security certificates;
3. authorisations to a central securities depository to decide upon arrangements for collecting fees for handling and registration of electronic security certificates.

A Regulation,1) issued by the Minister upon receiving proposals from the Boards of central securities depositories operating on the basis of this Act, may provide for:

1. foreign central securities depositories and foreign commercial banks, savings banks, enterprises in securities services and lending institutions other than commercial and savings banks authorised to hold assets, which are au-thor-ised to operate in this country and are subject to surveillance by public authorities, to serve as intermediaries in registration in a central securities depository with legal effect as provided for in Chapter IV upon receiving the approval of the [Financial Supervisory Authority]2);
2. the authorisation of a central securities depository, upon receiving the approval of the [Financial Supervisory Authority,]2) to act as intermediary in the registration in domestic and foreign central securities depositories;
3. granting parties other than account operators the right to seek information concerning their own accounts directly from a central securities depository on the basis of a participation agreement which the party in question has concluded with the central securities depository.
1) Reg. 397/2000, 2) Article 20 of Act 84/1998 The Board of Directors of a central securities depository is responsible for ensuring that adequate security precautions are taken in its activities and that operations are run efficiently. The Board of a central securities depository shall set detailed rules as to which securities may be registered as electronic security certificates. These rules shall ensure non-discrimination and be made public. All electronic security certificates of a particular issue shall only be registered in one central securities depository. A central securities depository may not provide information on rights registered, cf., however, the provisions of this Act.
A central securities depository may provide information for statistical pur-poses upon the authorisation of the [Data Protection Commission]1) of such.
1) Article 46 of Act 77/2000, effective as of 1 January 2001 The Central Bank of Iceland shall accept deposits from account operators which are a party to a central securities depository and arrange the settlement of their transactions in electronic security certificates. [The Central Bank may, as provided for in an agreement with an account operator, authorise the mortgaging of electronic security certificates of an account operator as security against the finality of payment settlement within payment systems which have been approved by the Minister in accordance with Article 3 of Act 90/1999, on the Security of Transfer Orders in Payment Systems; such mortgages shall be registered in accordance with Chapter IV of this Act. If an account operator has not fulfilled his obligations within the time limit fixed in current transaction rules based on this Article, the Central Bank may redeem without delay those electronic security certificates which have been set as collateral for the settlements in question.]1) The Central Bank shall set detailed rules on its dealings pursuant to this Article.
A consultation committee shall be appointed representing central securities depositories, the Icelandic Stock Exchange and the Central Bank of Iceland. The Central Bank of Iceland shall appoint one representative to the committee, central securities depositories which have received operating licences in accordance with this Act shall appoint one representative and the Icelandic Stock Exchange shall appoint one representative. The representative of the Central Bank shall serve as chairman of the committee. The purpose of the consultation committee is to discuss the relationship between central securities depositories, the Icelandic Stock Exchange and the Central Bank in connection with settlement of transactions.
The Central Bank may impose penalties on account operators in accordance with Article 41 of the Central Bank of Iceland Act, No. 36/1986, should they fail to abide by decisions made by the Bank in these matters.
1) Article 3 of Act 32/2000 Rights to electronic security certificates must be recorded with a central securities depository if they are to enjoy legal protection with regard to execution measures and disposal by contract. Negotiable certificates may not be issued for the rights registered in an electronic security certificate nor may they be transferred; any such transactions are invalid.
Registration of title to an electronic security certificate in a central securities depository, following final entry by the central securities depository, grants [its]1) registered owner legal authority to the rights of which he is the registered owner and shall be the equivalent of certification of ownership to the electronic security certificate towards the issuer.
The priority of incompatible rights shall be determined by the time of receipt by the central securities depository of the account operator's request for their registration.
The legal effect of registration is considered to apply from the moment the final entry has been made by the central securities depository. An account operator is obliged to notify the central securities depository without delay of a request for registration, provided the party in question has presented satisfactory information concerning the basis of the request.
1) Article 4 of Act 32/2000 Should an account operator feel that doubt exists as to facts or aspects which may affect the legally ensured right conveyed by registration, or the right of those for whom the registration is of significance, and that registration might infringe the right of a third party, it shall take action to ensure that rights of ownership only be registered provisionally. The central securities depository shall take the final decision as to whether the rights registered in accordance with this Article shall be entered in its registry. Detailed provisions on the handling of provisional registration pursuant to this Article may be prescribed in a Regulation.1)
1) Reg. 397/2000 An account operator or account operators, as appropriate, must notify all parties involved in each registration of rights it has handled. It shall also send notification of any problems involved in the registration. Account operators should notify the parties concerned in the same manner, as appropriate, of changes to or eradication of rights.
The holders of registered rights and account operators may request, on the basis of rules set by a central securities depository after receiving the approval of the [Financial Supervisory Authority]1) of the Central Bank of Iceland, that they be sent notifications at regular intervals, or may decline to receive some or all of the notifications concerning changes to rights. An agreement as to how notification shall be handled must be registered in the account of the rightholder concerned.
An account operator may conclude an agreement with the Board of a central securities depository providing for the latter to send the notifications referred to in the first paragraph. An agreement pursuant to this paragraph must be attested to by the [Financial Supervisory Authority.]1)
1) Article 20 of Act 84/1998 Once final entry has been made in a central securities depository, the rights of a bona fide assignee may not be disputed. Registration in a central securities depository shall not, however, preclude opposition regarding serious coercion or fraud. A central securities depository shall lay down rules for the transfer of assets and rights in accordance with the provisions of this Act and rules adopted pursuant to it, cf. also the provisions of Article 15 of this Act. A central securities depository is authorised to handle the transfer of assets and rights on behalf of the issuer of an electronic security certificate, at the request of the latter, to whomever is entitled to receive payment according to the registration in the depository. It shall not be responsible for any legal incapacity on the part of the recipient to receive such payment, nor his legal minority, provided that it neither knew nor should have known of such situation on the part of the recipient. This shall not, however, apply if the claim of a registered rightholder arises from a contract which is invalid because it is based on serious coercion or fraud.
The final entry of a central securities depository concerning payment of instal-ments and interest to the account of the registered rightholder shall have the same validity for the debtor as an attest on a debenture. The establishment of rights to electronic security certificates shall, with regard to aspects not covered by this Act, be as provided for in general legal provisions. Should the account operator become aware that errors have occurred in con-nec-tion with registration, it must notify the central securities depository and request their correction. Before a correction is made anyone who may be affected by it must be given the opportunity to express his views thereupon. A central securities depository may eradicate rights which clearly no longer exist. Should a central securities depository be of the opinion that rights credited to an account are no longer of any significance, or are at least 20 years old and must be regarded as demonstrably no longer valid, or it is demonstrated that no rightholder has been found to the entitlement, it may publish a notice of recall in the Legal Gazette to anyone regarding themselves as entitled to the registered rights, allowing a three-month time limit for response. Should no one respond within the given time limit the central securities depository shall eradicate the entitlement.
Detailed provisions on the implementation of the second paragraph may be issued in a Regulation.1)
1) Reg. 397/2000 Electronic security certificates held by an account holder shall be registered in his account in a central securities depository. Each account shall record information on the account operator or operators authorised to file registration to this account. A central securities depository shall issue a statement of account listing the rights registered there.
A statement of account shall be issued to owners of electronic security certificates at regular intervals. The statement of account shall list any electronic security certificates registered as the property of the account owner in question on the statement date. A comparable statement shall be issued to owners of limited proprietary rights to electronic security certificates. An account operator may send a registered rightholder an additional statement of account if he requests such.
Detailed rules concerning the presentation of accounts and issuing of state-ments pursuant to the first paragraph, as well as the information to be included in the statement, shall be prescribed in a Regulation1) issued by the Minister.
1) Reg. 397/2000
Complaints due to disputes which may arise concerning registration in a central securities depository, or other matters falling under the scope of this Act, shall be forwarded to a Rulings Committee of central securities depositories. This shall not, however, apply to claims for damages.
The Minister shall appoint three persons to form a Rulings Committee, one of whom shall act as chairman and must fulfil the conditions of eligibility for District Court judges. Other Committee members must have sound knowledge of the electronic registration of proprietary rights. The Committee shall be appointed for a four-year term. The Minister shall determine the compensation paid to Committee members which shall be borne by the national treasury.
Complaints pursuant to the first paragraph must be sent to the Rulings Committee within 12 weeks from the date of the registration in a central securities depository. The Rulings Committee shall have access to all data of the central securities depository and account operator connected to the complaint.
The Rulings Committee shall issue a reasoned ruling on the complaint which must be notified to all parties concerned.
The Ruling Committee may, in exceptional instances, accept a matter for a ruling after the expiration of the time limit for complaints provided for in the third paragraph.
The Minister may lay down detailed rules concerning the duties of the Rulings Committee. The following parties may submit a complaint pursuant with Article 25:

1. anyone who must be considered as having sufficient legally protected interests at stake in the matter;
2. an account operator, when it sees cause to question decisions taken by a central securities depository in accordance with Articles 17, 22 and 23; and
3. a central securities depository, when it sees cause to question notifications from an account operator concerning registrations at the central securities depository. A ruling by the Ruling Committee may be submitted to a court of law in the usual manner within four weeks of its notification to the parties concerned.
Cases which may be referred to the Rulings Committee, pursuant to Articles 25 and 26, cannot be submitted to a court of law without first undergoing the complaint process. A central securities depository is liable to make compensation for damages which may be traced to its activities in connection with notification of registration, changes or eradication of rights on an account at the depository, in spite of the fact that no punishable offence is involved. Liability for com-pen-sation shall not, however, cover damages arising from lost business opportunities nor damages due to circumstances beyond its control (force majeure).
Should an injured party have contributed to the damage wilfully or through negligence, compensation due him may be reduced or cancelled.
A central securities depository is liable to make compensation to innocent parties who suffer damage covered by the provisions of the second sentence of Article 19 if compensation is not obtained under general rules of law.
The total compensation for damage resulting from a single harmful event may not exceed one-half of the amount of the guarantee fund provided for in Article 30. An account operator is liable to make compensation for damages which may be traced to its activities in connection with notification of registration, changes or eradication of rights on an account in a central securities depository, as well as payments from such an account, in spite of the fact that the damage may be the result of accident.
Should an injured party have contributed to the damage wilfully or through negligence, compensation due him may be reduced or cancelled. When the cause of damage may be traced to the activities of a central securities depository or account operator, in accordance with Articles 28 and 29, but it is not clear which of the two parties is responsible for the damage, demand for payment of compensation may be made of them jointly (in solidum). Right of recourse between the plaintiffs shall be governed by general rules of law.
The total guarantee fund of a central securities depository shall never amount to less than ISK 650 million in the form of guarantees or other arrangements.
Detailed rules on guarantees of a central securities depository in accordance with the second paragraph shall be laid down in its Articles of Association. The [Financial Supervisory Authority]1) shall see to it that activities of central securities depositories comply with the provisions of this Act and rules or Regulations issued in accordance with it. [The Financial Supervisory Authority]1) shall thus have access to all data and information on the activities of central securities depositories and account operators which it considers necessary for purposes of supervision in accordance with this Act. [The Act on Official Supervision of Financial Operations]1) and the Act on Securities Transactions shall apply, as appropriate, to such supervision.
1) Article 20 of Act 84/1998 Should the [Financial Supervisory Authority]1) be of the opinion that an account operator has committed repeated or serious infringements against the provisions of this Act, the Act on Securities Transactions or rules or Regulations adopted in accordance with them, or that the conduct of an account operator deviates in other respects from normal, sound and trustworthy business practice, it may revoke the rights of the party in question to make registrations in a central securities depository.
1) Article 20 of Act 84/1998 A central securities depository may, in its agreement of association as well as in rules adopted by the Board, set limits or refuse access to its registration of title as a result of infringements against the agreement of association or rules pertaining to its activities. The Board may, at its discretion, provide in the agreement of association for penalties in the form of fines should an account operator fail to meet its obligations according to the agreement, provided the infringement is not punishable according to Article 34.]1)
1) Article 5 of Act 32/2000 Violation of this Act shall be liable to fines or imprisonment of up to one year, unless more severe punishment is prescribed for such infringements by other Acts. In the event of violations benefiting legal entities, the above-mentioned penalties may be imposed on their management; their rights of legal entities to operate may also be revoked. Any attempted violation, or participation in a violation, against this Act is punishable under the Criminal Code.
1) Article 5 of Act 32/2000 If an electronic security certificate is issued and registered in accordance with this Act as a bill of exchange, legal provisions applicable to bills of exchange must be complied with as appropriate.
1) Article 5 of Act 32/2000 Should securities be accepted for electronic registration in a central securities depository the provisions of this Act shall take precedence over specific legislation on the issuing and format of such securities.
1) Article 5 of Act 32/2000 This Act shall enter into force 1 January 1998.
1) Article 5 of Act 32/2000 Once a central securities depository as provided for by this Act has commenced operation, the objective shall be to offer issuers and owners the opportunity to electronically register all of the following securities which are then fully valid, or until their final payment date, before the end of the year 2000:

1. national treasury bonds,
2. national government securities,
3. national government bills of exchange,
4. housing bonds and housing fund bonds,
5. stocks in companies listed on the Icelandic Stock Exchange,
6. debentures and bills of exchange, issued by commercial and savings banks, local authorities and other parties not specified elsewhere, which are listed on the Icelandic Stock Exchange,
7. other securities which the Board of Directors of a central securities depository agrees to register in accordance with the provisions of Article 13 of this Act. If proprietary rights to a security are registered in a central securities depository the actual security certificate itself shall be invalidated. Detailed provisions for recall and registration, in accordance with the provisions of this Provision and Temporary Provision I, shall be laid down in a Regulation1) issued by the Minister. [When all conditions regarding recall as provided for in the Regulation have been met and when transfer and registration in a central securities depository have been completed, the actual securities certificates shall be invalidated.]2)
1) Reg. 397/2000, 2) Article 6 of Act 32/2000