Financial Services and Markets - Law No 87/1998 on official supervision of financial operations.

[Translation from Icelandic]

Government Gazette A.

THE PRESIDENT OF ICELAND

makes known: the Althingi has passed the present Act and I have ratified it with my approval:

The purpose of this law is to promote compliance by financial activities covered by this Act with the laws, regulations, rules and by-laws which are applicable in each instance for those activities.

For the purpose of this Act, the term "financial activities" applies to every type of ac-tivity by companies, institutions and other parties referred to in Article 2.

For the purpose of this Act, the term "parties (that are) subject to supervision" refers to parties supervised by the Financial Supervisory Authority in accordance with Article 2.

Article 2.

Activities to be supervised.

Supervision in accordance with this law applies to the activities of the following parties:

1. commercial banks and savings banks,

2. credit institutions other than commercial banks and savings banks,

3. insurance companies,

4. companies and individuals acting as insurance brokers,

5. undertakings engaged in securities services,

6. mutual funds (UCITS) and management companies,

7. [stock exchanges and other regulated markets],¹

8. central securities depositories (CSD),

9. pension funds,

10. parties other than those mentioned in item 1 which are authorised by to law to receive deposits.

The Act also governs the supervision of other activities than those mentioned in paragraph 1 which the Financial Supervisory Authority has been authorised to supervise in accordance with special laws.

Supervision of the activities of domestic parties abroad and foreign parties in Iceland is subject to the provisions of special laws and international agreements to which Iceland is a signatory.

The Board of the Financial Supervisory Authority shall rule upon cases in which there is doubt as to whether such activities are governed by this Article.

1) L. 11/2000, 1. gr.

A special Authority, the Financial Supervisory Authority, will undertake supervision in accordance with this Act. The Financial Supervisory Authority is a State Authority and has its own Board. The Authority reports to the Minister of Commerce.

The Board of the Financial Supervisory Authority is composed of three members, appointed by the Minister of Commerce for a term of four years at a time. One board member shall be appointed on the recommendation of the Central Bank of Iceland. Deputy members shall be appointed in the same manner. The Minister appoints the Chairman of the Board and decides the remuneration to the members of the Board.

The duties of the members of the Board are to direct the focus of the Financial Supervisory Authority's work and monitor its activities. Major decisions shall be presented to the Board for approval or rejection.

The General Director of the Financial Supervisory Authority shall be appointed by its Board. The General Director is in charge of the day-to-day activities and operation of the Authority. The Board decides the terms of employment for the General Director.

The General Director hires employees for the Authority.

Members of the Board shall have knowledge of the financial market and be well qualified in this field. Care shall be taken when the Board is appointed to ensure as diverse experience and qualifications among appointees as possible.

The General Director shall have a university degree and extensive knowledge and experience in the financial market.

Members of the Board, and the General Director, should be of legal age and must never have been deprived of control over their own financial affairs. They shall have an unblemished reputation and shall not have been sentenced in connection with business opera-tions for infringement of the penal code or of the laws on public limited companies, private limited companies, accounting, annual accounts, bankruptcy or special laws governing parties subject to official supervision.

Members of the Board, the General Director and employees may not be executives, employees, auditors, solicitors or actuaries of parties that are subject to supervision.

Members of the Board, the General Director and employees shall not take part in the handling of any case that concerns their own dealings or dealings of companies in which they own a share or hold directorships, act as representatives or have a substantial interest in other respect and which involve parties that are subject to supervision. The same applies to participation in the handling of cases concerning parties with which they have personal or financial connections.

The Minister sets rules concerning relatons by members of the Board, the General Director and employees with parties that are subject to supervision. These shall include provisions concerning limitations on the extent to which financial obligations or shares may be held towards parties that are subject to supervision.

A special consultative committee composed of representatives from the parties to be supervised shall operate in conjunction with the Authority.

The executives of the Financial Supervisory Authority shall hold regular meetings with the consultative committee. The consultative committee does not have power to make decisions in the affairs of the Financial Supervisory Authority.

Further stipulations concerning the consultative committee, including its composition, shall be stated in a regulation to be issued by the Minister.

[The Financial Supervisory Authority shall ensure that the activities of parties subject to supervision are in accordance with laws, regulations, rules or by-laws governing such activities, and that they are in other respects consistent with sound and proper business practices.

The Financial Supervisory Authority is authorised to publish and publicly announce general directive requests regarding the activities of parties subject to supervision, provided the issue concerns a group of such parties.

The provision of this Act apply, where appropriate, to supervision by the Financial Supervisory Authority, its inspections and gathering of information in accordance with provisions of special legislation. The operating permit of the Financial Supervisory Authority is further defined in special legislation.]¹

1) L. 11/2000, 2.gr.

[The Financial Supervisory Authority shall inspect the operations of parties subject to supervision as often as is deemed necessary. They are obliged to grant the Financial Supervisory Authority access to all their accounts, minutes, documents and other material in their possession regarding their activities which the Financial Supervisory Authority considers necessary.

In pursuance of its activities, the Financial Supervisory Authority may perform on-the-spot checks or request information in such a manner and as often as it deems necessary.

The Financial Supervisory Authority may appoint a specialist for inspecting certain aspects of the operations or management of a party subject to supervision, or to undertake specific supervision of such a party. The specialist shall be appointed for a specific period of time, but no longer than four weeks at a time. The specialist is entitled to working facilities on the premises of the party subject to supervision, and shall be given access to all requested accounts, minutes, documents and other material in their possession. The specialist is entitled to attend meetings of the board of the party subject to supervision as an observer with the right of speech. His obligation to observe secrecy shall be in accordance with Chapter IV of this Act. The party subject to supervision shall carry the expense of the specialist's work, in part or whole, as estimated by the Financial Supervisory Authority.

The Financial Supervisory Authority is authorised to perform special investigations at the operating site and may confiscate any material in accordance with provisions of the Law of Criminal Procedure, provided that there is strong reason to suspect that the party subject to supervision has violated laws or regulations applicable to their operations, or if there is reason to believe that inspections or measures by the Financial Supervisory Authority will not succeed otherwise. Provisions of the Law of Criminal Procedure shall be applied when executing such measures.]¹

1) L. 11/2000, 3. gr.

[If an inspection carried out by the Financial Supervisory Authority reveals that parties subject to super-vision do not comply with the law or other regulations governing their activities, the Financial Supervisory Authority shall insist on corrective action being taken within a certain time limit.

The Financial Supervisory Authority shall remark upon any aspect of the position or operation of a party subject to super-vision which it considers in other respects unsound and inconsistent with normal business practices, even when the provisions of paragraph 1 do not apply, and may also demand that corrective action be taken within a certain time limit.

When a situation such as described in paragraphs 1 or 2 arises, the Financial Supervisory Authority may call a board or executive meeting of the party concerned to discuss its remarks and demands, and discuss corective action. A representative of the Financial Supervisory Authority may chair the meeting and enjoy the right of speech and make proposals.]¹

1) L. 11/2000, 4. gr.

If the party subject to supervision does not provide requested information or heed requests for corrective action within a certain time limit, the Financial Supervisory Authority may resort to sanctions in the form of daily fines. These fines shall be collected until the party has complied with the demands of the Financial Supervisory Authority. The daily fines can amount to IKR 10,000 – IKR 1,000,000 and can be determined as a proportion of certain figures in the operations of the party. When determining the amount of daily fines, consideration shall be made for the nature of the negligence or violation, and the financial strength of the party subject to supervision. Decisions regarding daily fines shall be made by the board of the Financial Supervisory Authority.

The Financial Supervisory Authority can impose liquidated damages on a party subject to supervision in violation of decisions made by the Financial Supervisory Authority. Decisions according to this Article include requests for corrective action cf. Article 10. The liquidated damages can be between IKR 10,000 and IKR 2,000,000.When determining the amount of the liquidated damages, consideration shall be made for the seriousness of the violation, and the financial strength of the party subject to supervision. Decisions regarding liquidated damages shall be made by the board of the Financial Supervisory Authority.

Decisions regarding liquidated damages and daily fines can be appealed to a Appeals Committee according to this Act within seven days from reporting the decision to the party concerned. If a decision is appealed to the Appeals Committee, the liquidated damages and the daily fines may not be collected until a verdict has been rendered.

Uncollected daily fines will not be cancelled if a party subject to supervision later complies with the Financial Supervisory Authority's requests, unless specifically decided by the board of the Financial Supervisory Authority.

All penalties according to this article are enforceable. The same applies to verdicts of the Appeals Committee.

Collected liquidated damages and daily fines shall accrue to the Treasury less the collection cost.

Further provisions on the determination of penalties and their collection shall be stated in a regulation.]¹

1) L. 11/2000, 5. gr.

In the event of a serious infringement where the party subject to supervision has in the opinion of the Financial Supervisory Authority committed a criminal offence, the Financial Supervisory Authority is obliged to notify the State Police Commissioner.

Demands, remarks and planned actions by the Financial Supervisory Authority, cf. paragraph 4, Article 9, Article 11 and paragraph 1 of this Article shall be brought to the immediate attention of the Minister of Commerce, or the Minister otherwise responsible for the relevant field, and the board of the party subject to supervision or, if there is no board, the relevant party.]¹

1) L. 11/2000, 5. gr.

[Members of the board, the Director General and employees of the Financial Supervisory Authority have an obligation to observe secrecy. They may not, subject to sanctions based on provisions of the criminal code regarding civil servants, divulge to outside parties information on the operation of the Financial Supervisory Authority, the business and operation of parties subject to supervision, related parties or others, which they acquire in their work and which should be treated as confidential, except when a judge rules that they should disclose such information in court or to the police or that such information must be disclosed in accordance with the law. The same provisions applies to solicitors, accountants, actuaries and experts employed by or on behalf of the Financial Supervisory Authority. The obligation to observe secrecy remains even after the cessation of employment, and information which is governed by the obligation to observe secrecy must not be used for commercial purposes.

Information governed by the obligation to observe secrecy, according to laws on parties subject to supervision, are governed by a comparable obligation after being divulged to the Financial Supervisory Authority.

Information in accordance with paragraph 1 may be divulged in a summarised form in such a manner that individual parties subject to supervision cannot be identified.

When a party subject to supervision goes bankrupt or if forced liquidation takes place, information otherwise governed by obligation to observe secrecy cf. paragraph 1 may be disclosed during civil action. The obligation to observe secrecy still applies to information regarding a third party involved in salvage operations for a party subject to supervision.

Public discussion of confidential information on behalf of the party meant to be protected by the obligation to observe secrecy does not entitle employees of the Financial Supervisory Authority, or experts working or that have worked on its behalf, to divulge confidential information.]²

1) L. 11/2000, 5. gr. 2) L. 11/2000, 6. gr.

[The Financial Supervisory Authority may disclose to supervisory authorities in other member states of the EEA information, which is to be treated confidentially in accordance with article 13, provided that this constitutes an act of co-operation between those states involving supervision of the activities of parties subject to supervision, and furthermore that such an exchange of information is beneficial for conducting such supervision as prescribed by law. Such information can only be disclosed on the condition that it is subject to obligation of secrecy in the state concerned. Obligation to observe secrecy according to paragraph 1 of Article 13 applies to comparable information received by the Financial Supervisory Authority from supervisory authorities in other member states.

Contracts may be made with supervisory authorities in countries outside the European Economic Area for trading information, under the condition that obligation to observe secrecy in accordance with the provisions of this article applies. The provisions of paragraph 1 apply to the exchange of information with authorities in Iceland or abroad in cases concerning bankruptcy and dissolution of parties that are subject to supervision, or supervision of those responsible for their auditing, or actuarial assessments. The same applies to bodies supervising such parties. For the purpose of facilitating stability and safety in the financial sector, exchange of information is authorised between supervisory authorities and the government and parties involved in investigating infringements of company law.

If the information is derived from another member state of the EEA, they cannot be disclosed without the explicit consent of the legal authorities which disclosed them and only for purposes agreed by those authorities.]²

1) L. 11/2000, 5. gr. 2) L. 11/2000, 7. gr.

The General Director of the Financial Supervisory Authority shall have regular consultative meetings with representatives of the Central Bank, where he shall provide information on the activities of the Financial Supervisory Authority which are necessary for the activities of the Central Bank of Iceland.

The Financial Supervisory Authority shall provide the Central Bank with all the information in its possession which could be useful in the Bank's activities. Should suspicions arise concerning shortcomings in the financial position of parties that are subject to supervision and which engage in transactions with the Central Bank, the Financial Supervisory Authority shall notify the Board of Governors of the Central Bank without delay.

Information disclosed under the provisions of this Article shall be subject to confidentiality in accordance with this Act and the Central Bank of Iceland Act.

The Board of the Financial Supervisory Authority and the Board of Governors of the Central Bank shall establish a special agreement on co-operation in which further provisions on the implementation of this Article shall be stated.

1) L. 11/2000, 5. gr.

[The Financial Supervisory Authority shall report to the Minister of Commerce on its activities by September each year. Following that report, the Minister of Commerce reports the activities of the Financial Supervisory Authority to the Althingi.]²

1) L. 11/2000, 5. gr. 2) L. 11/2000, 8. gr.

[Parties subject to supervision shall meet the operational expenses of the Financial Supervisory Authority. The payment of the operational expenses complies in accordance with act on payment of cost of official supervision of financial operation.]²

1) L. 11/2000, 5. gr. 2) L. 99/1999, 9. gr.

[The decisions of the Financial Supervisory Authority may be referred to a special Appeals Committee.

The Appeals Committee is appointed by the Minister of Commerce for a term of three years. The Committee shall have three members. The Supreme Court nominates the members and the chairman of the CommitteeThe number of deputy members shall be the same and they shall be appointed in the same way.

The Committee shall be allowed to call upon the services of experts when ruling in individual cases.

The cost of the Appeals Committee's work shall be met by the Treasury. Remuneration to the members of the Committee shall be decided by the Minister of Commerce.

Rulings of the Appeals Committee shall be available within eight weeks from referral. Rulings of the committee cannot be referred to the Minister of Commerce.

The Minister of Commerce may issue a regulation² containing further provisions on the scope and working procedures of the Appeals Committee. Such a regulation may also make further stipulations on the scope of the Appeals Committee's work, the type of cases that may be referred to it and the deadline for lodging appeals.]³

1) L. 11/2000, 5. gr. 2) Rg. 761/1999. 3) L. 11/2000, 9. gr.

The Minister shall issue a regulation containing further provisions on the activities of the Financial Supervisory Authority. It shall include provisions on the determination and collection of daily penalties.

1) L. 11/2000, 5. gr.

Infringements of this Act shall be punishable by fines or imprisonment for a term of up to one year, if no greater penalties are prescribed for such infringements in other laws.

1) L. 11/2000, 5. gr.

This Act enters into force on 1 January 1999. At the same time, the activities of the Insurance Supervisory Authority and the Bank Inspectorate of the Central Bank of Iceland shall cease.

Personnel employed by the Insurance Supervisory Authority and the Bank Inspectorate of the Central Bank when this Act enters into force shall be entitled to a position with the Financial Supervisory Authority and maintain their terms of employment and union membership.

The Minister shall arrange for a review of the provisions of Article 16 before 1 January, 2002.

The Financial Supervisory Authority takes over the tasks previously entrusted to the Insurance Supervisory Authority and the Bank Inspectorate of the Central Bank of Iceland Bank in accordance with other laws.

1) L. 11/2000, 5. gr.