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Iceland To Overhaul Financial Laws

by Ulrika Lomas,, Brussels

29 October 2012

The 'Group of Three' has issued its recommendations for financial stability in Iceland, which are expected to lead to two new bills designed to overhaul Iceland’s financial system.

In particular, the proposals aim to address issues of competition, complexity, concentration, and distorted incentives in the Icelandic financial system. The ultimate goal would be to structure and regulate the financial system, so that profitable business is based on “controlled risk-taking” and “long-term business relationships aimed at serving the needs of the Icelandic economy”.

In a statement, the Icelandic government has said it would immediately get to work and draft two bills to realize these recommendations. The proposals are therefore anticipated to be effective by the end of the current legislature.

Back in March, the Icelandic government appointed the Group of Three to deliver suggestions and proposals to the Finance Ministry and the Ministry for Industries and Innovation. The Group includes Jón Sigurðsson, ex-President of the Nordic Investment Bank; Gavin Bingham, former Secretary General of the Central Bank Governance Forum of the Bank for International Settlements; and Kaarlo Jännäri, former Director General of Finland’s Financial Supervisory Authority.

As a first step to overhaul the regulatory framework, Iceland could create a Financial Stability Council (FSB), whose mandate would be to supervise the financial system in order to address all the features leading to distorted incentives, conflicts of interests and complexity.

According to the Group of Three, Iceland should take necessary steps to break oligopolies in the financial sector, and boost competition. It recommends that Iceland should make “all financial undertakings subject to a common core set of rules for comparable activities”, and require all providers of publicly-offered financial services to hold a license.

In addition, the Group of Three recommends reform of the corporate governance system to encourage transparency and accountability. There are also plans to reform the deposit guarantee scheme, and to prepare a separation of retail banking from investment banking activities.

TAGS: investment | business | Iceland | law | banking | corporate governance | legislation | services

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