Financial market infrastructure

Financial market infrastructure connects customers to financial institutions and connects those institutions to one another, both directly and through markets, as it encompasses a wide range of systems and services that facilitate payment intermediation, settlement, and registration of payments, securities, and other financial transactions.

One of the Central Bank of Iceland’s legally mandated roles is to promote a safe and effective financial system, including domestic and cross-border payment intermediation. This entails, among other things, that the Bank must promote the resilience of payments and ensure that effective payment methods are in place so that all types of transactions undertaken by individuals, companies, and the public sector can be carried out smoothly. It includes providing secure, effective, efficient, and accessible financial market infrastructure that supports financial stability and the functioning of the economy.

The Central Bank plays a number of roles in this area: it owns, operates, and provides services for certain financial infrastructure; it oversees systemically important infrastructure; and it promotes further development, cooperation, and standardisation in the field of payments.

The Central Bank sets policies that extend to financial market infrastructure and the Bank’s role and administration in relation to it; i.e., the Policy on Financial Market Infrastructure and the Policy on Oversight of Financial Market Infrastructure.

Systemically important infrastructure falls into two categories – critical infrastructure and core infrastructure – and both types are such that their activities can affect financial stability. This refers not only to information technology (IT) systems or software solutions, but the entire framework underlying the operation of the infrastructure in question: contractual agreements, applicable rules, and methodologies and procedures. The definition of systemically important infrastructure and the Bank’s criteria for determining which infrastructure it considers systemically important can be found in the Rules on Oversight of Systemically Important Financial Market Infrastructure, no. 1391/2025.

Inadequate security and efficiency in the operation of systemically important financial market infrastructure could cause a chain reaction between participants and markets. Effective and robust risk management of such financial market infrastructure is extremely important, as incidents affecting them could severely affect the economy and society. In modern economies and financial markets, it is therefore considered appropriate to subject systemically important financial market infrastructure to strict requirements as regards professional practices and operating arrangements, and to entrust the authorities with an active supervisory role, with the particular aim of minimising potential systemic risk.

The Central Bank’s Financial Stability Committee (FSN) decides which supervised entities, infrastructure, and markets shall be considered systemically important and of such a nature that their activities could affect financial stability. Systemically important infrastructure falls into two categories: critical infrastructure and core infrastructure.

Critical infrastructure is assessed based on the following criteria:

• Whether it plays a key role in clearing and settlement of payments and in registration of funds and other financial assets, including securities.
• The importance of its users; i.e., their number, size, or market share.
• The importance of the infrastructure in transmitting monetary policy and preserving financial stability.
• The importance of the infrastructure to the real economy.
• Volume and value of transactions.
• The capacity of other systems or services to substitute for the infrastructure if necessary.
• Connections with other financial infrastructure and the potential for contagion effects.
• The purpose and use of the infrastructure.
• The impact that disruption of service and system malfunctions would have on Governmental authorities, institutions, companies, and the general public.

The Central Bank’s objective is that critical infrastructure should be operated in a manner that supports payment intermediation, settlement, and financial stability at all times. This means that it must be reliable, it must meet operational security requirements, and it must be able to respond to changed conditions and risks.

Two infrastructures in Iceland are considered critical infrastructure of the financial system: the Central Bank’s interbank payment system (MBK) and the Nasdaq CSD SE securities settlement system.

The objective is that critical infrastructure should comply with both domestic and international requirements. Chief among these is the BIS/IOSCO Principles for systemically important payment systems, European Union legislation and directives on payment intermediation and securities settlement, and the Icelandic regulatory framework. The systems in question must be transparent, efficient, and secure, and their structure shall take account of the fact that they are intended to promote financial stability.

Critical infrastructure can be accorded special status pursuant to the Act on the Security of Transfer Orders in Payment Systems and Securities Settlement Systems, no. 90/1999. The objective of this Act is to ensure that transactions are settled securely in payment systems and securities settlement systems. The Central Bank makes recommendations to the Minister concerning those systems that the Bank considers to fulfil statutory requirements. The Minister notifies the EFTA Surveillance Authority (ESA) which systems are recognised in Iceland pursuant to the Act.

Core infrastructure is assessed based on the following criteria:

• Volume and value of transactions.
• The capacity of other systems or services to substitute for the infrastructure if necessary.
• Connections with other financial infrastructure and the potential for contagion effects.
• The purpose and use of the infrastructure.
• The impact that disruption of service and system malfunctions would have on Governmental authorities, institutions, companies, and the general public.

The Central Bank of Iceland’s Financial Stability Committee (FSN) has decided that three infrastructures in Iceland shall be designated core financial infrastructure. These are the deposit system operated by Reiknistofa bankanna, the payment system operated by Reiknistofa bankanna, and Auðkenni ehf.’s electronic authentication for financial services.

There are plans to assess other payment infrastructures in Iceland, so that there will be a comprehensive assessment of systemically important infrastructure.

The Central Bank of Iceland oversees the operational framework for payment infrastructure that could affect financial stability.

The role of overseeing systemically important financial market infrastructure includes the following:

• Regularly monitoring the functioning and operational security of systemically important infrastructure, including monitoring on the basis of a risk assessment.
• Assessing the security and efficiency of systemically important infrastructure based on international standards.
• If warranted, recommending improvements to the operators of the infrastructure in question or proposing changes to the framework and/or operating environment for systemically important infrastructure.

The oversight role is discussed more fully in the Central Bank’s Policy on oversight of financial market infrastructure.

Payments have undergone significant growth and development in recent years, with no end in sight. New payment instruments have been introduced, and use of cash has diminished. The Central Bank supports further development ofpayments by keeping track of international developments, fostering cooperation among market participants, encouraging standardisation of financial market infrastructure, and participating in policy-making and discussions about further development of payments.

The term financial technology, often shortened to fintech, refers to any type of innovation in financial services that is based on technology and could give rise to new business models, software, processes, or products in payment services, and could affect the financial market, financial services, and the way in which financial services are provided.

The Central Bank keeps abreast of developments in fintech and related activity in Iceland and abroad, including aspects of the field that centre on developments in supervision and oversight of new fintech activities. Furthermore, the Bank develops recommendations in these areas when appropriate. The Bank operates a fintech service desk for those who may have questions about licensing and/or financial supervision relating to fintech activities. Those who contact the service desk can fill out a checklist about their operations, and the Bank assesses whether the activity in question requires authorisation.

The Central Bank participates in the BIS Innovation Hub, established by the Bank for International Settlements (BIS). The Bank also a member of the Icelandic Fintech Cluster and has participated in presentations and other events held by the Cluster.

A central bank digital currency (CBDC) is a digital form of a country’s official currency issued by its central bank. The objective of CBDC is to make central bank money accessible to the public in digital form. To date, the public had only access to central bank money in the form of banknotes and coin.

Thus far, the Bank’s work in connection with the possible issuance of CBDC has focused primarily on building knowledge about the topic and keeping track of and mapping out other central banks’ and international institutions’ endeavours in this area. This work is an important part of preparing for a possible decision on whether to issue CBDC in Iceland and, if so, how such issuance could be carried out. Preparation entails engaging in dialogue with public authorities, businesses, non-governmental organisations, and the general public on the potential advantages and disadvantages of issuing a CBDC.

The Central Bank has not made a decision on CBDC issuance in Iceland. It has published three reports on the topic:

The digital euro and its impact in Iceland (2025)

Central bank digital currency (2023)

Rafkróna? Interim report (2018)

The BIS Innovation Hub Nordic Centre is an international cooperative forum in which the Central Bank participates. It was established by the Bank for International Settlements (BIS), and its role is to act as a forum for innovation in the fintech sector, research on fintech trends and currents of significance for central bank activities, and advancement of international cooperation aimed at improving the functioning of the global financial system.

The central banks of Iceland, Denmark, Norway, and Sweden participate in the BIS Innovation Hub Nordic Centre, which is located in Stockholm. The Centre has undertaken a number of projects focusing on topics such as central bank digital currency, the next generation payment systems, cybersecurity, and other aspects of financial market infrastructure and fintech. Participation in the Centre supports the Central Bank to gain expertise and enhances the Bank’s insight into developments in financial infrastructure abroad. Furthermore, it is useful in policymaking and evaluating future payment infrastructure.

Other BIS Innovation Hub Centres are operated in Europe, Asia, and North America, where central banks collaborate on pilot projects and research. The Central Bank contributes one employee to the Nordic Centre in Stockholm.