RULES. on Liquidity Ratio, Etc. CHAPTER I General

Transcription

1 RULES on Liquidity Ratio, Etc. CHAPTER I General Article 1 Scope. These Rules apply to credit undertakings and consolidated credit undertakings, and they cover both liquidity ratios in foreign currencies and total liquidity ratios. Article 2 Terms and definitions. For the purposes of these Rules, the following terms shall be defined as specified: 1. Supervised financial entities: Entities supervised by the Financial Supervisory Authority according to Article 2 of the Act on Official Supervision of Financial Activities, no. 87/1998; foreign entities subject to comparable supervision in the country of their legal domicile; holding companies in the financial sector, cf. Article 97, Paragraph 4 of the Act on Financial Undertakings, no. 161/2002; and mixed financial holding companies, cf. Article 97, Paragraph 6 of Act no. 161/ Derivative: A contract whose settlement is based on changes in specific s in a specified period of time, such as interest, currency exchange rate, securities price, share price index, yield, or commodity price, including but not limited to options, interest rate swaps, currency swaps, and forward contracts. 3. Non-resident: An individual or legal entity with a foreign legal address. 4. Financial undertaking: An entity that has been granted an operating licence pursuant to Article 6, cf. Article 4, of the Act on Financial Undertakings, no. 161/ Deposit: For the purpose of these Rules, a deposit is an amount owed to a creditor by an entity subject to minimum reserve requirements, other than an amount deriving from the issuance of a negotiable debt instrument. 6. Resident: An individual or legal entity with a legal address in Iceland. 7. Liquidity facility: A funding agreement subject to the condition that the funding may be used only if it proves impossible for the counterparty to obtain market refinancing by the maturity date. 8. Liquidity ratio: The ratio of liquid assets, cf. the provisions of Chapter III, to liquid outflows and inflows, cf. Chapters IV and V, classified by Icelandic krónur, foreign currencies, and the total of these. The liquidity ratio is calculated for Icelandic krónur, foreign currencies, and the total of these. 9. Credit undertaking: A commercial bank, savings bank, or other institution or company that is authorised by law to accept deposits from the general public for custody and investment, and any other credit undertaking that operates in accordance with the law and is obliged to comply with the Central Bank Rules on Minimum Reserve Requirements, no. 373/ Credit line: A funding agreement that is not a liquidity facility. 11. Credit rating: For the purposes of these Rules, the term credit rating refers to a long-term rating from an internationally recognised external credit assessment institution (ECAI), or the short-term rating if a longterm rating is not available. If the credit ratings are not unanimous, the standardised approach for credit rating reference shall be used; cf. Article 7 of the Financial Supervisory Authority (FME) Rules on the Capital Requirement and Risk-Weighted Assets of Financial Undertakings, no. 215/ Small and medium-sized enterprises: Companies are classified as small or medium-sized enterprises (SME) for the purpose of these Rules if they meet the requirements set forth in Article 17 of the FME Rules on the Capital Requirement and Risk-Weighted Assets of Financial Undertakings, no. 215/2007 page 1 of 10

2 and if, in addition, the deposits and other funding from the company and its consolidation are below the reference limits specified in FME Rules no. 215/ Public sector entity (PSE): A company that is operated by public entities, such as the sovereign and/or municipal authorities. 14. Consolidated credit undertaking: The term consolidated credit undertaking refers to a parent company, which is a credit undertaking, and its subsidiaries, of which the parent company is either the sole owner or the owner of a large majority and over which it has control on the basis of majority voting rights. 15. Financial market customers: Entities engaged in financial operations, securitisation special purpose entities (SSPE), and collective investment undertakings (CIU). 16. Active loan: A fully performing loan agreement between a credit undertaking and an individual or legal entity. CHAPTER II Liquidity and liquidity ratio Article 3 Evaluation of liquidity For the purposes of these Rules, liquidity includes liquid assets in both Icelandic krónur and foreign currency. Credit undertakings shall endeavour to hold enough liquid funds to satisfy their payment obligations. Liquid funds shall be classified into the following seven periods: 1. Liquid within thirty days. 2. Liquid after thirty days and up to three months. 3. Liquid after three months and up to six months. 4. Liquid after six months and up to twelve months. 5. Liquid after twelve months and up to thirty-six months. 6. Liquid after thirty-six months and up to sixty months. 7. Liquid after sixty months. The liquidity ratio as defined in these Rules shall be calculated monthly on the basis of data for the end of each month presented in a separate report submitted to the Central Bank of Iceland; cf. Article 20. Article 4 Minimum liquidity ratio A credit undertaking s liquidity ratio may never fall below 1, for liquid funds according to Article 3, Paragraph 2, Item 1, either in foreign currency or for the total. If a credit undertaking other than a commercial bank does not have weighted foreign currency outflows over the next 30 days according to Chapter IV, or if its weighted foreign currency outflows are less than 5,000,000,000 kr. (five billion krónur) according to Chapter IV, it is sufficient that its weighted foreign currency inflows and weighted foreign-denominated assets exceed the weighted outflows and that its total liquidity ratio not be lower than 1. Credit undertakings shall also give an account of claims and obligations for other periods of time; that is, according to Article 3, Paragraph 2, Items 2-7. In addition to the liquidity ratios according to Article 4, Paragraph 1, the liquidity ratio for the next three months shall be calculated, and developments in these ratios shall be monitored during the assessment of the credit undertaking s liquidity risk. If the Central Bank considers a credit undertaking s liquidity risk to warrant it, the Bank may tighten the liquidity ratio requirements set forth in Article 4, Paragraph 1. Credit undertakings shall enter all amounts in millions of Icelandic krónur and itemise them in Icelandic krónur, euros, US dollars, and other currencies. During calculation, the amounts shall be converted using the central exchange rate of the Icelandic króna according to the last official Central Bank exchange rate listing during the month in question. All amounts are entered without weighting. If a credit undertaking should fall below the minimum specified in the Article 4, Paragraph 1, or if it is foreseeable that it will fall below the minimum within the next six months, the undertaking shall immediately send the Central Bank a written report outlining the reasons for the deviation. The undertaking shall also present a dated schedule of how it intends to restore its liquidity ratio to the minimum provided for in Article 4, Paragraph 1. page 2 of 10

3 CHAPTER III Liquid assets Article 5 General Credit undertakings shall complete asset reports as is specified in the guidelines to these Rules, cf. Article 24, upon meeting the requirements set forth in this Article. Liquid assets shall fulfil the following conditions: 1. Assets are managed by the unit in the credit undertaking that is responsible for liquidity management. This unit shall also have the authority and ability to sell the assets. 2. Assets may not be issued by the credit undertaking itself, the group to which it belongs, or owners of supervised financial entities within the group. 3. Securities shall fulfil all of the following conditions: a. The securities must be traded on a regulated market. b. The price of the securities must be clear or their value easily calculable. c. They must be admitted for trading on a regulated securities exchange or market for financial instruments, or a comparable market outside the EEA. d. They must be eligible as collateral for central bank facilities. 4. Securities other than covered bonds or securities carrying a sovereign, municipal, or public company guarantee may not be issued by supervised financial entities. 5. Assets may not be hypothecated and must be free of encumbrances in other respects. Assets must be entered at market value. If a credit undertaking has hedged against changes in asset prices via derivatives contracts, the market value of the asset shall be adjusted based on the outflows resulting from closing out such a position. Duplicate counting of inflows and liquid assets is prohibited. If an asset no longer fulfils the conditions for liquid assets according to Article 5, Paragraph 2, Item 3, the credit undertaking is nonetheless permitted to include it with liquid assets for the following thirty days. If a credit undertaking s liquid asset is no longer considered to fulfil the conditions according to Article 5, Paragraph 2, Item 3, the credit undertaking shall so notify the Central Bank and shall submit a summary for each such asset, together with its market value, during the time the undertaking is including the asset among its liquid assets. Article 6 Assets The following assets owned by a credit undertaking shall be considered liquid, upon fulfilling the conditions according to Article 5, Paragraph 2, and are included under Article 3, Paragraph 2, Item 1: Liquid assets, level 1: The following assets carry a weight of 100%: a. Cash. b. Liquid deposits with central banks. c. Securities denominated in Icelandic krónur and issued or guaranteed by the Icelandic Government, Government-owned companies, and Icelandic municipalities. d. Securities that carry a risk weight of 0% according to the standardised approach described in Chapter V of the Financial Supervisory Authority Rules on the Capital Requirement and Risk- Weighted Assets of Financial Undertakings, no. 215/2007, and are issued or guaranteed by a sovereign, municipality, central bank, the International Monetary Fund, companies owned by public entities, the Bank for International Settlements, the European Central Bank, or an international development bank. Liquid assets, level 2A: The following assets carry a weight of 85%: a. Securities that carry a risk weight of 20% according to the standardised approach described in Chapter V of the Financial Supervisory Authority Rules on the Capital Requirement and Risk- Weighted Assets of Financial Undertakings, no. 215/2007, and are issued or guaranteed by a sovereign, municipality, central bank, the International Monetary Fund, companies owned by public entities, the Bank for International Settlements, the European Central Bank, or an international development bank. page 3 of 10

4 b. Corporate bonds with a minimum credit rating of AA-. c. Covered bonds with a minimum credit rating of AA-. Liquid assets, level 2B: a. Mortgage-backed securities that are issued in accordance with the Act on Consumer Loans, no. 33/2013, and have a minimum credit rating of AA shall be assigned a weight of 75%. b. Corporate bonds with a credit rating between A+ and BBB- shall be assigned a weight of 50%. c. Shares issued by listed non-financial companies shall be assigned a weight of 0%. Liquid assets 2A and 2B, cf. Article 6, Paragraphs 3 and 4, shall never comprise more than 40% of total weighted liquid assets. Liquid assets 2A and 2B, cf. Article 6, Paragraph 4, shall never comprise more than 15% of total weighted liquid assets. Article 7 Information items Furthermore, for informational purposes, assets with a weight of 0% shall be included in reports: 1. Covered bonds issued by Icelandic credit undertakings, other than those listed in Article 6, Paragraph Bonds issued by Icelandic legal entities with a credit rating from an internationally recognised rating agency, other than those listed in Article 6 and Article 7, Item Securities, other than those listed above, that are eligible as collateral for central bank facilities. 4. Reserve funds used as collateral in payment and settlement systems. CHAPTER IV Outflows Article 8 General Credit undertakings shall prepare reports of outflows by period, cf. Article 3, Paragraph 2, Items 1-7, as is further specified in the guidelines accompanying these Rules; cf. Article 24. Article 9 Unsecured deposits and funding Credit undertakings deposit obligations shall be included with liquid obligations. Deposits that are eligible for withdrawal within the next thirty days and those that are tied for longer periods but could be paid out without significant expense for the depositor shall be included under Article 3, Paragraph 2, Item 1. Other deposits are entered by period, cf. Article 3, Paragraph 2, Items 2-7, depending on the commitment period of the deposits. Deposit amounts shall be entered with accrued interest. Only non-hypothecated deposits shall be included. Icelandic residents: 1. Individuals deposits are assigned a weight of 5% upon fulfilment of the following conditions; however, if a credit undertaking cannot classify individuals deposits according to the conditions listed in Article 9, Paragraph 3, Items 1(a) and 1(b), these parties deposits shall be assigned a weight of 10%. Credit undertakings shall send the Central Bank annual reports detailing the definitions and premises for the classification of deposits between Article 9, Paragraph 3, Item 1 and Article 9, Paragraph 3, Item 2, and shall submit such reports each time changes are made to these definitions and premises. a. Deposits shall be guaranteed in full by the Depositors and Investors Guarantee Fund, cf. the Act on Deposit Guarantees and an Investor Compensation Scheme, no. 98/1999. b. Only deposits from customers whose business relationship makes withdrawal of the deposits unlikely may be included; that is, customers with deposits in wage accounts or current accounts, or depositors with an established business history with the bank. 2. Individuals deposits other than those listed in Article 9, Paragraph 3, Item 1 shall be assigned a weight of 10%. 3. Deposits from small and medium-sized companies are assigned a weight of 5% upon fulfilment of the following conditions; however, if a credit undertaking cannot classify these parties deposits page 4 of 10

5 according to the conditions listed in Article 9, Paragraph 3, Items 3(a) and 3(b), these parties deposits shall be assigned a weight of 10%. Credit undertakings shall send the Central Bank annual reports detailing the definitions and premises for the classification of deposits between Article 9, Paragraph 3, Item 3 and Article 9, Paragraph 3, Item 4, and shall submit such reports each time changes are made to these definitions and premises. a. Deposits shall be guaranteed in full by the Depositors and Investors Guarantee Fund, cf. the Act on Deposit Guarantees and an Investor Compensation Scheme, no. 98/1999. b. Only deposits in current accounts or deposits from customers whose business relationship with the credit undertaking makes withdrawal highly unlikely may be included. 4. Deposits from small and medium-sized companies other than those listed in Article 9, Paragraph 3, Item 3 shall be assigned a weight of 10%. 5. Operational deposits may be classified separately upon approval from the Central Bank. The portion of operational deposits deriving from this segment of operations receives a weight of 25%. The portion of operational deposits that is guaranteed in full by the Depositors and Investors Guarantee Fund, cf. the Act on Deposit Guarantees and an Investor Compensation Scheme, no. 98/1999, may be assigned a weight of 5%. Operational deposits shall fulfil the following conditions: a. The deposits are held in specifically designated accounts and are necessary for this segment of the depositor s operations. b. The depositor s objective is not only to earn interest on the deposits; therefore, the deposits are not dependent on deposit interest rates; that is, their amount does not change markedly with changes in interest rates. c. Deposit interest and other terms and conditions are determined in advance and therefore change seldom. 6. Deposits held by legal entities other customers in the financial market and not listed in Article 9, Paragraph 3, Items 3-5 are assigned a weight of 20% if the entire amount is guaranteed by the Depositors and Investors Guarantee Fund. 7. Deposits held by legal entities other customers in the financial market and not listed in Article 9, Paragraph 3, Items 3-6 are assigned a weight of 40%. 8. Deposits held by sovereigns, central banks, municipal governments, government-owned companies, and international development banks are assigned a weight of 20% if the entire amount is guaranteed by the Depositors and Investors Guarantee Fund. 9. Deposits held by sovereigns, municipal governments, central banks, government-owned companies, and international development banks not listed in Article 9, Paragraph 3, Item 8 are assigned a weight of 40%. 10. Deposits of financial undertakings with a moratorium on payments and/or in winding-up proceedings, and/or any type of legal entity deriving from such entities, including but not limited to subsidiaries, acquired companies, or merged companies, are assigned a weight of 100%. Foreign-denominated deposits falling into this category shall all be included in the within thirty days category if they have a maturity of six months or less and shall therefore be assigned a weight of 100%. 11. Deposits of domestic customers in the financial market other than pension funds are assigned a weight of 100%. 12. Deposits of pension funds are assigned a weight of 100%. Non-residents: 1. Deposits of foreign customers in the financial market are assigned a weight of 100%. 2. Deposits held by non-residents and covered by the Act on Deposit Guarantees and an Investor- Compensation Scheme, no. 98/1999, are assigned a weight of 25%. 3. Deposits held by non-residents other than those listed in Article 9, Paragraph 4, Items 1 and 2 are assigned a weight of 100%. Article 10 Securities and other financial instruments. Outflows due to funding in the form of transferable unsecured and secured securities and other financial instruments shall be entered as follows: page 5 of 10

6 1. Payments due to a credit undertaking s unsecured securities issuance, including bills and bonds, are assigned a weight of 100%. 2. Payments due to asset-backed securities, covered bonds, and structured financial instruments are assigned a weight of 100%. 3. Payments related to asset-backed commercial paper and other short-term funding through structured financial instruments, and funding that may oblige the bank to buy back the security within 30 days due to a contractual obligation to the counterparty, are assigned a weight of 100%. Article 11 Contractual committed credit and liquidity facilities Unused credit and liquidity facilities shall be included with outflows to the extent that they cannot be revoked immediately and unconditionally: 1. Unused overdraft privileges, liquidity facilities, and other credit facilities for individuals and small and medium-sized businesses are assigned a weight of 5%. 2. Unused credit facilities for sovereigns, municipalities, central banks, government-owned companies, and international developments banks are assigned a weight of 10%. 3. Unutilised credit facilities to legal entities other than customers in the financial market are assigned a weight of 10%. 4. Unused liquidity facilities for sovereigns, municipalities, central banks, government-owned companies, and international developments banks are assigned a weight of 30%. 5. Unused liquidity facilities for legal entities other than customers in the financial market are assigned a weight of 30%. 6. Unused credit and liquidity facilities for credit undertakings are assigned a weight of 40%. 7. Unused credit facilities for financial entities other than credit undertakings are assigned a weight of 40%. 8. Unused liquidity facilities for financial entities other than credit undertakings are assigned a weight of 100%. 9. Unused credit and liquidity facilities for legal entities other than those listed in Article 11, Items 1-8 are assigned a weight of 100%. Article 12 Collateralised loan agreements and repurchase agreements Collateralised loan agreements, repurchase agreements, and other comparable agreements are entered as follows: 1. Collateralised loan agreements and repurchase agreements where the hypothecated asset is a Level 1 asset, cf. Article 6, Paragraph 2, and funding is obtained from a central bank carry a weight of 0%. 2. Collateralised loan agreements and repurchase agreements where the hypothecated asset is a Level 2A asset, cf. Article 6, Paragraph 3, carry a weight of 15%. 3. Collateralised loan agreements and repurchase agreements where the hypothecated asset is a Level 1 or Level 2A asset, cf. Article 6, Paragraphs 2 and 3, where the counterparty is a sovereign, municipality, or government-owned company carry a weight of 25%. 4. Collateralised loan agreements and repurchase agreements where the hypothecated assets are mortgage-backed securities classified as Level 2B assets, cf. Article 6, Paragraph 4, carry a weight of 25%. 5. Collateralised loan agreements and repurchase agreements where the hypothecated assets are debt instruments classified as Level 2B assets, cf. Article 6, Paragraph 4, carry a weight of 50%. 6. Other collateralised loan agreements and repurchase agreements carry a weight of 100%. Article 13 Other items Credit undertakings shall also include other contractual outflows and precautionary entries due to derivatives contracts and other off-balance sheet items among outflows, in accordance with the following: 1. Derivative debt entered to offset derivative claims maturing within thirty days (net position) receives a weight of 100%. page 6 of 10

7 2. Increased liquidity requirements due to contractual provisions (derivatives contracts or other contracts), such as a credit undertaking s credit rating downgrade, receive a weight of 100%. 3. Increased liquidity requirements due to potential changes in the price of collateral that a credit undertaking has used to secure derivatives or other transactions: a. Collateral in the form of Level 1 assets, cf. Article 6, Paragraph 2, receive a weight of 0%. b. Collateral in the form of assets other than those classified as Level 1 according to Article 6, Paragraph 2, receives a weight of 20%. 4. Additional collateral from a credit undertaking s counterparty due to derivatives contracts receives a weight of 100%. 5. Increased liquidity requirements, margin calls due to derivatives contracts, receive a weight of 100%. 6. Increased liquidity requirements due to derivatives contracts authorising the exchange of Level 1 collateral, cf. Article 6, Paragraph 2, for other collateral receive a weight of 100%. 7. Increased liquidity requirements due to potential changes in the market value of derivatives contracts receive a weight of 100%. 8. Guarantees, letters of credit, credit lines, and liquidity lines that a credit undertaking has issued and can recall unconditionally receive a weight of 0%. 9. Contractual obligations to grant loans/funding not listed in Article 11 receive a weight of 100%. 10. Fulfilled reserve requirements according to the calculated average balance receive a weight of 100%. 11. Other contractual payments receive a weight of 100%. CHAPTER V Inflows Article 14 General Credit undertakings shall prepare reports of inflows by period, cf. Article 3, Paragraph 2, Items 1-7, as is further specified in the guidelines accompanying these Rules; cf. Article 24. For the calculation of the liquidity ratio, inflows are calculated as 75% of outflows, at a maximum. Article 15 Collateralised loan agreements and repurchase agreements. Collateralised loan agreements, reverse repurchase agreements, and other comparable agreements are entered as follows: 1. Inflows due to contracts backed by Level 1 assets, cf. Article 6, Paragraph 2, receive a weight of 0%. 2. Inflows due to contracts backed by Level 2A assets, cf. Article 6, Paragraph 3, receive a weight of 15%. 3. Inflows due to contracts backed by mortgage-backed securities classified as Level 2B assets, cf. Article 6, Paragraph 4, receive a weight of 25%. 4. Inflows due to contracts backed by other debt instruments classified as Level 2B assets, cf. Article 6, Paragraph 4, receive a weight of 50%. 5. Inflows due to contracts backed by assets other than those classified as Level 1 or 2 assets, cf. Article 6, Paragraphs 2-4, and listed in Article 15, Items 1-4, receive a weight of 100%. page 7 of 10

8 Article 16 Loan and liquidity facilities. Committed credit lines, liquidity facilities, and other undrawn funding authorisations receive a weight of 0%. Article 17 Contractual payments. Payments to a credit undertaking on securities owned by it shall only be include to the extent that they do not appear in Article 6. Only payments on active loans shall be included with inflows. 1. Instalments and interest payments on loan agreements with individuals and non-financial legal entities receive a weight of 50%. Only payments on active loans shall be included. 2. Overdraft loans receive a weight of 0%. 3. Payments on matured securities and instalments and interest payments on loan agreements with financial entities and central banks receive a weight of 100%. Only payments on active loans shall be included. Article 18 Deposits with other credit undertakings and term deposits with central banks. Deposits are classified as operational deposits upon approval by the Central Bank, in accordance with Article 9, Paragraph 3, Item Deposits not classified as operational deposits receive a weight of 100%. 2. Deposits classified as operational deposits receive a weight of 0%. Article 19 Other. Net positions on derivatives contracts and contractual payments other than those previously included in full with inflows: 1. Derivative claims entered to offset derivative liabilities maturing within thirty days (net position) receive a weight of 100%. 2. Other contractual payments receive a weight of 100%. Credit undertakings shall submit explanations of the items included herein. CHAPTER VI Reporting, information, penalties, guidelines, and entry into force Article 20 Reporting Liquidity reports shall be submitted to the Central Bank by the 10th day of each month for the parent company and by the 20th day of each month for consolidated credit undertakings. If the due date falls on a weekend or a holiday, the report shall be submitted on the business day immediately following. If the Central Bank requests specifically that liquidity reports be submitted more often than is specified in the first sentence, the credit undertaking concerned shall comply with the request. The parent company of a consolidated credit undertaking shall be responsible for submittal of consolidated liquidity reports in accordance with these Rules. At least once a year, a credit undertaking s internal auditor, if there is one, or chief accountant shall examine the method for reporting liquidity and send the Central Bank a written statement on it. Such a statement shall also be sent when the credit undertaking s first report is prepared under these Rules. In addition to the liquidity reports accordance with these Rules, balance summaries shall be submitted for informational purposes, as is further described in the guidelines accompanying the Rules. Article 21 Information It is required to provide the Central Bank with all information and data the Bank considers necessary to comply with these Rules; failure to do so shall be subject to penalties. page 8 of 10

9 Article 22 Per diem fines. If a credit undertaking s liquidity ratio falls short of the minimum set in Article 4, Paragraph 1, per diem fines shall be calculated on the shortfall, according to the Rules on the Imposition of Periodic Penalty Payments, currently no. 389/2002. The Central Bank may impose per diem fines for negligence in reporting in accordance with Article 20, on the basis of the Rules on the Imposition of Periodic Penalty Payments, currently no. 389/2002. If a credit undertaking neglects to provide the Central Bank with information requested by the Bank according to Article 21, the Bank is authorised to impose per diem fines in accordance with the Rules on the Imposition of Periodic Penalty Payments, currently no. 389/2002. The determination of per diem fines, the right of appeal, and collection of fines are subject to the provisions of Articles 6, 7, and 8 of the Rules on the Imposition of Periodic Penalty Payments, currently no. 389/2002, shall apply, as appropriate, and the direct debit of per diem fines shall be subject to Article 22, Paragraph 5, as applicable. The Central Bank may debit calculated penalties from the current account that the respective credit undertaking holds with the Bank at least seven days after it has been notified of the penalties. A credit undertaking acting as an intermediary in holding the minimum reserves of another undertaking subject to minimum reserve requirements shall authorise the Central Bank to debit penalties for the relevant undertaking from its account with the Bank. Article 23 Temporary authorisation concerning consolidated credit undertakings The Central Bank may grant a credit undertaking a temporary authorisation to exclude one or more specified subsidiaries from its consolidated reporting, provide that the parent company demonstrates to the Bank s satisfaction that the subsidiary(-ies) in question have little effect on the consolidated undertaking s liquidity ratio and liquidity risk. The parent company shall submit a written application supported by well-grounded reasons why the subsidiary(-ies) in question should be excluded from consolidated reporting. Article 24 Guidelines The Central Bank issues guidelines concerning further implementation of these Rules. Article 25 Entry into force, etc. These Rules are set in accordance with the authority contained in Article 12 of the Act on the Central Bank of Iceland, no. 36/2001, and shall enter into force on 1 December At the same time, the Central Bank Rules on Liquidity Ratio, no of 1 December 2013, are abrogated. page 9 of 10

10 Temporary provisions I. As an adaptation to these Rules, credit undertakings minimum liquidity ratios cf. Article 4, Paragraph 1; cf. also Article 3, Paragraph 2, Item 1 shall be as follows until 1 January 2017: 1. From the date these Rules enter into force through 31 December 2014, the liquidity ratio shall be no lower than 0.7 for liquid funds according to Article 3, Paragraph 2, Item 1. The foreign currency liquidity ratio shall be no lower than 1, however. 2. From 1 January 2015 through 31 December 2015, the liquidity ratio shall be no lower than 0.8 for liquid funds according to Article 3, Paragraph 2, Item 1. The foreign currency liquidity ratio shall be no lower than 1, however. 3. From 1 January 2016 through 31 December 2016, the liquidity ratio shall be no lower than 0.9 for liquid funds according to Article 3, Paragraph 2, Item 1. The foreign currency liquidity ratio shall be no lower than 1, however. 4. From 1 January 2017 onwards, the liquidity ratio shall be no lower than 1 for liquid funds according to Article 3, Paragraph 2, Item 1. This Temporary Provision expires on 1 January 2017, from which date the minimum liquidity ratio shall be in accordance with Article 4, Paragraph 1 of these Rules; cf. Paragraph 1, Item 4 of this Temporary Provision. II. For purposes of adaptation to these Rules, deposits according to Article 9, Paragraph 3, Item 10 shall be treated as follows until 1 October 2015: 1. From the entry into force of these Rules through 31 December 2014, deposits according to the first sentence of Article 9, Paragraph 3, Item 10 shall be considered to have a maturity of thirty days or less. 2. From 1 January 2015 through 31 December 2014, deposits according to the first sentence of Article 9, Paragraph 3, Item 10 shall be considered to have a maturity of thirty days or less. However, 25% of foreign-denominated deposits according to the second sentence of the same provision shall be considered to have a maturity of thirty-one days to six months. 3. From 1 April 2015 through 30 June 2015, deposits according to the first sentence of Article 9, Paragraph 3, Item 10 shall be considered to have a maturity of thirty days or less. However, 50% of foreign-denominated deposits according to the second sentence of the same provision shall be considered to have a maturity of thirty-one days to six months. 4. From 1 July 2015 through 30 September 2015, deposits according to the first sentence of Article 9, Paragraph 3, Item 10 shall be considered to have a maturity of thirty days or less. However, 75% of foreign-denominated deposits according to the second sentence of the same provision shall be considered to have a maturity of thirty-one days to six months. 5. From 1 October 2015 onwards, deposits according to the first sentence of Article 9, Paragraph 3, Item 10 shall be considered to have a maturity of thirty days or less. However, 100% of foreigndenominated deposits according to the second sentence of the same provision shall be considered to have a maturity of thirty-one days to six months. This Temporary Provision shall expire on 1 October 2015, and from that day onwards, deposits according to Article 9, Paragraph 3, Item 10, cf. Paragraph 1, Item 5 shall be treated in accordance with this Temporary Provision. Reykjavík, 26 November 2014 Central Bank of Iceland Már Guðmundsson Governor of the Central Bank. Sigríður Benediktsdóttir Director page 10 of 10