Merger of Central Bank of Iceland and Financial Supervisory Authority in preparation - Inflation targeting to remain the principal objective of monetary policy

The Ministerial Committee on Economic Affairs and Restructuring of the Financial System has decided to commence a review of the statutory framework for monetary policy, macroprudential policy, and financial market supervision. Experts have compiled reports that shed light on various issues and opportunities for improvement in monetary policy conduct and in the framework for macroprudential policy and financial market supervision, including the recent report from the task force on the monetary policy framework and the June 2018 report on the review of legislation on financial market supervision.

This review calls for the following:

1. Amendments to legislation pertaining to monetary policy, the Central Bank’s current tasks, and the Central Bank’s senior management.
2. Amendments to legislation on macroprudential policy.
3. Amendments to legislation on financial market supervision.
4. Changes aimed at defining a permanent framework for capital flow management measures.
5. Changes to the Government and Central Bank’s joint declaration on the inflation target.
6. Changes to procedures within the Central Bank Monetary Policy Committee.

The guiding objective of this work will be to enhance trust, transparency, and efficiency in economic administration. The inflation target is to be retained as the main monetary policy objective, as is the Central Bank and Monetary Policy Committee’s independence in applying policy instruments so as to attain the target. Appropriate changes will be made, however, in order to increase trust and transparency. Furthermore, the Central Bank and the Financial Supervisory Authority (FME) are to be merged in a manner that builds greater trust and ensures efficiency in the implementation of macroprudential policy and financial market supervision.

The ultimate authority for this project will be in the hands of the Ministerial Committee on Economic Affairs and Restructuring of the Financial System, whose members are the Prime Minister, the Minister of Finance and Economic Affairs, and the Minister of Education, Science, and Culture. Working on behalf of the Ministerial Committee is a project task force on monetary policy, macroprudential policy, and financial market supervision, appointed by the Prime Minister. The team comprises representatives from the Prime Minister's Office and the Ministry of Finance and Economic Affairs, plus liaisons from the Central Bank and the FME. The project management team is to submit a draft bill of legislation to the Ministerial Committee no later than 28 February 2019.