Increased freedom – liberalisation of capital controls

Individuals' and companies' freedom to transfer funds to and from Iceland and to carry out foreign exchange transactions will increase greatly, according to the bill of legislation that the Minister of Finance and Economic Affairs will present before Parliament tomorrow.

The bill is part of the authorities' capital account liberalisation strategy, introduced on 8 June 2015. With it, important steps are being taken to lift the capital controls in full. The bill has been prepared in accordance with recommendations from the International Monetary Fund (IMF), with economic stability and the public interest as guiding principles.

It is recommended that the following provisions take effect immediately upon passage of the bill of legislation:

• That outward foreign direct investment be unrestricted but subject to confirmation by the Central Bank of Iceland.
• That investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans be permissible up to a given amount, upon satisfaction of specified conditions.
• That individuals be authorised to purchase one piece of real estate abroad per calendar year, irrespective of the purchase price and the reason for the purchase.
• That requirements that residents repatriate foreign currency be eased and that they be lifted entirely in connection with loans taken abroad by individuals for real estate or motor vehicle purchases abroad, or for investment abroad.
• That various special restrictions be eased or lifted entirely, including individuals' authorisation to purchase foreign currency for travel.
• That the Central Bank of Iceland's authorisations to gather information be expanded so that the Bank can promote price stability and financial stability more effectively.

As of 1 January 2017, the following are to take effect:

• The ceiling on investment in financial instruments issued in foreign currency, other monetary claims in foreign currency, and prepayment and full payment (retirement) of foreign-denominated loans will be raised.
• Transfers of deposit balances will be permissible for amounts below  a certain ceiling. The requirement for domestic custody of foreign securities investments will be revoked. This will enable residents and non-residents to transfer deposits and securities to and from Iceland and to trade in securities abroad within the limits specified in the bill.
• Individuals' authorisation to purchase foreign currency in cash will be expanded significantly.

With the measures provided for in the bill, the capital controls should not place substantial restrictions on most individuals, and by the turn of the year, only a very few individuals should be affected. It is estimated that the changes entailed in the bill will lead to a reduction of about 50-65% in the number of requests for exemptions from the Foreign Exchange Act. As a result, the processing time for such exemption requests should be shortened significantly. The bill does not have any impact on authorisations of offshore króna holders.