Iceland: Financial Sector Assessment Program-Technical Note on Pension Fund Regulation and Supervision

IMF Staff Country Reports, July 28, 2023

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Analyzes key aspects of the regulatory and supervisory regime for pension funds in Iceland.
Reviews recent developments and the structure of the Icelandic pension fund sector as part of a Financial Sector Assessment Program (FSAP).
Focuses in particular on the compulsory occupational scheme in Pillar II, identified as the most important pillar of the system.
Notes that a separate technical note summarizes the results of the risk analysis carried out for the pension fund sector and elaborates on current market risk sensitivities.

Pension funds in Iceland act as investors and lenders and play a vital role in the domestic financial sector.
The pension fund sector is described as large, well developed, and highly interconnected with the domestic financial system.
Main interconnections: exposures toward banks and domestic investment funds.

The governance and internal controls framework for pension funds is not aligned with the systemic role of the sector.
Underlying rules in the Pension Fund Act pre-date corresponding provisions for other financial sectors.
The Financial Supervisory Authority has adopted a risk-based and forward-looking supervisory model.
There is no minimum frequency set for on-site inspections.

Strengthen the legislative framework, with emphasis on:
- Governance
- Internal controls
- Outsourcing