CHAPTER I

Definitions
Article 1

For the purposes of this Regulation:

Resident refers to:

l. Any individual permanently resident in Iceland in accordance with the

pravisions of the Act on Legal Domicile, irrespective of natianality; the same shall
apply to an Icelandic national and his dependents residing in other cauntries who
is employed thúere by the Icelandic State with an embassy, permanent
delegation or consulate and accepts remuneration from the Icelandic Treasury,
ar is emplayed with an international organization ta which
Iceland is party.

2. Any legal person registered as legally domiciled in Iceland, stated to be

residing in Iceland in its articles of association, ar in effect managed in Iceland;
Icelandic branches of legal persans damiciled outside Iceland shall be regarded
as residents.

Non-resident refers to all iridividuals and legal persons other than residents. Staff
members of fareign embassies in Iceland who are foreign nationals, and military
personnel serving in Iceland under the auspices of the North Atlantic Treaty
Organizatian shall also be regarded as non-residents. The same hall apply to
their dependents stayirrg in Iceland, wha are not Icelandic nationals.
Domestic currency refers ta Icelandic banknotes, coins, cheques and other
references to payment, drafts amd other orders for payment denominated in
Icelandic currency, commemorative coins, and gold, silver and other preciaus
mnetals, pravided they are used as currency in Iceland.

Foreign curreric:y refers to foreign bank notes, cuins, cheques and other
references ta payment, drafts and ather orders for payment denominated in
foreign currericy, commemtiarative coins,
and gald, silver and other precious metals, pravided they are used as currency iri
othier countries.

Foreign excharige trarisactiuns refer ta the act af exchanging domestic currency

for foreign cuzrrency, fareigri currency for domestic currency or ane fvreign
currency for another fareign currency, and ta credit transactions which are
analagaus to delivery or receptian af currency, iricluding depasits to an account
in Icelandic kranas in the awnership of a narú-resident, irrespective of whether
the balance af suci an account is_eventually transferred from Iceland or utilized
in Iceland.

Intermediacy in foreign exchange transactions and trade in foreign currency

refers, in this Regulation, to:

1.The transfer of currency as a part of a business aperation on one's own

account, or the provision of foreign exchange transaction services to others
against payment;

2. The service, for payment, of bringing together buyer and seller of currency.
Capital movements refer to the transfer or movement of capital between
countries in relation to:

1.direct investments, including disposition of sales proceeds;

2.the issue, sale or purchase of shares, debt instruments, drafts, unit shares in
mutual funds and other long-term and short-term securities, including factoring.

3.lending, borrowing or payment or receipt of amortization on loans ;

4.granting of guarantees and all forms of security for payment;

5.the opening and use of bank accounts;

6.derivatives of any type, including forwards, futures, options, currency and
interest rate swaps, and any combination of options and/or interest-rate or
currency swaps ( " swaptions " ) ;

7.transfers of capital owned by prívate individuals, families or legal persons.

Short-term capital movements refer to capital movement between countries in
relation to:

1.the issue, sale and purchase of debt instruments and drafts with an original
maturity of up to one year, and all other short-term securities;

2.the issue, sale or purchase of unit shares in mutual funds which invest in short-
term securities;

3.lending and borrowing for a shorter period than one year;

4.deposits in and withdrawals from accounts with depositary institutions and

analogous foreign currency transactions.

Furthermore, short-term capital movements shall include the import and export of
short-term securities and other analogous transactions.

Direct investment refers to a financial or other contribution to the equity capital of

an enterprise, or the purchase of a share in an entérprise, made with the aim of
acquiring an effective influence on its management. Long-term loans to a
company from its owners, including loans extended under special terms, cf.
Article 9 of the Act on Limited Liability Companies, No. 32/1978, shall also be
regarded as direct investments.
Domestic securities refer to any transferable claims issued by a resident, such as
shares, dividend coupons, debt instruments, interest coupons, and unit shares in
mutual funds, as well as transferable instruments conveying a title to property
other than real estate or individual chattels.
Foreign securities refer to any transferable claims issued by a nan-resident, such
as shares, dividend coupons, debt instruments, interest coupons, and unit shares
of mutual funds, as well as well as transferable instruments conveying a title to
property other than real estate or individual chattels.
 CHAPTER II

Main Principles for Foreign Currency Transactions

Article 2

Unrestricted Foreign Currency Transactions

Foreign currency transactions relating to the import and export of goods shall be
unrestricted, as shall capital movements and foreign currency transactions
relating to them, unless otherwise stipulated in statutes.
The present Regulation provides in further detail for the conditions applicable to
foreign currency transactions and capital movements, and for the rights and
duties of persons conducting such transfers and movements.

Article 3

Direct Irmvestments in Iceland by Non-Residents

Investment by a foreign party in Iceland is subject to the restrictions provided for
by Act No. 34/1991 on Investments by Non-Residents in Business Enterprises,
as later amended. The definition of a non-resident in this context is governed by
the said Act, whereby dornestic branches of non-resident legal persons are
included as non-residents.
The Central Bank of Iceland shall be informed of all non-resident investment in
business enterprises as soon as a contract or decision to this effect has been
made. The obligation to give notice extends both to investment by a non-resident
in enterprises in which he has not owned shares before, and to further
investment in such an enterprise. The notice shall be accompanied by a
duplicate or photocopy of relevant documents or papers deemed necessary in
the opinion of the Central Bank. In the case of non-resident investment in an
Icelandic enterprise, the obligation to give notice rests with the enterprise
concerned, but in the case of a proposed business activity in Iceland in the name
of a non-resident, the obligation to give notice rests with the non-resident.

Article 4

Purchase and Sale of Shares by Non-residents

Purchase by non-residents of shares in domestic companies is subject to the
restrictions provided for in Act No. 34/1991, on Investments by Non-Residents in
Business Enterprises, as later amended.
The Central Bank of Iceland shall be informed of all non-resident purchases of
shares in domestic companies as soon as a contract or a decision to this effect
has been made. The obligation to give notice extends both to the purchase by a
non-resident of shares in a company in which he has not owned shares
previously, and to the purchase of additional shares in such company. The natice
shall be accompanied by a duplicate or photocopy of relevant documents or
papers deemed necessary in the opinion of the Central Bank. The obligation to
give notice rests with the company concerned.
_
Article 5

Real Estate Transactions in Iceland by Non-Residents

Permission for non-residents to purchase or acquire the right to use real estate in
Iceland is governed by the provisions of Article 1 of Act No. 19/1966 on the Right
to Ownership and Use of Real Estate, as later amended.
A domestic party may not act as an intermediary for the purposes of foreign
currency transactions of a foreign party on account of the purchase or lease of
real estate, unless a written agreement, conveyance of title or other document
evidencing such right, endorsed by the Ministry of Justice, is submitted.

Article 6

Bank Accounts in Resident and Non-Resident Depositary

Institutions
Residents opening bank accounts abroad have the duty of providing the Central
Bank with a notification of their opening.
Non-residents may open domestic or foreign currency accounts in resident
depositary institutions, provided that such accounts are always registered in the
name of the owner and his Icelandic National Identification Number is stated.
Depositary institutions shall regularly provide the Central Bank with information
on the balances af such accounts.

Article 7

Borrowing in Iceland by Foreign Governments

Foreign Governments, foreign local authorities and other foreign governmental
authorities are prohibited from issuing debt instruments in the domestic market
except with the permission of the Central Bank.
 CHAPTER III

Safeguard Provisions

Article 8

Temporary Suspension of Certain Capital Movements

Notwithstanding the provisions of Article 2, the Central Bank of Iceland may
decide in consultation with the Ministry of Commerce, to restrict or suspend for a
period of up to six months any or all of the following categories of capital
movements if short-term capital movements to and from Iceland cause, in the
Bank's opinion, exchange-rate and monetary instability:
l.Sale or purchase of short-term securities.
2.Deposits in and withdrawals from accounts with depositary institutions.
3.The issue, sale or purchase of unit shares in mutual funds which invest in
short-term securities.
4.Lending and borrowing for a period of less than one year not relating to
international trade in goods and services.
5.Import and export of short-term securities and of domestic and foreign
currency.
6.Other short-term capital movements analogous to those stated in
subparagraphs 1 - 5 above.

_
CHAPTER IV
Miscellaneous Provisions

Artic le 9

Permissiori to Conduct Foreign Currency Transactions

Parties intending to provide intermediacy in foreign currency transactions and
trade in foreign currency, other than those authorized to do so by statute
provisions or international agreements to which Iceland is party, cf. Article 8
Paragraph 1 of Act No. 87/1992, shall possess an operating licence issued by
the Central Bank. When granting such licences the Central Bank may limit them
to certain aspects of foreign currency transaction services, cf. Article 8 Paragraph
2 of Act No. 87/1992.
The Central Bank shall issue further rules concerning the conditions to be fulfilled
with respect to foreign currency transactions, applying to parties authorized for
foreign currency transactions by statute provisions or international agreements to
which Iceland is party, cf. Article 8 Paragraph 2 of Act No. 87/1992.

Article 10
Compilation of Economic Statistics, and Duty to Provide
Information

It is obligatory to provide the Central Bank of Iceland with any information it may
request concerning foreign currency transactions in order to fulfil its necessary
role in supervision and compilation of economic statistics. The bank may issue
further rules on the implementation of foreign currency transactions, such as the
obligation to register and notify about accounts held by residents with depositary
institutions in other countries, presentation of documents, general provision of
information including information on transactions taking place without the
intermediacy of parties holding operating licences as foreign currency transaction
intermediaries or so authorized by statute provisians or international agreements
to which Iceland is party, and the design of forms.

Article 11
Foreign Exchange Cooperation Coriunittee

The Minister of Commerce shall appoint a consultative committee on matters

concerning foreign exchange. The Committee shal 1 be composed of
representatives of the Ministry of Commerce, the Central Bank of Iceland, and
any parties the Minister of Commerce may select for cooperation. The
representative of the Ministry of Commerce shall serve as chairman. The costs of
the committee's work shall be paid by the State Treasury.
The role of the committee shall be to monitor the implementation of matters
concerning foreign exchange, to coordinate practical procedures, and to provide
advice to the Government relating to foreign exchange matters and their
implementation.
_
Article 12

Confidentiality

Persons charged with the implementation of this Regulation shall be bound to

secrecy as regards the conditions pertaining to individual clients and other facts
of which they may acquire knowledge in the course of performing their duties and
which are confidential according to law or the nature of the matter, unless a
judicial decision is passed to the effect that such information shall be divulged in
court or to police, or that the law requires the disclosure of such information.
The duty not to dívulge confidential information is not affected by the cessation of
employment.

Article 13
Sanctions

The provisions of Article 13 of Act No. 87/1992 on Foreign Exchange apply as

regards violations of the pravisions of this Regulation.

Article 14
Entry Into Effect

The present Regulation, issued as authorízed in Act No. 87/1992 on Foreign

Exchange, shall enter into effect 1 January 1995. Regulation No. 471/1992 on
Foreign Exchange is abolished as from the same time.

Ministry of Commerce, 29 December 1994.