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Ministry for Foreign Affairs

EFTA Surveillance Authority´s preliminary findings regarding a complaint concerning Iceland´s Emergency Act No 125/2008

The EFTA Surveillance Authority (ESA) presented its preliminary findings in a letter dated 4 December 2009 on a complaint raised by a group of general creditors of the Icelandic banks Glitnir bank, Kaupthing bank, Landsbanki Islands, SPRON and Sparisjodabanki Islands. The complaint concerned actions by Icelandic authorities on the basis of the so-called “Emergency Act” (Act No 125/2008).

The preliminary findings of ESA concluded that the provisions of the Emergency Act, in particular as regards provisions giving depositors priority over other unsecured creditors and various decisions of Icelandic authorities on the basis of the Act, are compatible with the provisions of the EEA-Agreement.

ESA specifically states that its preliminary findings do not deal with compatibility issues under EEA law regarding the difference in treatment between domestic deposits and deposits held in branches of Icelandic banks in other EEA States.

The following is a brief summary of the main considerations regarding the compatibility of the Emergency Act and measures thereunder with EEA law:

a. Discrimination under Article 40 EEA:

It is the preliminary finding of ESA that the Emergency Act does not constitute direct discrimination on the grounds of nationality, residence or the place where capital is invested, as the measures were not expressly based on such grounds. As regards the claim that the measures amount to indirect discrimination of other unsecured creditors and guarantee holders by giving claims by depositors a higher ranking order than claims by other unsecured creditors or guarantee holders, ESA argues that depositors on the one hand and other unsecured creditors and guarantee holders on the other hand were not in comparable situations with regard to the emergency measures. Consequently, the equal treatment requirements of Article 40 EEA are fulfilled as regards the Icelandic emergency measures.

b. Non-discriminatory restrictions:

ESA examines whether actions taken by Icelandic authorities adversely affected the flow of capital. The letter examines whether the changes introduced to the ranking order of unsecured credit claims against financial institutions in insolvency proceedings might dissuade the provision of unsecured credit by financial institutions to other financial institutions and consequently be considered to be restrictive of the free movement of capital.  In short, ESA takes the view that, in principle, the coverage of the complaining banks was not affected by the transfers of assets and, therefore, the measures do not constitute restrictions to the free movement of capital under Article 40 EEA.

c. Justification:

Although having reached the above conclusion, ESA examined, for the sake of completeness, whether a hypothetical restriction on the free movement of capital in the EEA would be justified. On this question, ESA concludes that on the assumption that the measures were a restriction under Article 40 EEA they would have been justified as safeguarding the functioning of the Icelandic banking system. Moreover, that the emergency measures were proportionate to the objective to remedy a genuine and sufficiently serious threat to the domestic banking system, the functioning of which constitutes one of the fundamental interests of society.

ESA invites the complainants to provide their views on the above preliminary findings and any other information they deem relevant to the case by 15 January 2010, before making a final assessment of the complaint.


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