Iceland: Next steps in capital account liberalisation - Mandatory conversion of offshore Kròna securities and reminder on settlement activity on offshore Kròna assets - update

09.09.2016

Note: This announcement originally published on 4 August 2016, and updated on 17 August 2016, has been further updated to provide information for customers wishing to recover their suspended entitlement rights. Changes have been highlighted.

Following our announcement A16086, dated 14 June 2016, and A16079, last updated on 29 June 2016, Clearstream Banking1 would like to provide customers with information on the mandatory conversion which is set to take place on

1 September 2016

as foreseen by the Icelandic Act no 37/2016, the Act on the treatment of Kròna-denominated assets subject to special restrictions, also referred to later as “The Act”, and Rules no 425/2016 on the Treatment of Kròna-denominated assets subject to special restrictions and its amendment, Rules no 518/2016.

Background

The Act foresees that the custody of Kròna-denominated assets subject to special restrictions must be transferred to an administrative account with the Central Bank of Iceland (CBI), in the name of the relevant custodian, no later than 1 September 2016 (the Date).

Concurrently the custodian is obliged to comply with the due diligence requirements as listed under Rules no 518/2016.

Clearstream Banking’s custodian, LuxCSD, will operate the transfer by converting the offshore Kròna positions currently held by Clearstream Banking‘s customers into new ISIN codes issued by the CBI for this specific purpose. The conversion and the collection of the relevant disclosure and compliance duties will be processed through a mandatory conversion event.

Scope of the mandatory conversion corporate event

All positions in offshore Kròna assets, as defined by the Act no 37/2016, that will still be held with Clearstream Banking by 17:00 CET on the 22 August 2016, and with the exception of positions in IS0000027068 and in XS ISINs, are subject to the mandatory conversion event. The list of ISINs impacted within Clearstream Banking as currently confirmed by the CBI is attached to this announcement for your convenience and may be subject to further update.

Impact for customers

Customers that hold a position in offshore Kròna assets by 17:00 CET on the 22 August 2016 with Clearstream Banking must instruct on their positions according to the terms and deadlines set forth by Clearstream Banking in the corporate action notifications which will be released in the coming days to the impacted customers.

Disclosure and compliance duty

By instructing and providing the details requested in the corporate action notification, including the identification of the ultimate beneficial ownership of the assets subject to the conversion, each customer shall be deemed to represent that;

  • It is compliant with Financial Action Task Force (FATF) Guidance on transparency and beneficial ownership, FATF Recommendations and local regulations preventing money laundering and terrorist financing;
  • It is in possession of information concerning the ultimate beneficial owner and the source of the funds which are legitimate and in compliance with the FATF Guidance, FATF Recommendations and the regulations preventing money laundering and terrorist financing that are applicable to it;
  • The ultimate beneficial owner of the funds is not subject to any sanction pursuant to the Act on Implementation of international sanctions;

Clearstream Banking’s positions shall be converted irrespective of whether or not customers holding positions subject to the conversion comply with these requirements. However, the Icelandic authorities have advised us that all entitlements of any kind associated to a position or portion of a position on which the customer has not fulfilled the above requirements before 17:00 CET on 22 August 2016 shall be suspended.

After 1 September 2016, customers wishing to recover their suspended entitlement rights must instruct on their blocked positions according to the terms set forth by Clearstream Banking in the original mandatory corporate action notifications that they had first received but for which they had missed the deadline. Provided that these instructions are valid as per the terms described in the original events, Clearstream will process them on a best effort basis and will unblock the entitlement rights on the instructed positions upon receipt of the confirmation from the Central Bank of Iceland.

Indemnity and sanctions

The CBI will suspend any future entitlements (such as income proceeds), whether it is by transfer to a restricted account or in any other way, associated to positions that would not be properly instructed and disclosed, in line with the notifications sent. In addition, Clearstream Banking reserves the right to disclose the name and details of its customers that would not have instructed or disclosed as per the received notifications.

Furthermore, each customer of Clearstream Banking hereby acknowledges and agrees to indemnify and hold harmless Clearstream Banking from any and all expenses (including attorney fees) costs, penalties, losses, damages, judgments, suits or any other liabilities whatsoever incurred due to the fact that it has provided Clearstream Banking with incomplete, untrue, misleading or inaccurate information, or that it has not instructed part of all of its positions in accordance with the terms and deadlines described in the notifications received.

Settlement activity in Kròna assets

Clearstream Banking reminds its customers that until 1 September 2016 and until the completion of the above described transfer, settlement activity allowed in Clearstream Banking in offshore Kròna assets submitted to restriction as per the Icelandic Act no 37/2016 remains unchanged.

Securities settlement instructions

Security and instruction typeStatusProcess outcome and notes
1. Domestic free of payment (offshore Kròna securities)Not allowedRejected
1b. Transfer of IS0000027068 between CBI restricted accountsAllowedNarrative: ART 11.1, IBAN ISxxxxxx21xxxxxxxxxxxxxxxx
Deadlline is 16:00 CET 
2. Domestic versus payment in ISK (any securities)Not allowedRejected
3. Internal free of payment (offshore Kròna securities)Not allowedRejected
4. Internal versus payment in ISK (any securities)Not allowedRejected
5. Bridge versus payment in ISK (any securities)Not allowedRejected
6. Bridge free of payment (offshore Kròna securities)Not allowedExcept international XS securities

In addition to the settlement activity allowed on CBI’s certificates of deposit instruments (CDs), foreign exchange with CBI of customers’ offshore Kròna securities, at the reference exchange rate of 220 ISK/EUR, will soon become available. Detailed communication on the underlying terms and requirements will follow shortly.

Cash activity in Kròna assets

All cash wire in to Clearstream Banking will be automatically converted into CBI’s CDs and at the rate provided by CBI. The resulting securities positions will be credited same day to the customer account. No action is required from customers.

ISK cash instructions

Security and instruction typeStatusProcess outcome and notes
1. Delivery of ISK out of ClearstreamNot allowedRejected (no more ISK bal with Clearstream)
2. Receipt of ISK in Clearstream (including income proceeds)AllowedAutomatically converted into CBI CDs
Deadline is 16:00 CET 
3. Transfer of ISK within ClearstreamNot allowedRejected

Further information

For further information, please contact the Clearstream Banking Client Services or your Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for CBF customers using CreationOnline), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500