Registration of currency exchange services
A currency exchange service is defined as an activity in which the purchase and sale of domestic and foreign currency takes place for commercial purposes. Currency exchange services are required to register with the Central Bank of Iceland, cf. Point a of Paragraph 1 of Article 35 of Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing, except for those entities that meet the conditions for exemption, see further discussion below.
According to the risk assessment of the National Commissioner of the Icelandic Police, published in March 2021, the risk in foreign exchange transactions is significant. In assessing the risks, there was evidence that it was quite common for offenders to use currency exchange to launder money.
The proportion of cash transactions in foreign exchange transactions is high, but cash transactions enable the source of capital to be hidden and, to some extent, facilitate anonymous transactions that can be repeated by the same customer.
The risk assessment of the National Commissioner of the Police also states that there are indications that this type of transaction takes place in an organised manner.
What does providing currency exchange for commercial purposes entail?
In assessing what constitutes activities where the purchase and sale of domestic and foreign currency takes place for commercial purposes, it should be noted that the provision of foreign exchange services does not have to be the main activity, but it is sufficient for the currency exchange to be an ancillary activity, which is directly connected to the entity's main activities and solely provided to its customers.
The definition of a foreign exchange service in Act no. 140/2018 does not specify that the foreign exchange service must be provided for a fee or that the framework of a currency exchange service must be in a particular manner, other than saying that it is provided for commercial purposes. An entity is therefore not automatically exempted from the registration obligation even if it does not collect a fee for such services, or if the entity in question profits from the exchange-rate difference or the service is advertised separately.
Exemption from registration as a currency exchange service
Currency exchange services are required to register with the Central Bank of Iceland, cf. Article 35 of Act no. 140/2018, except for those entities that fulfil all the conditions set out in Point I of Paragraph 1 of Article 2, i.e:
- the currency exchange service is an ancillary activity that is directly related to the entity's main activities and is only provided to the entity's customers,
- the total turnover of the foreign exchange transactions amounts to less than ISK 5 million per year, and
- the currency exchange transactions of an individual customer do not exceed ISK 100 thousand, whether the exchange takes place in a single transaction or several transactions that seem to be related to each other.
The comments on the exemption provisions in the bill that became Act no. 140/2018 state that the main conditions for an entity not to be considered as an obliged entity and therefore not required to register as a currency exchange service is that the foreign exchange transactions in question are ancillary activities that are directly related to the entity's main activities and are only provided to its customers.
Examples that are mentioned are hotels, shops and other service companies that primarily offer services other than currency exchange, but provide those services in connection with their main activities, e.g. a hotel that offers its guests currency exchanges for a fee or shops that, when selling a product, accept payment in a foreign currency but give the change in Icelandic krónur. However, the bill specifies, for example, that it can be assumed that a tourist information centre, which offers currency exchange for a fee to any party requesting the service, does not meet the conditions for the exemption and must apply to be registered as a currency exchange service.
In view of the above, entities providing foreign exchange services as ancillary activities must have adequate systems in place to ensure that the amount limits stipulated under Points 2 and 3 of the exemption provisions are respected. If an entity is unable to demonstrate that the conditions for an exemption are met, the entity in question must apply for registration in accordance with Article 35 of the Act.