Back to Analyses

Iceland

Retail_Trading_Status

Allowed-Regulated Unknown
Edit
Analysis ID
#29
Version
Archived
Created
2025-04-12 06:38
Workflow Stage
Live

Executive Summary

Retail cryptocurrency trading is allowed but regulated in Iceland, primarily through AML/CFT measures overseen by the Central Bank of Iceland. VASPs must register with the Central Bank and adhere to KYC/AML regulations outlined in Act no. 140/2018. Iceland does not consider cryptocurrencies legal tender and has issued warnings about the risks involved, with broader EU regulations like MiCA potentially influencing future regulatory frameworks. Act no. 56/2024 addresses DLT infrastructure.

Key Pillars

  • The Central Bank of Iceland (incorporating the former Financial Supervisory Authority, FME/FSA) is the primary regulatory body, focusing on AML/CFT compliance.
  • Core compliance requirements include AML/CFT regulations, Know Your Customer (KYC) due diligence, transaction monitoring, and reporting suspicious activities.
  • Virtual Asset Service Providers (VASPs) operating in Iceland must register with the Central Bank.

Landmark Laws

  • Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing: Mandates KYC/AML compliance and suspicious activity reporting for VASPs operating in Iceland.
  • EU's Anti-Money Laundering Directives (including AMLD5): Requires Virtual Asset Service Providers (VASPs) to register with the Central Bank and perform KYC due diligence.
  • Act no. 56/2024 on infrastructure for financial instruments based on distributed ledger technology: Addressed DLT infrastructure for financial instruments.

Considerations

  • Cryptocurrencies are not considered legal tender.
  • Gains from cryptocurrency trading are generally considered taxable income.
  • The Central Bank has issued warnings about the high risks associated with crypto-assets, including price volatility, fraud, scams, hacks, and the lack of legal protection.
  • There is "no supervision of consumer protection for crypto-asset trading."
  • Implementation of EU's Markets in Crypto-Assets (MiCA) Regulation is planned.

Notes

  • Iceland's strict capital controls, implemented after the 2008 financial crisis, indirectly restricted cryptocurrency transactions involving foreign exchange until they were eased in 2017.
  • The FATF noted that the VASP registration regime might not fully cover all VASP activities as defined by FATF, or entities incorporated in Iceland but operating elsewhere.
  • The IMF has noted the need to detect unlicensed activities, particularly from foreign VASPs serving Icelandic residents.
  • In 2021, the Governor of the Central Bank likened Bitcoin speculation to a "pyramid scheme."
  • Myntkaup ehf. was registered as a virtual asset service provider in April 2020 in accordance with Article 35 of laws No. 140/2018 and regulation No. 535/2019.

Detailed Explanation

Retail trading of cryptocurrencies is permitted in Iceland, operating within a regulatory framework focused primarily on Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) measures. Cryptocurrencies are not considered legal tender or equivalent to traditional financial instruments, and consumer protection beyond AML/CFT rules is limited. Historically, Iceland's capital controls, implemented after the 2008 financial crisis, indirectly restricted cryptocurrency transactions involving foreign exchange, but these controls were significantly eased in 2017. While owning and mining cryptocurrencies is legal, the Central Bank of Iceland historically prohibited foreign exchange trading with cryptocurrencies like Bitcoin under the Foreign Exchange Act, although this prohibition seems to have been lifted de facto. The Central Bank of Iceland, incorporating the former Financial Supervisory Authority (FME/FSA), is the primary regulatory body, focusing on AML/CFT compliance for crypto service providers.

Iceland has implemented the EU's Anti-Money Laundering Directives, including AMLD5, requiring Virtual Asset Service Providers (VASPs) operating in Iceland to register with the Central Bank. Registered VASPs must perform Know Your Customer (KYC) due diligence, monitor transactions, and report suspicious activities according to Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing. The Financial Action Task Force (FATF) noted that the VASP registration regime might not fully cover all VASP activities as defined by FATF, or entities incorporated in Iceland but operating elsewhere. The IMF has also noted the need to detect unlicensed activities, particularly from foreign VASPs serving Icelandic residents. The Central Bank states that "No rules or laws apply to crypto-assets" themselves, beyond the AML/CFT Act, and that there is "no supervision of consumer protection for crypto-asset trading." Authorities have issued warnings about the high risks associated with crypto-assets, including price volatility, fraud, scams, hacks, and the lack of legal protection. In 2021 and 2022, the Central Bank highlighted the speculative nature of crypto, the risks of misleading advertising, and reiterated that cryptocurrencies are not legal tender. The Governor of the Central Bank likened Bitcoin speculation to a "pyramid scheme" in 2021.

Iceland plans to implement the EU's Markets in Crypto-Assets (MiCA) Regulation, which will establish a more comprehensive regulatory framework, and Act no. 56/2024 on infrastructure for financial instruments based on distributed ledger technology has been passed. Gains from cryptocurrency trading are generally considered taxable income, although specific legislation might be lacking. Myntkaup ehf., a local Icelandic exchange, operates based on its registration and surveillance from the Financial Supervisory Authority, registered in April 2020 in accordance with Article 35 of laws No. 140/2018 and regulation No. 535/2019. One source states, potentially in contradiction to others, that Iceland regulates virtual currencies as electronic currency through the Icelandic exchange act, effectively prohibiting entities from engaging in virtual currency exchange. This source also indicates that the government does not consider Bitcoin a currency but allows citizens to own and mine it freely. The Reykjavik Grapevine reported in February 2021 that the Icelandic Central Bank warned against the use of cryptocurrencies due to the lack of regulatory protection.

Summary Points

**Iceland: Retail Cryptocurrency Trading Regulatory Status**

**I. General Status:**

*   **Retail Trading:** Allowed, but regulated primarily for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT).
*   **Legal Tender:** Cryptocurrencies are *not* considered legal tender or equivalent to traditional financial instruments.
*   **Consumer Protection:** Limited consumer protection beyond AML/CFT rules.

**II. Key Regulatory Bodies:**

*   **Central Bank of Iceland (Sedlabanki):**
    *   Primary regulatory body.
    *   Supervises AML/CFT compliance for crypto service providers.
    *   Incorporates the former Financial Supervisory Authority (FME/FSA).
*   **Role:** Registration and oversight of Virtual Asset Service Providers (VASPs).

**III. Important Legislation and Regulations:**

*   **Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing:**
    *   Main AML/CFT law.
    *   Requires VASPs to register with the Central Bank.
    *   Mandates KYC due diligence, transaction monitoring, and reporting of suspicious activities.
*   **EU Anti-Money Laundering Directives (including AMLD5):** Iceland has implemented these directives.
*   **Act no. 56/2024 on infrastructure for financial instruments based on distributed ledger technology:** Passed, details on impact still emerging.
*   **Future:** Planned implementation of EU's Markets in Crypto-Assets (MiCA) Regulation.

**IV. Requirements for Compliance (VASPs):**

*   **Registration:** VASPs operating in Iceland must register with the Central Bank.
*   **KYC/CDD:** Implement Know Your Customer (KYC) and Customer Due Diligence (CDD) procedures.
*   **Transaction Monitoring:** Monitor transactions for suspicious activity.
*   **Reporting:** Report suspicious activities to authorities.
*   **AML/CFT Program:** Establish and maintain a comprehensive AML/CFT program.

**V. Notable Restrictions or Limitations:**

*   **Limited Consumer Protection:** Lack of specific regulations providing consumer protection beyond AML/CFT.
*   **FATF Concerns:** FATF noted that the scope of VASP registration might not fully cover all VASP activities or entities incorporated in Iceland but operating elsewhere.
*   **Central Bank Warnings:** Frequent warnings issued by the Central Bank about the high risks associated with crypto-assets (volatility, fraud, scams, hacks).
*   **No Legal Protection:** Lack of legal protection or compensation mechanisms available for regulated financial products.

**VI. Recent Developments or Changes:**

*   **Easing of Capital Controls (2017):** Lifted *de facto* ban on cross-border cryptocurrency transactions.
*   **Central Bank Warnings (2021-2022):** Increased warnings about speculative nature of crypto, misleading advertising, and lack of legal tender status.
*   **Implementation of Act no. 56/2024:** New law on infrastructure for financial instruments based on distributed ledger technology.
*   **Future MiCA Implementation:** Iceland plans to implement the EU's MiCA Regulation.

**VII. Taxation:**

*   **Taxable Income:** Gains from cryptocurrency trading are generally considered taxable income.
*   **Mining:** Mining activities are taxed.
*   **Unclarity:** Some unclarity on the exact tax treatment of crypto assets.

Full Analysis Report

Report: Retail Cryptocurrency Trading Status in Iceland

1. Retail_Trading_Status: Allowed-Regulated

2. Detailed Narrative Explanation:

Retail trading of cryptocurrencies (buying, selling, holding by individuals) is permitted in Iceland, but operates within a specific regulatory framework primarily focused on Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) measures. Iceland does not consider cryptocurrencies legal tender or equivalent to traditional financial instruments, and there is limited specific regulation governing the crypto-assets themselves or providing consumer protection beyond AML/CFT rules.

  • Historical Context & Legality: Initially, Iceland's strict capital controls, implemented after the 2008 financial crisis to prevent capital outflow, indirectly restricted cryptocurrency transactions involving foreign exchange. However, these controls were significantly eased in 2017, lifting the de facto ban on cross-border cryptocurrency transactions. While owning and mining cryptocurrencies is legal for Icelandic citizens, the Central Bank of Iceland has historically stated that engaging in foreign exchange trading with cryptocurrencies like Bitcoin was prohibited under the Foreign Exchange Act. The current situation is that while direct prohibitions on owning or trading crypto seem lifted, the activity exists in a space where it's not explicitly banned but is subject to specific rules and warnings.
  • Regulatory Oversight: The Central Bank of Iceland (incorporating the former Financial Supervisory Authority, FME/FSA) is the primary regulatory body. Its supervision focuses almost exclusively on AML/CFT compliance for entities involved in crypto services.
  • AML/CFT Regulations: Iceland has implemented the EU's Anti-Money Laundering Directives (including AMLD5). This means Virtual Asset Service Providers (VASPs), such as exchanges and custodian wallet providers operating in Iceland, must register with the Central Bank. Registered VASPs are obligated to perform Know Your Customer (KYC) due diligence, monitor transactions, and report suspicious activities according to Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing. This registration requirement applies to entities operating in Iceland, but the Financial Action Task Force (FATF) noted that the scope might not fully cover all VASP activities as defined by FATF, nor entities incorporated in Iceland but operating elsewhere. The IMF has also noted that while Iceland has established a VASP registration regime, efforts should continue to detect unlicensed activities, particularly from foreign VASPs serving Icelandic residents.
  • Consumer Protection & Warnings: The Central Bank explicitly states that "No rules or laws apply to crypto-assets" themselves, beyond the AML/CFT Act. There is currently "no supervision of consumer protection for crypto-asset trading." Authorities have issued multiple warnings emphasizing the high risks associated with crypto-assets, including extreme price volatility, potential for fraud, scams, hacks, and the lack of legal protection or compensation mechanisms available for regulated financial products. In 2021 and 2022, the Central Bank issued warnings highlighting the speculative nature of crypto, the risks of misleading advertising (especially on social media), and reiterated that cryptocurrencies are not legal tender. The Governor of the Central Bank even likened Bitcoin speculation to a "pyramid scheme" in 2021.
  • Future Developments: Iceland plans to implement the EU's Markets in Crypto-Assets (MiCA) Regulation, which will establish a more comprehensive regulatory framework for crypto-assets and related services, potentially including enhanced consumer protection. Act no. 56/2024 on infrastructure for financial instruments based on distributed ledger technology has also been passed.
  • Taxation: While not directly related to trading permission, gains from cryptocurrency trading are generally considered taxable income in Iceland, although specific legislation might be lacking, leading to some unclarity on the exact treatment. Mining activities are taxed.

In summary, individuals in Iceland can legally buy, sell, and hold cryptocurrencies. However, service providers facilitating these activities must register with the Central Bank and adhere to strict AML/CFT regulations. The government and Central Bank maintain a cautious stance, issuing warnings about risks and clarifying the lack of consumer protection specific to crypto-assets, pending the implementation of broader EU regulations like MiCA.

3. Supporting Excerpts:

  • Central Bank of Iceland (Crypto-assets and crowdfunding page): "No rules or laws apply to crypto-assets. Crypto-asset service providers must comply with Act no. 140/2018 on Measures against Money Laundering and Terrorist Financing... The supervision of crypto-asset service providers is limited to the supervision of measures against money laundering and terrorist financing pursuant to Act no. 140/2018. There is no supervision of consumer protection for crypto-asset trading."
  • Central Bank of Iceland (Operating licence and registration page): "Some parties are not obliged to hold an operating licence from the Central Bank but are required to register. These parties are: ... Crypto-asset service providers..."
  • Coincub (Best Crypto Exchange Iceland): "While adopting a light-touch regulation regarding crypto, Iceland does, however, have strong AML laws and adheres to the European Union's 4th Anti-Money Laundering Directive whereby Virtual Asset Service Providers (VASPs) exchanges and wallets require registration to be able to operate."
  • Financial Crime Academy (Cryptocurrency In Europe): (2025-03-14) "Iceland regulates virtual currencies as electronic currency through the Icelandic exchange act, which effectively prohibits entities from engaging in virtual currency exchange. The Icelandic government doesn't consider Bitcoin a currency but allows its citizens to own and mine it freely. Cryptocurrency and crypto assets are not heavily regulated in Iceland. However, the Money Laundering Act conforms to the European Union's 4th Anti-Money Laundering Directive no. 2015/849 and entails a registration requirement for parties operating with cryptocurrencies or crypto assets." (Note: This source mentions prohibition on virtual currency exchange, which seems to conflict with other sources indicating trading is allowed but regulated via AML. The core point about AML registration holds).
  • FATF (Iceland - 2nd Enhanced Follow-Up Report & Technical Compliance Re-Rating, Oct 2020): "Iceland has introduced a regime for some of the activities captured in the FATF definition of a VASP... VASPs are required to register with the FSA [now Central Bank] only if they are operating in Iceland, but not when they are incorporated in Iceland."
  • The Reykjavik Grapevine (Central Bank Warns Against Use Of Cryptocurrencies, Feb 2021): "The Icelandic Central Bank has warned against the use of cryptocurrencies, RÚV reports, due to the lack of regulatory protection... The bank's Financial Supervisory Authority have issued a reminder that cryptocurrencies are not legal tender, and so are not covered by existing currency legislation."
  • Myntkaup.is (Local Icelandic Exchange): "Myntkaup ehf. is a virtual asset service provider whichs operates based on its registration and surveillance from the Financial Supervisory Authority. Myntkaup was registered as a virtual asset service provider in April 2020 in accordance with Article 35 of laws No. 140/2018 and regulation No. 535/2019."

4. Source URLs:

Reviews

No reviews yet

Submit Review

Challenge: Disagree with the analysis | Approval: Confirm it's correct | Refinement: Suggest improvements