Sir Howard Davies, Ladies and gentlemen

Just before Christmas I received a beautiful Christmas card from The Icelandic Financial Supervisory Authority. It caught my attention because in the picture there are angels bringing something, which I imagine, is peace and happiness to earth, and in the picture there is also a guiding star. My first thought was" Well I hope this is how they see the Icelandic financial market evolve in 2005". Then I noticed that this is an interesting metaphor. Just like the angels watching over us from above and taking care of our well being, The Financial Supervisory Authority is watching the financial market from above. Continuing along these same lines, one can say that they are like a guarding angel guarding the rules and regulation of the market. The guiding star is also symbolic; we really have to know where we are going to be successful.

I’m sure that some of you will have a hard time thinking of the Supervisory Authority as angels, but it can not be denied that it is vital for the confidence in the market to have efficient supervisory authority that safeguards the rules. If one can not trust that the rules of the market will be enforced then that will scare away investors to the detriment of the market as a whole. I believe that confidence is extremely important in the financial market. With increasing international and more complex financial activities, the role of supervisory authorities is constantly becoming more important and authorities in different countries will have to cooperate more closely than ever.

Last year we saw the three large commercial banks continue to make inroads into foreign markets. Large acquisitions took place and the rapid growth and overseas expansion caught attention in the foreign media. The focus was mostly on our neighboring countries Norway, Denmark and the UK. I welcome this new expansion of the commercial banks and other forward-looking enterprises here in Iceland. This development is a direct result of liberalisation of the Icelandic financial system and national and international legislative reform. Being part of the European Economic Area and the internal market has been a key factor. It creates a lot of opportunities but also puts big demands on the Icelandic firms. In the times of expansion businesses have to rely on skills and experience but not on luck.

More than 1000 years ago Icelanders where also keen to explore other countries like today. Erik the Red discovered Greenland and his son Leifur was the first European to set foot on the American continent. Later he was called Leif the Lucky, but when we look more closely at his achievement we see that luck had nothing to do with it. He planned his actions carefully and based them on experience and knowledge. He came up with a brave plan and executed it successfully.

In times of expansion like we are experiencing today it is ever more important not to loose focus and show utmost responsibility. After the liberalistaion of the Icelandic financial system, market participants are more free than ever to choose their actions but the freedom calls upon responsibility. Rules and legislation in the market make the framework which market participants must act within and respect. The legislation must therefore evolve with the market and fulfill its needs and demands so that there are no harmful weaknesses in the system. The Ministry of Industry and Commerce is currently putting a lot of effort into development of

the regulatory framework of legislation of the financial market. In a government meeting last Friday I presented a bill that proposes changes of the Law of Securities Transactions. This is an extensive bill that proposes many changes of provisions on market abuse, takeovers and prospectus. The bill proposes more detailed provisions than we have now. With this new bill we are following European development and implementing into Icelandic legislation three directives of the European Union. The overriding principle is to establish a uniform internal market in securities trading. Directives on Market abuse, takeovers and prospectus are a part of the so-called Lamfalussy process which is a four step process that will speed up the legislative process of the European Union and able the legislators to act more quickly to evolution in the market.

The bill also proposes increased means for the FME to act swiftly and be more transparent. In the Ministry we emphasise on working closely with market participants and the supervisory authority in developing the legislation on financial markets. This cooperation has been going very well until now and I sincerely hope that it will continue to do so. We should all have the same guiding star.

Dear friends. It is a pleasure to participate in this ambitious conference on the question of where the Icelandic Financial Market is heading which I think is very appropriate. I look forward to hearing Sir Howard Davies thoughts on this issue and I believe this will be an interesting afternoon.