The purpose of the Systemic Risk Advisory Council is to identify and oversee systemic financial risks as a whole in the Faroe Islands. The Council is advisory in nature and advises relevant government authorities on how a systemic financial risk shall be managed. In this regard, the Council has four tools at its disposal:

In this situation, the Risk Council believes that there are indications that certain conditions could exacerbate the systemic risk environment and that it is critical to maintain a watchful eye over these particular circumstances. Such an observation is generally public and not directed at a specific government authority or agency.

An opinion presented as a warning has a much greater formal strength or power than an observation. When the situation evokes a warning, the Risk Council firmly believes that there are clear signs of growing systemic financial risk and they recommend that steps be taken to improve the situation.

A recommendation from the Risk Council has a greater formal strength than a warning. A recommendation is a concrete proposal for change that the Risk Council deems necessary to set into motion to limit financial risk. A recommendation can be directed at one or more government authorities or agencies and the recipient(s) then has the responsibility within three (3) months of either initiating the recommended changes or responding with its own analysis wherein cogent arguments are presented as to why the recommendation will not be followed.

The Risk Council may issue an announcement regarding the financial circumstances that are applicable to the Danish area of responsibility within the financial sector. This announcement is not public and is submitted to the Danish Systemic Risk Council, while at the same time the Faroese Government is informed.