This would certainly be the case for passengers CONNECTING at Keflavik. European airports do have a security checkpoint for arriving transatlantic passengers who are continuing on to other destinations. So if you bought whiskey in Toronto, and you were continuing on to--say--Berlin on Icelandair, it would be confiscated at Keflavik's security checkpoint.

I can't imagine why this would be the case for passengers terminating their journey in Iceland.

Here in the US, some airports have an arrival security check that includes terminating passengers (Atlanta, Cincinnati, Cleveland, among others.) But this checkpoint is after customs, so you could put any liquids in your checked baggage at customs, thereby clearing security without the contraband.