This country-specific Q&A provides an overview of the legal framework and key issues surrounding banking and finance law in Norway including national authorities, regulation, licenses, organisational requirements, supervision and assets.
This Q&A is part of the global guide to Banking & Finance.
For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/banking-finance/
What are the national authorities for banking regulation, supervision and resolution in the jurisdiction?
The main national authority for banking regulation, supervision and resolution is the Norwegian Financial Supervisory Authority (Finanstilsynet) ("NFSA"). However, Finansdepartementet (the "MoF") still holds substantial powers and authority, i.a. in matters of importance and / or of principle.
Furthermore, the EFTA Surveillance Authority (EFTA's overvåkningsorgan) ("ESA") formally serves the role as financial markets supervisor of the EEA-EFTA states similar to the corresponding EU authorities (EBA and ESMA), although ESA will in practice only carry out decisions by EBA and ESMA.
The Norwegian Financial Services Complaints Board (Finansklagenemnda) handles disputes between member banks and their retail or consumer clients. Both the bank and the consumer may bring a NFSCB decision to the ordinary court system.
The Consumer Authority (Forbrukertilsynet) (formerly the Consumer Ombudsman) and The Consumer Council (Forbrukerrådet) are independent administrative bodies, albeit financed by the government, that collectively supervise and seek to influence the consumer market stakeholders in a consumer friendly direction as well as to assist consumers in disputes with banks (even in class actions).
The Data Protection Agency's (Datatilsynet) ("DPA") main purpose is to protect the individual’s privacy and its focus areas includes the banking industry.
The Central Bank of Norway is Norges Bank. Norges Bank's mandate is broad, and encompasses monetary, credit and currency policy. Norges Bank has executive and advisory responsibilities in the areas of monetary, credit and foreign exchange policy and is responsible for promoting robust and efficient payment systems, both domestically and abroad, and financial markets Norges Bank is also tasked with monitoring monetary, credit and foreign exchange markets Norges Bank manages Norway’s foreign exchange reserves and a sub-section of Norges Bank, Norges Bank Investment Management, manages Norway's Sovereign Wealth Fund (Statens Pensjonsfond Utland).
The framework laws are adopted by the parliament (Stortinget), whilst detailed regulations are normally adopted by either the MoF or the NFSA, depending on the relevant statutory basis for the regulations. In addition the NFSA regularly confirms that it will apply international standards for financial supervision and regulation.
Which type of activities trigger the requirement of a banking licence?
Taking deposits from the public requires license as a bank. Furthermore, each of the following activities, all typically carried out by banks, triggers licensing requirements in Norway, either as a bank or as other regulated financial entities, including credit institutions, payment institutions, e-money institutions and investment firms (all EEA equivalent entities), as well as certain locally regulated institutions:
- Taking repayable funds (other than deposits) from the public i.a. by the issue of bonds for purpose of conducting lending and financing activities
- Lending and other forms of financing by extension of credit (including financial leasing) and posting of guarantees. Providing intermediary services related to credit and guarantees, and any other form of assistance concerning financing of third-parties' operations
- Payment services
- Issuing of electronic money
- Spot foreign exchange trading
- Provision of investment services
Does the regulatory regime know different licenses for different banking services?
There are two main banking licenses due to ownership structure, namely commercial banks license and savings banks license. Commercial banks must be incorporated as limited liability companies. Savings banks are a distinct type of legal entity, structured as a mutual entity. Savings banks are traditionally without external owners and the equity of such savings banks is mainly retained profits from earlier years. However savings banks can also issue equity-like instruments called equity certificates ("egenkapitalbevis") or be converted into limited liability companies. Equity certificates differ from shares in that they do not give holders ownership to the bank's entire equity capital and limited voting rights in the bank's the general meeting.
Investment banks are not a separate type of banks, and many of them are strictly speaking not proper banks under the Norwegian regulatory regime, as they are not deposit-taking institutions. Some investment firms do, however, label their corporate finance departments as investment banks.
Does a banking license automatically permit certain other activities, e.g., broker dealer activities, payment services, issuance of e-money?
Yes. Upon obtaining a banking license, the relevant entity is licensed to carry out the regulated activities of receiving deposits and other repayable funds from the public, granting credit and posting guarantees and providing payment services. A bank must be specifically licensed in order to undertake any other regulated financial activities. Norwegian banks are also subject to statutory restrictions on undertaking activities (whether regulated or not) not covered by their license.
What is the general application process for bank licenses and what is the average timing?
An application for a banking licence is usually prepared by the company's legal counsel and must be submitted to the NFSA. The application letter must demonstrate that the applicant complies with the requirements in the Financial Undertakings Act.
The application must include the applicant's certificate of registration, articles of association and a business plan. The business plan must include information about the applicant's planned operations and, in particular, provide information regarding material aspects of the regulated activities that the applicant intends to undertake upon receipt of its license. The NFSA may at any time demand further information, and the Financial Undertakings Act recommends that the following information is included in each business plan:
- The applicant's planned ownership and management structure after establishment.
- The applicant's risk management and risk control systems.
- Information regarding how the applicant will acquire capital to satisfy applicable capital requirements for the activities covered by the business plan.
- The applicant's solidity and capital status, as well as financial projections for the first three years following the taking-up of the regulated activities.
- Budgets for establishment and administration costs.
- Budgets including an income statement, balance sheets and a financing analysis for the first three years following the taking-up of the regulated activities.
- The applicant's group affiliation, if any.
- Overview over the financial services the applicant intends to provide.
- The applicant's anti-money laundering measures comply with the Anti-Money Laundering Act.
There is no application fee payable for the submission and processing of a banking license application.
The final decision on granting the licence is made by the either the NFSA or the MoF, depending on case-specific factors.
The MoF must make a decision within six months of receipt of a full and satisfactory application.
Is mere cross-border activity permissible? If yes, what are the requirements?
Yes, banks/credit institutions with headquarters in another EEA state can carry out cross-border activities under the CRD IV pass porting regime. Such foreign banks can provide all services comprised by the CRD IV, subject to the relevant service being comprised by its notification. EEA based entities operating in Norway on a cross-border basis are predominantly subject to home state supervision and home state rules; however, some Norwegian rules will apply.
Banks/credit institutions from outside the EEA must have a specific Norwegian license in order to provide banking services in Norway in a cross-border basis.
What legal entities can operate as banks? What legal forms are generally used to operate as banks?
Limited liability companies and savings banks can operate banks, see our answer to question 3 for further details. The largest players in the Norwegian banking sector (serving both the commercial and retail banking market) are organised as public limited liability companies, however the commercial banks are vastly outnumbered by the savings banks, serving mainly their local market. Most savings banks are now members in one of the three major strategic banking alliances. Each alliance is organised so that the participants jointly owns product companies on insurance, investment services, asset management and real estate agency business. These alliances also cater for cooperation on the technical side, i.a. within development of information and communication technology.
What are the organisational requirements for banks, including with respect to corporate governance?
In addition to the requirements to the organisational ownership structure mentioned under question 2, a bank must have a general meeting, a board of directors, and a CEO. The board of directors must be composed so that it meets a general requirement of versatility, and both the members of the board of directors and the CEO must meet certain requirements on education and professional experience as well as having showed good conduct over a period. A bank must be organised in a way that enables it to monitor and control risks and comply with all regulations. Ultimately, the responsibility lies with the board of directors.
A bank licensed in Norway is required to have articles of association approved by the NFSA.
Pursuant to the Financial Undertakings Act, banks are required to have in place an audit committee, a remuneration committee and a risk committee, consisting of members of the board of directors. The remuneration committee shall in addition have at least one employee representative. The purpose of the audit committee is to support and advise the board of directors with respect to, for example, internal control systems, risk management and auditing of the bank's financial statements. The purpose of the risk committee is to support and advise the board in its role as supervisor and governing body of risk and risk control. The remuneration committee shall prepare all matters that the board of directors is required to resolve pursuant to the remuneration policy. Furthermore a bank must establish independent control functions such as internal audit and risk and compliance functions.
The Norwegian Code of Practice for Corporate Governance applies to banks with securities listed on a regulated market in Norway. The Code is based on the "comply-or-explain" principle, where companies must comply with the Code of Practice or explain why they have chosen not to.
Do any restrictions on remuneration policies apply?
Yes, restrictions on remuneration polices apply. Norwegian rules in this respect are based on the CRD IV-rules. Specifically, variable remuneration may not account for more than 100% of the base salary; a limit that can be raised to 200% of the base salary if certain conditions are met with respect to approval procedure and information to the NFSA. The Norwegian remuneration rules are applicable regardless of the size, nature, scope or complexity of the institution.
Has the jurisdiction implemented the Basel III framework with respect to regulatory capital? Are there any major deviations, e.g., with respect to certain categories of banks?
Yes, Norwegian laws comply with the Basel III framework with respect to regulatory capital through implementation of Directive 2013/36/EU (Capital Requirements Directive IV (CRD IV)) and Regulation (EU) 575/2013 on prudential requirements for credit institutions and investment firms (Capital Requirements Regulation) (CRR)). Norwegian law has no major deviations from the CRD IV or CRR.
Are there any requirements with respect to the leverage ratio?
The current leverage ratio requirement for Norwegian banks is 3 percent, as set out in CRD IV and CRR. On top of that, all banks must in addition have a leverage ratio buffer on 2 percent, and 3 percent for systemically important banks.
What liquidity requirements apply? Has the jurisdiction implemented the Basel III liquidity requirements, including regarding LCR and NSFR?
Yes, Norway has implemented the Basel III liquidity requirements such as liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), LCR in each significant currencies, except for Norwegian Krone, and 50% LCR in Norwegian Krone for banks with EUR or US$ as their significant currency as well as LCR and NSFR reporting requirements to the NFSA.
Do banks have to publish their financial statements?
Yes, Norwegian banks are required to publish on their website their annual accounts, the annual report and the audit report without undue delay after adoption by the General Meeting. The bank shall ensure that the annual accounts, the annual report and the audit report remain public for at least five years.
Does consolidated supervision of a bank exist in the jurisdiction? If so, what are the consequences?
Norway does not participate directly in the EU's consolidated supervision body (the European System of Financial Supervision – ESFS). However, the NFSA is an ad hoc observer in the ESFS, and the NFSA co-operates closely with regulators in other EU/EEA countries. Furthermore, Norway has been granted status as an observer in the European Banking Committee (EBC) of the European Commission and the European Banking Authority (EBA). In addition, ESA co-operates with EBA where they can also participate in proceedings as an observer.
Furthermore, there is currently a co-operation agreement in place between the Nordic countries' (Norway, Sweden, Finland and Denmark) FSAs. In addition to annual meetings, the co-operation includes joint inspections of certain Nordic banking groups. One of the two systemically important institutions bank in Norway, Nordea, operates as branch of Nordea's Swedish bank entity from 2017. A cooperation agreement has also been entered into with Nordic FSAs and the European Central Bank (EU) on oversight of large branches.
The NFSA participates in the Nordic-Baltic Stability Group. The group consists of the respective Ministry of Finance, central bank and the FSA of each ofn the Nordic-Baltic countries. The group has developed a framework to coordinate cross-border measures in a possible crisis situation in systemically important cross-border financial institutions.
Finally, Norway is participating in both the Organisation for Economic Co-operation and Development (OECD)'s Committee on Financial Markets and the Basel Committee (of which Norway is not an official member, but participates in its general meetings held every second year).
What reporting and/or approval requirements apply to the acquisition of shareholdings in, or control of, banks?
Acquisition or of Qualified Holdings in Norwegian banks requires preapproval from the NFSA, or by the MoF in matters of importance and/or of a fundamental nature. The acquisition cannot be completed before approval is obtained. "Qualified Holding" is defined as an ownership stake representing 10 percent or more of the capital or votes of the bank or which otherwise gives rise to a significant influence over the bank's management and its business. The same applies to acquisitions that will result in a Qualifying Holding being increased to or exceed 20, 30 or 50 per cent of the capital or votes of the bank.
The application for acquisition must meet certain specific requirements. The case handling period is maximum 60 days, unless the authorities' requests for further information before the 50 working days have elapsed, in which case the deadline will be suspended until the response from the acquirer has been received but not for more than 20 working days if the acquirer is supervised or resident in an EEA State.
A person's total ownership interest is calculated on the basis of directly and indirectly held ownership interests as well as ownership interests which the person concerned has the right to acquire on his own initiative, voting rights and ownership rights held by group companies and persons acting in concert with the person concerned.
Anyone who wishes to dispose of a Qualifying Holding, or reduce it so that the ownership share becomes less than one of the above limits mentioned in the first paragraph, shall notify the NFSA of its intention to dispose those shares.
Does the regulatory regime impose conditions for eligible owners of banks (e.g., with respect to major participations)?
Yes, the MoF has in individual cases imposed specific conditions on major shareholders. The conditions are imposed in order to control or reduce the relevant shareholder's influence on the bank. Note that in practice no private individual or corporate shareholder have been approved as holder of more than 25 percent of the share capital and voting rights of a Norwegian bank.
Are there specific restrictions on foreign shareholdings in banks?
Norwegian law does not prohibit foreigners from investing in Norwegian banks. There are several foreign investors holding shares or equity certificates issued by Norwegian banks.
Is there a special regime for domestic and/or globally systemically important banks?
Yes. Domestic systematically important banks are subject to additional Tier 1 capital buffer on 2 percent as well as additional leverage ratio buffer on 1 percent, see also question 11. Pursuant to a co-operation agreement in place between the FSAs of the Nordic countries (Norway, Sweden, Finland and Denmark), banks defined as systematically important and operating in the Nordic countries are subject to certain coordinated ongoing supervision by the Nordic FSA, see also answer to question 14.
What are the sanctions the regulator(s) can order in the case of a violation of banking regulations?
In case of violations of the banking regulations the NFSA may issue an order that the violation shall cease. In case the violating party does not respond to the cease order, the NFSA may impose administrative coercive fines. Intentional or negligent violation of the banking regulation is also subject to criminal sanctions such as fines and imprisonment up to 1 year.
What is the resolution regime for banks?
Banks that fails to fulfil its obligations as they expire, or are not able to fulfil the current capital adequacy requirements or become insolvent cannot be subject to ordinary insolvency proceedings, however shall be subject to public administration. Decisions on the public administration of banks are passed by the MoF. When a bank is placed in public administration:
- The bank's name must be changed to include the wording "In Public Administration".
- The bank's board of directors is replaced by an Administration Board (administrasjonsstyre) appointed by the MoF.
- The bank is prohibited from both receiving new deposits and accepting new customers or extending existing customer relationships.
- The bank is also unable to make disbursements to depositors or other claimants without consent of the NFSA.
If the Administration Board finds that there is basis for the bank to continue its business, it may propose the release of the bank from administration proceedings. This solution can involve reducing the creditors' claims. However, if it appears that the bank is unlikely to be released from administration more than one year from the date on which the administration became effective, the bank must be liquidated. Its assets must then be divided among the creditors according to ordinary insolvency principles, a process which may involve write down of the share capital and reduction of the creditors' claims.
Norway is yet to implement rules corresponding to the Banking Resolution and Recovery Directive ("BRRD")(Directive 2014/59/EU). Rules corresponding to BRRD are expected to be implemented during 2018.
How are client’s assets and cash deposits protected?
Norwegian banks are required by law to be member of the Norwegian Banks' Guarantee Fund (Bankenes Sikringsfond). This deposit guarantee scheme covers deposits up to NOK 2 million per depositor per member bank. In addition the Norwegian Banks' Guarantee Fund may provide various support measures to banks experiencing economic difficulties.
Banks with their registered office in other EEA states that have a Norwegian branch, and accepts deposits from the public through such branch, are eligible for membership in the Norwegian deposit guarantee scheme, subject to further conditions.
With the implementation of the Directive 2014/49/EU on deposit guarantee schemes the Norwegian deposit guarantee scheme will be amended and the cover will be reduced for some types of deposits. The Norwegian implementing rules are expected to be in place in 2018.
Does your jurisdiction know a bail-in tool in bank resolution and which liabilities are covered?
Bail-in in the form of creditors and depositors having their claims converted into shares in the bank as the primary measure for recovery of a bank does not currently exist in Norway. However, such bail-in will be introduced with the implementation of BRRD in Norway which is expected to take place in 2018.
However, the current Financial Undertakings Act contains two related bail-in tools. Firstly, a bank's share capital may be written down, either by its shareholders or by the MoF, subject to 25 % or less of its registered share capital having been determined as being intact following an assessment of the bank's assets and liabilities in accordance with Norwegian statutory rules on annual accounts and annual reports.
Secondly, a bank's subordinated loan capital may be written down, either by its shareholders or by the MoF, subject to a substantial amount of the subordinated loan capital being lost, provided that the particular subordinated loan may be written down (either by virtue of provisions in the loan agreement or by virtue of the loan agreement.
Is there a requirement for banks to hold gone concern capital (TLAC)?
Currently there is no such requirement. However, it is expected that such requirements will form part of the measures implementing BRRD. The current white paper from the Norwegian government contains rules corresponding to BRRD's minimum requirement for eligible liabilities. The BRRD's minimum requirement for eligible liabilities was introduced to align the BRRD's requirements with the international TLAC (Total Loss Absorbing Capital) recommendations, which was prepared by the Basel Committee together with the Financial Stability Board.
In your view, what are the recent trends in bank regulation?
The trends in bank regulation in Norway are predominantly influenced by EU regulatory initiatives. The Norwegian banking legislation has recently undergone a modernization and clean-up of the old banking laws from 1960s (albeit amended several times since then). However, there are still some deviations between the Norwegian banking laws and EU banking laws i.a. when it comes to deposit guarantee schemes and ownership rules for banks, see details under questions 15 and 21.
What do you believe to be the biggest threat to the success of the financial sector ?
The biggest threats to the success of the financial sector in Norway are probably the country's overall economic development and whether or not Norway will manage to restructure the oil-dependent economy. In short term the private debt accumulation and the risk of a housing bubble are major concerns. In a longer perspective also the ability to meet international competition in the financial sector, including as a result of the shift in technology and digitalisation is probably an important criteria for the success of the financial sector in Norway.