On 20 June 2014, the Ministry of Finance (“MoF”) presented its proposal (White Paper 125 L (2013–2014)) for a new Financial Enterprises Act which is to become the core legal source for regulating financial enterprises. The act is expected to come into force on 01 January 2015.
The bill, which relies on the study by the Commercial Banking Commission NOU 2011: 8, entails several material alterations to the present statutory framework, although the MoF has emphasised in the motion that the act is a systematisation of current law.
Presently, financial enterprises in Norway are predominantly governed by five acts:
- the Savings Banks Act [Sparebankloven]
- the Commercial Banks Act [Forretningsbankloven]
- the Financial Institutions Act [Finansieringsvirksomhetsloven]
- the Guarantee Schemes Act [Banksikringsloven]
- Act on Insurance Activity [Forsikringsvirksomhetsloven]
These regulations have been passed during the course of the last 50 years. Much has changed in the financial services area during this time and the legislator has had to implement and incorporate both EU legislation and other amendments into already existing laws. This has resulted in the body of laws being difficult to navigate and apply. An important purpose of the bill is to make core parts of the finance legislation easier to understand and more user- friendly for both financial enterprises and public authorities.
The bill introduces a number of material alterations, including:
- new capital requirements incorporating Basel III/CRD IV;
- a change in the definition of a “financial institution”;
- an expansion of regulations on cooperation agreements outside of group relations;
- greater regulation of financial institutions’ use of names;
- new rules on holding companies as parent company in financial conglomerates;
- restrictions on the exchange of customer information between group companies;
- removal of requirements for boards of representatives and control committees;
- repeal of rules on securitisation;
- clarification on the banks’ obligations to handle cash;
- more extensive rules on outsourcing and customer services.
“Financial enterprises” [Finansforetak] is now used as a collective description to replace “financial institutions”. The new definition encompasses banks, credit institutions, financial enterprises, insurance companies, pension companies, holding companies in financial groups and undertakings that have been granted permission to operate activities as payment enterprises or e-money firms, unless otherwise legally exempted. The concept of a “commercial bank” [Forretningsbank] will be discontinued.
Chapter 2 of the act states that financial services may only be operated by banks, credit institutions and financial enterprises which have permission to operate in Norway.
Chapter 3 states which, and on what basis, licenses may be granted. The proposal entails a continuation of the present licenses, but the MoF also proposes to separate the license for a mortgage company from the license for a finance enterprise. The licensing provisions specify what kind of business the various companies are allowed to operate. The proposal distinguishes between activities that are automatically covered by the license and activities the entity may be allowed to operate (within the scope of the license).
Further, the chapter requires that a bank shall use the word “bank” (bank) with or without the addition of its company name. Insurance undertakings must use the word “insurance” (Forsikring) in its business name. There is a general requirement that financial enterprises use their company name and other defining characteristics which make it clear to customers and others what company they are dealing with and what kind of activity is being provided.
In the proposal, a mixed financial group shall, as a general rule, have a clear holding company as parent company fixed by law.
Requirements concerning boards of representatives, control committees and rules on securitisation have been repealed. The paramount authority in all financial enterprises shall be the general meeting, with exception for cooperative undertakings and smaller pension funds. For financial enterprises that are not organised as private limited companies, the proposal contains special regulations as to how the general meeting shall be convened.
The proposal entails a requirement that financial enterprises shall have a general manager, but the by-laws may lay down that the daily management can be placed under the direction of a managing board consisting of three members.
The present suitability regime for major owners of financial enterprises, board members and general managers has been expanded to also include individuals with key functions in the entity. Persons with key functions include employees with decision-making authority at a high level; control functions as board members; or possess general or actual management responsibilities. The entity must identify the persons affected and ensure that these people always have relevant qualifications and professional experience as well as a good reputation and a certificate of good conduct.
Financial Enterprises’ Activities
To implement the Solvency II directive, the MoF has proposed new capital requirements in the bill for insurance enterprises seeking permission to start up and to carry out insurance and reinsurance activities. The directive also introduces a new set of minimum capital requirements for insurance enterprises and new regulations for value appraisal of the insurance technical deposits.
The capital requirements for banks and other credit institutions, which were adopted by act of 14 June 2013 no. 34 are set to continue with some editorial amendments.
Chapter 16 of the proposal requires that financial enterprises arrange and organise their customer services to ensure customers are served by employees who have the necessary competence and professional expertise.
Furthermore it is a requirement that the enterprises shall have systems and procedures in place to ensure compliance with the formulation of customer agreements, disclosure duties, professional confidentiality and data processing of customer information. The obligation of employees and employee representatives to maintain confidentiality is maintained, but the clause has been reworded and the content specified with regard to some items.
Section 16-3 of the proposal suggests that the financial enterprises affiliate with a complaints commission and agree to bear their own and the opposite party’s necessary case costs in the event of court proceedings.
Further the MoF proposes a clause that imposes on banks an obligation to receive and allow withdrawals from customers in the form of cash. The proposal goes somewhat further in clarifying banks’ obligations than the Commercial Banking Commission’s draft. The basis for the proposal is maintaining customers’ confidence in their personal accounts.
Subject to applicable practice, financial enterprises may outsource tasks that are not core activities, unless this is done to an extent that cannot be deemed satisfactory or which makes supervision of the outsourced activity or the enterprise’s total business more difficult. Core tasks will in principle, not be capable of being outsourced. The MoF has proposed a clause regarding the limits of financial enterprises’ outsourcing of activities.