Financial enterprises are currently governed by four different Norwegian statutes; the Savings Banks Act (Sparebankloven), the Commercial Banks Act (Forretningsbankloven), the Financial Institutions Act (Finansieringsvirksomhetsloven) and the Guarantee Schemes Act (Banksikringsloven), as well as parts of the Insurance Activity Act (Forsikringsvirksomhetsloven). On 20 June this year the Ministry of Finance presented its proposal (White Paper 125 L (2013–14)) 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 1 January 2015.
The proposal by the Ministry of Finance, based on a study by the Commercial Banking Commission (2011), includes several major amendments to the current statutory framework, but the Ministry of Finance has stressed that the main purpose of the Act is to consolidate the current law.
Consolidation of current legislation
Norwegian regulations which currently govern financial enterprises and their activities have come into force during the course of the past 50 years. Much has changed in the area of financial services in that time, and the legislator has had to incorporate EU acts and other amendments into the already existing laws.This has resulted in a body of laws that is difficult to navigate, as well as difficult to apply.An important purpose of the proposed Act is to make core parts of legislation in this area easier to understand and more user-friendly for both financial enterprises and public authorities.
The amendments in the proposal concern amongst other things new capital requirements incorporating Basel III/ CRD IV, a change in the definition of “financial institution”, an expansion of regulations on cooperation agreements outside of group relations, regulation of financial institutions’ use of names, rules on holding companies as parent company in financial conglomerates, exchange of customer information between group companies, removal of requirements for boards of representatives and control committees, repeal of rules on securitization, clarification on the banks’ obligations to handle cash, as well as more extensive rules on outsourcing and customer services.
The term “financial enterprises” (Finansforetak) replaces “financial institutions” and the definition of the term has been extended to include 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. The term “commercial bank” (Forretningsbank) will no longer be used.
Chapter 2 of the Act states that financial services may only be offered by banks, credit institutions and financial enterprises which have permission under the Act to undertake such activities in Norway, unless the provisions of the legislation on investment firms, insurance agency undertakings, trust companies for securities funds and real estate broker firms provide otherwise.
Chapter 3 states which authorizations may be granted and on what basis.The proposal provides that current authorizations be continued, but the Ministry of Finance also proposes to separate an entity’s authorization as a mortgage company from authorization as a finance enterprise.The provisions on authorization specify what kind of business the various companies are allowed to operate, and distinguish between activities that are automatically covered by the authorization, and activities (within the scope of the authorization) the entity may be allowed to operate.
There is a general requirement in Chapter 3 that financial enterprises will 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.Thus, it appears that a bank must use the term “bank” (bank) with or without the addition of its company name, whilst insurance undertakings must use the word “insurance” (Forsikring) in their business name.
In the proposal the applicable basis is that a mixed financial group must, in general, have a clear holding company as parent company (known as the “holding model”) fixed by law.
Requirements concerning boards of representatives, control committees and rules on securitization have been repealed.The overarching authority in all financial enterprises will be the general meeting, with an exception being made in the case of cooperative undertakings and smaller pension funds. For financial enterprises that are not structured as private limited companies, the proposal contains special regulations as to how the general meeting will be appointed.There is a further requirement that financial enterprises must have a general manager, but the day-to-day management of the enterprise may be undertaken by a managing board consisting of three members.
It should also be noted that the current suitability assessment regime for owners of financial enterprises, their board members and general manager, has been expanded so that it also applies to individuals performing key functions in the enterprise.This would include employees with decision- making authority at a high level and people with control functions as board members, general managers or other persons involved in the actual management of the entity. It is for the entity itself to identify the individuals affected and to ensure that they have the relevant qualifications and experience, as well as a good reputation and a certificate of good conduct, for the purpose of carrying out these roles.
Financial enterprises’ activities
The Ministry of Finance proposes new capital requirements for insurance enterprises that are to implement the Solvency II Directive regarding permission to start up and to carry out insurance and reinsurance activities.The Directive also introduces a new set of regulations for minimum capital requirements in insurance enterprises, as well as new regulations on the valuation of insurance technical deposits. It appears that the purpose of the rules is to subject European insurance and reinsurance enterprises to capital requirements that better reflect risk than those which follow from the Solvency I regulations.
The capital requirements for banks and other credit institutions which were adopted by the Act of 14 June 2013 No. 34, are to continue, with some editorial amendments only.
Also proposed are new provisions on customer service, including a requirement that all those involved in offering customer service in a financial enterprise must have the necessary competence and professional expertise.
Further, enterprises must have systems and procedures in place to ensure compliance with regulations on duties of disclosure and regarding customer agreements, as well as rules on professional secrecy and the processing of customer information. Employees’ and employee representatives’ obligation to maintain secrecy is retained, but the clause has been reworded and some requirements made more specific.
In section 16-3 of the proposal it is suggested that financial enterprises should be affiliated with a complaints commission and that they must cover their own and the other party’s costs in any court proceedings.
The Ministry of Finance also proposes a clause that imposes an obligation on banks, in accordance with customer expectations and needs, to receive cash from customers and to make deposits available to customers in the form of cash.The proposal goes further in clarifying the banks’ obligations in this area than the Commercial Banking Commission’s original draft. The basis for the proposal is customer confidence—they should be satisfied that their cash is available in the bank account as and when they require it.
Subject to certain conditions, financial enterprises may outsource tasks that are not core activities, unless this is done to an extent that cannot be deemed to be acceptable, or which makes supervision of the outsourced activity or the enterprise’s overall business more difficult. Core tasks may not, in principle, be outsourced. The Ministry of Finance proposes a clause to limit such outsourcing.This was introduced because of the increased use of contractors in financial services, a practice which has now become so extensive and wide-ranging that the legislator felt it was necessary to include provisions to regulate it in financial legislation.