On 8 June 2018 the Oslo District Court ruled in favour of Netfonds Bank AS/Netfonds Livsforsikring AS and ordered the state to pay NKr55 million in damages for failing to comply with its obligations under the EEA Agreement. The case concerned the government's practice of denying licensing to financial institutions which have ownership positions that exceed 25% of their share capital. The court found that the current practice of denying applications based solely on ownership positions exceeding 25% without carrying out an actual assessment of the owner's qualifications contravenes Norway's EEA obligations.


In the early 2000s Netfonds experienced increased competition from foreign brokerages with banking licences, as these companies could also offer clients loans on beneficial terms and accept deposits. Over the next few years, Netfonds repeatedly applied for a Norwegian banking licence, but was denied a general banking licence.

The Norwegian licensing rules(1) contain two limitations on ownership:

  • The so-called 'issue rules' require that upon the establishment of a bank, more than three-quarters of its share capital must be subscribed in connection with a capital increase effected without any preferential rights for shareholders or others.(2)
  • The so-called 'ownership control rule' states that banking licence applications will be rejected unless the Ministry of Finance is convinced that owners of qualifying holdings (10% or more) are suited to own such holdings and exercise such influence over the company as is enabled by the holdings.

The largest owner of Netfonds, who controlled approximately 90% of its shares, was unwilling to reduce his ownership position, and the Ministry of Finance repeatedly rejected the bank's applications for a full banking licence with reference to the ownership requirements. It was indicated that a full banking licence would be granted only if the principal owner diluted his ownership position to below 25%. Finally, in 2015 Netfonds instituted a claim for damages against the state for violating its EEA obligations.

Rules on ownership of financial institutions

The Commercial Banks Act originally provided that no party could own more than 10% of the share capital of a financial institution. According to the preparatory works to the act, this provision aimed to avoid financial institutions being run as personal banks where one or a few persons owned the institutions. It was considered that:

  • such an ownership arrangement could easily result in a relationship between the institution and its owners where the shareholders received preferential treatment; and
  • this could have negative consequences for the financial system both directly through increased losses and indirectly through loss of confidence in financial institutions.

However, this rule was amended in 2003 after the European Free Trade Association (EFTA) Court's 2001 reasoned opinion which concluded that the rule constituted an unlawful restriction on the free movement of capital provided for in Article 40 of the EEA Agreement. The 10% rule was therefore replaced with a discretion-based rule evaluating whether owners of qualifying holdings are suited to own such holdings. However, it was evident from the preparatory works to the amended act that its objectives remain unchanged and that ensuring the financial industry's independence of individuals and other industries is still a crucial consideration.

Following the change, an administrative practice was established whereby individuals or enterprises cannot own more than 20% to 25% of the shares in financial institutions, except where the financial institution engages only in a niche activity.

Netfonds maintained that after the EFTA Court ruling in 2001, it should have been clear that ownership restrictions are not permitted and that any doubt has been removed following the introduction of the EU Qualifying Holdings Directive (2007/44/EC), according to which EU member states cannot impose requirements for the acquisition of credit institutions other than those set out in the directive. An acquirer's reputation and financial soundness are relevant criteria under the directive, but there is no limit on ownership positions.

On the other hand, the government maintained that the Norwegian rules do not violate any secondary legislation and that while ownership restrictions may constitute a restriction on the free movement of capital or establishment, the relevant rules have a legitimate aim and are necessary in order to achieve that aim.

Oslo District Court decision

The Oslo District Court referred to the EFTA Court the question of whether the issue rules and the share ownership rule constitute restrictions on the freedom of establishment.

The EFTA Court agreed with the government that the applicable banking directives, also as amended by the Qualifying Holdings Directive, do not prevent EEA states from maintaining stricter rules concerning the procedure for the authorisation of banks and insurers. However, such rules must be compatible with the fundamental freedoms guaranteed by the EEA Agreement.

Prior cases have already established that legislation that prohibits the holding of more than 20% of the shares in certain companies constitutes a restriction on the freedom of establishment.(3) However, a national measure which hinders the freedom of establishment can be justified by overriding reasons in the public interest, provided that it:

  • is appropriate to secure the attainment of the objective which it pursues; and
  • does not go beyond what is necessary in order to attain it.

In this case, the EFTA Court found that the objective of reducing excessive risk incentives of banks promotes the well-functioning and efficiency of the financial markets, which is in the public interest. However, it is insufficient for the national measure to resort to a legitimate aim in the abstract. Rather, it must be assessed whether the measure at issue actually pursues the invoked aim.

The EFTA Court concluded that the issue rules do not seem suitable to achieve the legitimate objective identified since they prevent only the initial promoters from acquiring a holding of more than 25%, and not other investors.

With regard to the ownership control rule, the EFTA Court found that the administrative practice of not authorising individuals or legal entities (initial promoters or others) to own more than 25% is suitable to achieve its legitimate objective. However, it also pointed out that:

  • when it comes to secondary acquisitions of holdings in banks, such acquisitions are fully harmonised by the Qualifying Holdings Directive; and
  • any restrictions on acquisitions subsequent to the authorisation of a bank cannot go beyond the conditions that the directive introduced.

The EFTA Court also found that the ownership control and issue rules do not meet the necessity test, as it would be possible to maintain a sufficiently high level of protection with less restrictive measures (eg, suitability assessments of the owners) and by granting authorisations subject to special conditions aimed at preventing the misuse of power (eg, restrictions on lending to major shareholders).

The Norwegian courts place significant emphasis on EFTA Court opinions, but will carry out their own interpretation of national law and application of the law on the facts. In this case, the Oslo District Court concluded that the EFTA Court had understood the facts and Norwegian law correctly and thus followed its legal conclusions.

A significant amount of evidence was given regarding whether having shareholders with significant positions in financial institutions increased risk. The court found that although the reduction of risk in the financial system is a legitimate gain, it was at best uncertain if the Norwegian administrative practice of limiting ownership positions is an appropriate measure to achieve these aims.

Regardless of whether ownership restrictions are an appropriate measure to increase financial stability, the Norwegian courts concluded that the stated legitimate aims could have been achieved using other, less restrictive measures, including:

  • conditions for the license restricting loans to shareholders; and
  • general supervisory rules, including ensuring that board members are qualified and independent and requiring internal reporting (eg, internal capital adequacy assessment process and internal liquidity adequacy assessment process reporting).


If it stands, the Oslo District Court ruling will result in changes to both administrative practice and the new Financial Institutions Act 2015, which contains issue rules similar to those previously found in the Commercial Banks Act.

However, it is unlikely that this is the final word on the matter. To date, the Oslo District Court's ruling has not been appealed, but it is likely that the state will do so, particularly because the Financial Supervisory Authority has since turned down another banking application where the two initial promoters would own 25% each of the shares in the new bank. The reason given was again that this was necessary to maintain an arm's-length distance between the bank's management and owners. The promoters have submitted a complaint to the EFTA Surveillance Authority.

Despite the state's reluctance to alter its position, the EFTA position on restrictions on ownership in financial institutions is quite clear following the EFTA Court's judgment in both Netfonds and previous cases. However, a final clarification of Norwegian law may take some time.

For further information on this topic please contact Karl Rosén or Johan Kongsli at Advokatfirmaet Grette AS by telephone (+47 22 34 00 00) or email ( or The Advokatfirmaet Grette AS website can be accessed at


(1) The relevant rules for this case were previously contained in the Commercial Banks Act, but are now set out in the Financial Institutions Act 2015.

(2) Section 4 of the Commercial Banks Act.

(3) ESA v Norway, Case E-9/11.

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