An extract from The Virtual Currency Regulation Review, 3rd Edition

Introduction to the legal and regulatory framework

Virtual currencies are generally not considered to be legal currencies in Norway, as they fall outside the usual definition of money or currency. Moreover, there is no specific virtual currency legislation in Norway with respect to securities and investment laws, banking and money transmission, or the regulation of exchanges, miners, issuers or sponsors. Hence, businesses or persons operating or conducting virtual currency activities are not required to be licensed under the applicable financial services legislation.

On 15 October 2018, Norway implemented a new Anti-Money Laundering Act and a related regulation that expanded the scope of the legislation to apply for providers engaged in exchange services between virtual currencies and fiat currencies as well as custodian wallet providers (CWPs). Based on the ruling in a lower court case, banks may have justifiable grounds for refusing to perform payment services (by opening bank accounts, etc.) owing to virtual currencies' high risk of being used for money laundering. Although the decision in this case was appealed, it became less relevant as the investor opened a bank account in another bank to establish the virtual currency exchange firm. See Section IV.iii.

On 11 October 2019, the Ministry of Finance implemented 'fit and proper' requirements for providers engaged in exchange services between virtual currencies and fiat currencies, and wallet CWPs. See Section IV.i.

For tax purposes, virtual currencies are considered as assets and are therefore subject to capital gains tax and net wealth tax.

The Norwegian Parliament resolved in 2019 that electrical power used for mining virtual currency should have a normal tax rate instead of a reduced tax rate. The Ministry of Finance awaited clarification from the EFTA Surveillance Authority prior to implementation of the change because a reduced tax rate for data centres constitutes governmental assistance pursuant to Article 61(1) of the Act of 27 November 1992 No. 109 relating to implementation in Norwegian law of the main agreement on the European Economic Area (the EEA Act). However, on 12 May 2020, the Norwegian government proposed in the revised fiscal budget for 2020 to revoke the resolution from 2019 in order to continue with a reduced tax rate. See Section IX.v.

Securities and investment laws

i Overview

There are no specific securities and investment laws in Norway with respect to virtual currencies or the offering of such currencies.

On 20 November 2017, the Financial Supervisory Authority of Norway warned investors and firms about initial coin offerings (ICOs) because of the high risks of investment losses, fraud and money laundering.2 Depending on its structure, an ICO may fall outside the scope of applicable laws and regulations, in which case investors cannot benefit from the protection that these laws and regulations provide. Firms involved in ICOs should, according to the Financial Supervisory Authority, give careful consideration as to whether their activities constitute regulated activities or not. Moreover, the Financial Supervisory Authority referred to two statements given by the European Securities and Markets Authority (ESMA) on 13 November 2017 relating to the risk of ICOs for investors3 and rules applicable to firms involved in ICOs4 and declared that its supervisory activities will be based on ESMA's assessments.

In the statement on the rules applicable to firms involved in ICOs, ESMA alerts firms involved in ICOs of the need to meet the relevant regulatory requirements, including considering whether their activities constitute regulated activities. It is the duty of firms themselves to consider the regulatory framework, seeking the necessary permissions and meeting the applicable requirements. Based on the Financial Supervisory Authority's statement, similar requirements will be applicable for such activities in Norway.

On this basis, the structure of ICOs will determine whether they fall outside the scope of the applicable rules. Where coins or tokens qualify as financial instruments it is, according to ESMA, likely that firms involved in ICOs are conducting regulated investment activities, such as placing, dealing in or advising on financial instruments, or managing or marketing collective investment schemes. They may also be involved in offering transferable securities to the public.

Owing to the Agreement on the European Economic Area (EEA), Norway has similar requirements to those under the applicable EU legislation. The lack of a full Norwegian EU membership implies, however, that the Norwegian legislation from time to time may differ from EU legislation, typically where Norway has yet to implement EU legislation into Norwegian law.

Below is a high-level summary of the applicable EU legislation that also applies in Norway.

ii Prospectus Regulation

The Prospectus Regulation is a key piece of EU legislation that also may be relevant for ICOs in Norway. It aims to ensure that adequate information is provided to investors from issuers raising money in the Norwegian market. Issuers may thus be required to publish a prospectus, subject to approval by a competent authority, before an offer of transferable securities to the public, or the admission to trading of such securities on a regulated marked situated or operating within an EU or EEA Member State occurs, unless certain exclusions or exemptions apply.

The current applicable rules in Norway with respect to prospectus regulations are contained in the Norwegian Securities Trading Act, which as of 21 July 2019 implemented the Prospectus Regulation, as amended.5

Virtual currencies generally do not qualify as transferable securities, and the prospectus requirements are generally not applicable for ICOs and similar offerings of virtual currencies.

iii Markets in Financial Instruments Directive

Rules similar to those under the Markets in Financial Instruments Directive (MiFID, as later amended through MiFID II) are implemented into Norwegian laws and regulations.6 These rules aim to create a single market for investment services and activities, and to ensure a high degree of harmonised protection for investors in financial instruments. As described by ESMA in the statement regarding rules applicable to firms involved in ICOs, an investment firm that provides investment services in relation to financial instruments must comply with the applicable requirements. Where a coin or token qualifies as a financial instrument in the case of an ICO, the process by which the coin or token is created, distributed or traded is assumed likely to involve activities subject to the rules in MiFID II, such as placing, dealing in or advising on financial instruments. Depending on the services provided, organisational requirements, conduct of business rules and transparency requirements may apply. Similar requirements will apply in Norway in such cases.

iv Alternative Investment Fund Managers Directive

Rules similar to those under the Alternative Investment Fund Managers Directive are implemented into Norwegian law and regulations,7 and set out rules for authorisation, ongoing operation, and the transparency of managers that manage or market alternative investment funds. Virtual currencies normally fall shy of the alternative investment fund managers legislation, but alternative investment funds that invest in virtual currencies can fall within the said legislation, depending on, inter alia, their structure.

Banking and money transmission

Virtual currencies fall outside the scope of the usual definitions of money or currency in Norway, and will thus not be considered as a legal currency in Norway.

Virtual currency activities furthermore fall outside the scope of the Norwegian Financial Undertakings Act. Thus, activities related to virtual currencies are in general not considered as activities requiring a banking licence or a licence as a payment services provider.8