Compliance officers who have already begun thinking systematically about the consequences of 'Brexit' might like to take stock of recent regulatory events in Norway, a member of the European Economic Area that has close ties to the European Union of the kind that British premier Theresa May is hoping to forge.

Several new pieces of legislation have come into force in the Nordic kingdom in the last few months. A new Financial Institutions Act – replacing the Savings Banks Act, the Commercial Banks Act, the previous Financial Institutions Act and parts of the Insurance Act – 'went live' on 1st January 2016 and Solvency II was introduced for insurance companies. New liquidity requirements were imposed on credit institutions on 31st December.

In April the Government presented a bill to the Storting (the 'Great Thing' - the supreme legislature, established in 1814) on EEA adjustment to the legislation governing the EU's supervisory authorities. The Storting’s approval will pave the way for the incorporation of a number of EU legislative acts in Norway's agreement with the EEA. Although legislative acts in this area have yet to be included in the so-called 'EEA Agreement,' Norwegian authorities have attached importance to developing Norwegian legislation in line with developments in the EU.

The "Agreement on the European Economic Area," which dates from 1994, has all EU Member States as signatories (it is a requirement of EU membership, according to article 128 of it) plus Iceland, Liechtenstein and Norway. Switzerland is not a member, although many believe it to be so and it does, like the other three, participate in the EU's misleadingly named 'single market,' which is actually not a free trade area or market at all - it is riven with national protectionism, not least in banking - but a group of countries that accept the same technical standards and submit themselves to the ultimate jurisdiction of the European Court of Justice. The official title of this structure is actually 'the internal market,' an equally misleading phrase.

Thanks to this EEA agreement, Norway has enshrined EU legislation in many of its own laws and is taking more on board presently. The Banking Law Commission is drawing up new rules for crisis resolution and a publicly appointed commission (the Securities Law Commission) has been asked to propose amendments to the Securities Trading Act in keeping with EU law in this area.

The EU's financial supervisory system

After the international financial crisis in which we are engulfed came to public attention in 2008, the EU resolved to strengthen its grip on the financial sector. In January 2011 it started to set up an overarching macroprudential body with a watching brief, the European Systemic Risk Board, along with the European Banking Authority, the European Securities and Markets Authority and the European Insurance and Occupational Pensions Authority. The regulations that established these new financial supervisory bodies are relevant to the EEA.

In some cases the EU’s supervisory authorities can take decisions that are binding on the member states or directly binding on market participants in the member states. In its annual risk outlook for 2016 the Norwegian regulator Finanstilsynet says that this involves a transfer of authority to a supranational body "which has been challenging to conform to constitutional requirements in the EEA/EFTA countries," whatever that means. EFTA is the European Free Trade Area, consisting of Iceland, Liechtenstein, Norway, and Switzerland. In October 2014 political agreement was reached on the principles for EEA adjustments. Thereafter, the EFTA countries together with the EU have worked to reach agreement on the concrete adjustments that need to be made with a view to incorporating the Regulations on supervision in the EEA Agreement.

On 14 October 2014, finance ministers from Iceland, Liechtenstein, Norway and the European Union reached an agreement about the intrusion of the EU-wide supervisory authorities into the EEA Agreement. In April the Norwegian Government submitted a proposition (prop. 100S (2015‐2016)) to the Storting for consent and in May it drew up provisions to implement the anticipated new EEA rules. The idea is that Norway's national supervisory authority will participate as a non‐voting member in the work of the EU’s three supervisory authorities. It also foresees those authorities making recommendations and other non‐binding pronouncements with regard to regulators and private market participants in the EEA/EFTA states (it refers to this mysteriously as a 'one-pillar model'), with EFTA’s surveillance body, in line with recommendations from the EBA, ESMA or EIOPA, 'adopting' any binding decisions these offices want to impose on Norway's authorities and market participants (a 'two‐pillar model' comes into play here). The proposed transfer of authority is such that it must be approved by a three-quarters majority of the Storting, in accordance with article 115 of the Norwegian Constitution. The same processes for approval are underway in Iceland and in Liechtenstein.

The EU has a collection of about 180 relevant legislative acts pertaining to the financial markets that are relevant to the EEA. The majority of them contain provisions building on the EU supervisory regulations and/or the ESRB Regulation, and incorporation in the EEA Agreement has therefore been in abeyance pending clarification of EEA adjustment to the EU’s financial supervisory system. Approval by the Storting of the proposed drafts of EEA committee decisions will also pave the way for inclusion of other EEA‐relevant EU legislative acts in the financial markets area in the EEA Agreement.

MiFID II/MIFIR

Norway has enshrined the EU's Markets in Financial Instruments Directive (MiFID) in its Securities Trading Act and Stock Exchange Act. In the EU, a revision of this law has occured through the MiFID II Directive and the MiFIR Regulation, for which the deadline was 3 January 2017 but has since been put off a year. Last year the Norwegian Government appointed a legal commission to draw up provisions to implement the new EU rules in the securities area, including MiFID II, the Reporting Directive and the Market Abuse Regulation. This commission will work on further national regulation to protect customers of investment firms from various dangers and will review the rules that govern mandatory offers and appeals against 'public law' decisions that regulated markets make under 'delegated authority.'

The commission has already presented a bill to amend the Securities Trading Act and concomitant regulations, containing forthcoming EEA rules corresponding to the EU’s amendments to its so-called reporting directive (2004/109/EC) etc. The bill proposes to remove the statutory quarterly reporting requirements for listed companies and to oblige firms to make disclosures about several types of financial instrument for the first time. The commission also recommends making it clear that Finanstilsynet will keep supervising the way companies report payments to the authorities under s5‐5a Securities Trading Act.

Securities financing transactions

Regulation (EU) 2015/2365 on transparency of securities financing transactions and of reuse became EU law on 25 November 2015. The regulation is designed to increase the transparency of securities financing transactions in shadow banking and will help towards the identification of the 'scope' of these transactions and the risks associated with them. The list of securities financing transactions is long and includes credit for the acquisition of financial instruments, repurchase agreements and borrowings/loans of financial instruments and commodities.

The regulation came into force in the EU on 12 January, but transitional rules apply to several provisions. It will be supplemented by 'commission regulations,' whatever those are. The EU considers the regulation to be relevant to the EEA, but it has not been included in the EEA Agreement so far.

EMIR

As regards over-the-counter derivatives, central counterparties and transaction registers, the European Market Infrastructure Regulation (EMIR) became EU law in July 2012. It introduced rules to impose central counterparties, transaction registers, clearing and other risk‐offsetting measures to do with OTC derivatives, and mandatory reports to transaction registers about derivative trades.

The regulation requires all institutions to report all derivative contracts to which they are party to transaction registers. If they trade OTC derivatives that are not cleared, they are also duty‐bound to take specific steps to offset risks. Only financial counterparties and institutions that trade a relatively large volume of OTC derivative contracts are obliged to exchange collateral and to clear OTC derivatives that are subject to clearing obligations.

'Commission regulations' come into play here as well, listing the derivative contracts that are subject to clearing obligations. Thus far, a clearing obligation has been introduced for specified interest rate derivatives denominated in euros, US dollars, Japanese yen and Pounds Sterling, and on credit default swaps in euros. Someone is proposing to introduce a clearing obligation for specified interest rate derivatives in Norwegian kroner.

EMIR requires the European Commission - the nearest thing that the EU has to an executive branch - to evaluate it with an eye on making changes. That commission, in turn, conducted a consultation process last summer but its report is not yet available. Finanstilsynet, meanwhile, has come up with proposals to enshrine EMIR in Norwegian law. A report by its working group was circulated for comment on 10 May.

UCITS V

The fifth EU directive to do with undertakings for collective investment in transferable securities (2014/91/EU) amends the fourth (2009/65/EC). The object of the exercise is to keep abreast of market developments and to standardise the rules covering depositories, remuneration schemes and sanctions while also making them more onerous.

UCITS V will engender changes in Norway's Securities Funds Act and associated regulations. The Ministry of Finance circulated a consultation document in September. Finanstilsynet prepared this, drafting up the text for amendments to the Securities Funds Act and regulations to implement future EEA obligations corresponding to UCITS V with a view to tabling a bill in the Storting in the course of 2016.

ELTIFs

On 21 April the Ministry of Finance circulated a consultative document, prepared by Finanstilsynet, containing a proposal for the implementation of expected future EEA obligations corresponding to an EU regulation to govern European long‐term investment funds or ELTIFs.

The regulation calls for the full standardisation of the rules governing such funds in the EU and confines the management of this particular type of fund to the managers of alternative investment funds, as long as they are authorised to do so. It allows long‐term investment funds to be marketed to non-professional investors (including HNWs) on specific conditions.

MLD IV

Last year the Ministry of Finance appointed a legal commission to consider amendments to Norway's money-laundering legislation. Known as the 'money laundering commission,' it produced a report on 6 November. In it, it proposed that responsibility for the anti‐money-laundering supervision of dealers in expensive objects should be assigned to the tax administration and that the supervision of offerors of business services should be assigned to Finanstilsynet -  a job the regulator does not want. It also weighed up whether Norway should join the global governmental war on cash. Finanstilsynet - ever a creature of the Government - supported the proposal from a minority of commissioners to ban cash payments in excess of 40,000 kronor (€4,288).

The commission has until 5 August to produce another report. In that report, it will consider how the provisions of the EU's fourth Anti‐Money-Laundering Directive to do with transparency and the beneficial ownership of corporate entities can be implemented.

One path among many

These, then, are the ways in which Norway is planning to incorporate some of the European Union's financial regulatory laws into its own. The UK may well go down this ultra-subordinate path itself, but it may choose another. Many countries trade freely with the EU while making their own laws.