This article contains a brief overview of the regulatory efforts of Finanstilsynet, Norway's financial regulator, in 2020. The Coronavirus pandemic has done major damage to the financial markets and the regulator’s activities and priorities have had to change as well.
As at 31 December 2020, 118 banks, 31 mortgage companies and 28 finance companies were licensed to operate in Norway. In addition, foreign credit institutions had 34 branches in Norway. 33 savings bank foundations and one financial foundation, 30 payment institutions and six electronic money institutions held a licence at year-end. In addition, Norwegian credit institutions had 16 branches abroad.
The pandemic resulted in some regulatory adjustments and a need for increases in reporting in various risky areas. The decline in profits can be explained mainly by higher losses on loans, reflecting both heightened credit risk as a result of the pandemic and continued weak profitability in the offshore industry. The regulator extended banks' opportunities to grant loans in breach of the residential mortgage lending regulations and reduced the counter-cyclical capital buffer rate from 2.5% to 1% of risk-weighted assets. Finanstilsynet wanted the Ministry of Finance to establish regulations that restricted financial institutions’ right to make profit distributions that might impair their financial strength. The ministry did not adopt new regulations but stated that it expected the banks not to make dividend payments in 2020. Nevertheless, several did.
In order to monitor the banks more closely, the regulator called for "extraordinary reporting" with respect to liquidity, credit and operational continuity. It required banks that failed to fulfil their fixed recovery indicators to report this. All banks, mortgage companies and finance companies in Norway report to ORBOF, a database.
In December 2020, the Norwegian unicameral Parliament or Storting passed a new Financial Contracts Act that replaced the previous Act of 1999. The Act implements the private law provisions of three EU directives: the Payment Services Directive (PSD 2); the Payment Accounts Directive (PAD); and the Mortgage Credit Directive (MCD).
The Act has been modernised and previous non-statutory principles have now been incorporated into it, the objective being to protect HNWs and others from sharp practice.
The Ministry of Justice and Public Security wants the Government to reform the Debt Collection Act and consulted interested parties about doing so last year. However, this is a long-term aim and it decided during the pandemic to force financial institutions to reduce fees in connection with claims recovery before any legal reforms could take place. The most important changes are reductions in the trifling fees for reminders and debt collection warnings were reduced, along with reductions in the debt collection fee for claims of up to NOK 500 (€50). Fees for higher claims were also reduced. The changes concern the recovery of money claims that fell due after 1 October 2020.
In 2020 Finanstilsynet tried to help consumers by monitoring the ways in which management companies adjusted their distribution models for mutual funds in response to changes in investment firms’ right to accept benefits from parties other than the customer (inducements). In April, the regulator sent letters off to remind the companies of their duty to act in the best interests of unit holders and not to charge them unnecessarily when distribution costs were reduced. Several of the companies decided to offer net unit classes in mutual funds. Finanstilsynet has devoted extensive efforts to following up the companies’ adaptations.
In connection with an on-site inspection, Finanstilsynet strongly criticised a management company that had broken the rules and charged redemption fees to unit holders. The redemption fees were not cost-based nor used to compensate the funds for transaction costs in connection with redemptions. The company changed its practices after the inspection.
Alternative investment funds
Also in 2020, Finanstilsynet investigated applications for permission to market alternative investment funds to retail investors. It required firms to put better information in their fund documents, placing particular emphasis on the provision of complete information and easily understandable cost models. During this period, it had to reject some applications for permission to engage in such marketing.
Finanstilsynet oversees financial institutions' efforts to comply with Norway's anti-money-laundering (AML) laws, notably the Anti-Money-Laundering Act 2018, which follows the EU's fifth Money Laundering Directive closely.
The pandemic had an effect on crime generally in 2020. According to information from ØKOKRIM (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime), the great economic uncertainty that resulted from it created opportunities for criminals to defraud HNW individuals and others. Notwithstanding this and the need for reporting entities to restructure themselves, Finanstilsynet believes that their compliance with the AML laws held up quite well.
Despite the fact that it regulates the financiers of a country that has not joined the European Union, Finanstilsynet's account of 2020 is full of references to the desires of the European Commission, the nearest thing that the EU has to an executive branch. Its work in 2020 revolved around the commission's six-point plan to "strengthen AML compliance in the EU," i.e. outside Norway.
Finanstilsynet wants the Government to change the AML regulations, but the details remain obscure. In 2020 it also published a proposal to extend the deadline for levying administrative fines for non-compliance with the AML Act. Nothing has happened so far.
The regulator has observed that in 2020 investment firms paid more attention to risk assessments of their own operations, but noticed that the assessments were often too general or too cursory and did not describe the risks that attended this-or-that operation well enough. In addition, firms did not update their risk assessments often enough to allow them to manage those risks. Their procedures, moreover, were not adapted to their operations. There were weaknesses in training and documents containing information about the identities of customers and beneficial owners were inadequate.
Finanstilsynet conducted a thematic inspection of registrars’ compliance with the AML laws when creating and using individual accounts with the Central Securities Depository. The survey included 26 registrars and a total of 258 individual accounts and uncovered cases where registrars did not know whether a relationship had been established with this-or-that customer and/or who the customer was. A report on the subject was published in April 2020.