Annual report from the Norwegian regulator

The Financial Supervisory Authority of Norway (the “FSAN”) has published its Annual Report for 2014. The full report is to date only available in Norwegian. In the following we present a brief summary of the most important events and developments from 2014 within banking and finance, insurance and pensions, and the securities area.



Stress test of EU banks The European Banking Authority (EBA) performed stress tests of 123 EU banks in order to assess the resilience of EU banks to adverse economic developments. The largest Norwegian bank, DnB, passed the test with good margin.
New requirements to strengthen reserves for collective pension insurance  The FSAN has introduced new requirements for strengthening reserves and use of profit to cover increased allocations. The requirements are driven by new mortality tables (K2013) for collective pension insurances written by life insurers and pension funds with effect from 2014. 
Survey of kickbacks to life insurers   The FSAN has performed a survey of return commissions (kickbacks) in Norwegian life insurers and custodial companies. In a letter, the FSAN instructed the life insurers to inform their clients about return commissions received by the custodial companies. 
Survey of insurance companies’ compliance with money laundering regulations  The FSAN performed a survey of insurance companies’ compliance with money laundering regulations. The survey showed that most companies have inadequate routines for compliance. 
Sale and marketing of product packages  The FSAN has restricted bank practice related to sale and marketing of product packages that include combinations of bank-, insurance- and fund products. The restrictions are supported by the Ministry of Finance. 
Regulation and decision on systemically important financial institutions  The Norwegian Ministry of Finance has adopted a regulation on the identification of systemically important financial institutions in Norway. This was a follow-up of the capital requirements legislation adopted by the Storting (the Norwegian Parliament) in 2013. DNB ASA, Nordea Bank Norge ASA and Kommunalbanken AS were identified as systemically important financial institutions that will be subject to separate capital buffer requirements from 1 July 2015. 
FSAN sent letter to accounting firms regarding enterprises of public interest  The FSAN has, in a letter to accounting firms, informed that the accountants are obligated to control that enterprises of public interest comply with FSAN’s conclusions. If the enterprise has not complied with FSAN’s conclusions, the accountant cannot state in the annual audit report that the annual accounts provide a «true picture». 
Managers of alternative investment funds (AIFMs)  The Alternative Investment Fund Management Directive (AIFMD) was implemented through the Norwegian AIFM Act and AIFM Regulation, with effect from 1 July 2014. Prior to the implementation of the AIFMD only open-ended Alternative Investment Funds (AIFs) were regulated in Norway. The FSAN has been assigned new administration and supervision tasks after the implementation of AIFMD. For more information concerning the FSANs licensing practice in 2014, please see section IV below, under the title “The supervision and licensing of fund management companies”.
Evaluation of Norway’s measures against money laundering and terror financing  The Financial Action Task Force (FATF) has evaluated Norwegian authorities’ compliance with regulations for measures against money laundering and terror financing. According to FATF, Norway has some good measures to combat money laundering and terrorist financing, but significant weaknesses undermine overall effectiveness. 
Proposed regulations regarding Solvency II   The FSAN has proposed regulations and prepared a discussion document for the implementation of Solvency II, which will be implemented in Norway on 1 January 2016. 
Proposed regulations CRD IV  The FSAN has proposed regulations for implementation of CRD IV, which came into force on 30 September 2014. 
EEA adaption to EU supervision structure  The EEA countries and the EU have agreed on a framework for EEA adaption to EU’s new supervision structure in the financial area. 
Proposed governmental control of determining interest rate benchmarks  Following the Libor scandal in England, the FSAN has proposed that the authorities shall be provided with a statutory authority to supervise the determination of major interest rate benchmarks, and the possibility to stipulate regulations for such interest rate benchmarks. 
Proposed review of regulations for settlement of real estate transactions  The FSAN have asked the Ministry of Finance to consider the need to change the current system for settlement of real estate transactions. There is a substantial gap between many estate agency businesses’ reserves of client funds and the amounts that are covered by the guarantee scheme. 


The FSAN reports that Norwegian banks have had sound profits in 2014. The banks’ results are also considerably better compared to last year’s results. The main contributor to the improved results is higher net rental income caused by lower financing costs. Many banks also gained significant profits in connection with the sale of Nets Holding. The level of distressed loans has been reduced in 2014, and the Norwegian banks combined have had very minor losses on lending. The banks’ funding now mainly consists of deposits from clients and borrowing from the money and securities markets. The banks have increased their long-term financing, and the liquidity reserves have grown during the last years. Furthermore Norwegian banks have strengthened their solidity, mainly as a result of withheld profits. The core capital of the banks increased in 2014, and all Norwegian banks met the minimum capital requirement of ten per cent by the end of the year.

Furthermore the FSAN reports that the risk factors which have characterized the years after the financial crisis, still apply, also for Norway – although the Norwegian economy to a small extent is influenced by the weak growth in the international economy. For the Norwegian banks, positive development in the securities markets is important. Market anxiety and instability lead to higher risk premium in the money markets and the bond markets, and equity market depreciation. This could imply deteriorated access to – and more expensive – funding for the banks. Another material risk factor relevant for Norway is the level of household debt, which is historically high. The FSAN also worry about a potential housing bubble in Norway and keeps suggesting counter cyclical measures for local banks.

In the regulatory field of the finance sector, the FSAN points out that a number of regulatory changes have been implemented in 2014, and that other changes are in the process of being assessed or implemented. CRD IV has led to more stringent capital and liquidity requirements, and the FSAN has arranged briefings for all Norwegian banks with focus on the new reporting responsibility which was made effective in July 2014. The EU Bank Recovery and Resolution Directive (BRRD) is considered as EEA relevant and will hence be implemented in Norwegian law, and elements of the EU’s Directive on Deposit Guarantee Schemes have been implemented or are in the process of being so. We also note that a new Act on Financial Enterprises and Financial Groups, which consolidates and replaces the Savings Bank Act, the Commercial Bank Act, the Financial Services Act and the Guarantee Schemes Act (plus large parts of the Insurance Services Act), was proposed in 2014 and has now been handed over by the Finance Committee to the Norwegian Parliament for passing. The new Financial Enterprises Act introduces a number of amendments and will consist of over 280 sections (which is a lot by Norwegian legislative standards) and comprehensive secondary law regulations. That said, the Act will not imply larger material changes of the current law.

The FSAN carried out 45 on-site inspections in 2014, with focus on risk related to credit and liquidity. Several banks were ordered to implement various measures to reduce their risks. One new commercial bank was established in 2014 – TBR Merchant & Maritime Bank ASA – and certain mergers between savings banks were approved. Other finance enterprises and e-money enterprises also received authorisations in 2014.


Profits from shares and bonds ensured good results for pension funds in 2014. However, there are challenges ahead. The low interest rate level makes it hard to achieve returns above the minimum guaranteed return. Even though defined contribution schemes are increasingly used by Norwegian employers, the main part of the life insurance companies’ obligations are contracts with guaranteed minimum return.

The impending solidity regulations (Solvency II) imply substantially higher capital requirements for many life insurance companies. These will have to reduce risk or increase their capital reserves. These changes may be challenging for many European companies. Omnibus II, which contains the implementing rules for Solvency II, gives certain possibilities for reliefs and more gradual implementation, and the FSAN has suggested that some of these reliefs are applied for Norwegian life insurance companies.

Increased age in the population has requires increased allocations by the pension funds to meet future obligations. The new mortality tables (K2013) for collective pension insurances written by life insurers and pension funds were adopted with effect from 2014. This necessitated increased premiums for customers and need for increased allocations for capital reserves by the pension funds. A lot of these obligations were met in 2011-2014, but it is still necessary to increase allocations substantially in this sector.


Developments in the securities area

Following several years of declining turnover, Oslo Børs recorded a turnover in shares of NOK 1.055bn in 2014. This up 28 per cent from 2013, when turnover in shares totalled NOK 822bn. The following table from Oslo Børs shows that there were relative large fluctuations in the Norwegian stock market in 2014:


Grafe Klaus

The number of new listings on Oslo Børs and Oslo Axess increased in 2014 compared to 2013. It was a total of 19 new listings on Oslo Børs/Oslo Axess, compared with 12 in 2013. The table below from Oslo Børs provides an overview of new listings between 2011 to March 2015.


(Source: Oslo Børs)

A total of NOK 27.5bn was raised through stock issues on Oslo Børs and Oslo Axess in 2014.

The Norwegian bond market (i.e. bearer bonds with Norwegian identification code (ISIN)) had relatively high activity in 2014, with the total issue of bonds amounting to NOK 345bn.

The total net proceeds from issuance of shares/units in Norwegian funds were NOK 101bn in 2014, up from 26.4bn in 2013. The total Assets under Management (AuM) for Norwegian funds was NOK 85bn in the end of 2014.

MiFID II was adopted at EU level in May 2014, and the implementation of this directive in Norwegian law requires revision of the Securities Trading Act and the Stock Exchange Act.  MiFID II sets out a wide range of issues and represents a significant change for many of the market participants. The FSAN thus anticipates that the implementation of MiFID II, and the compliance with the new reporting requirements (etc.) will cause challenges for market participants as well as the regulatory authorities themselves in the coming years.  

The supervision and licensing of investment firms

As in previous years, central themes of FSAN’s on-site inspections was the investment firms’ compliance with the conduct of business rules and the investment firms’ control functions, in particular the organisation of this function and which steps the investment firms’ has taken to limit potential interest conflicts.  The same themes must be expected to be central in FSAN’s inspections in 2015 as well.

The FSAN also carried out thematic inspections of the Norwegian branches of the two large international providers of CFD (Contract of Difference). The central theme of the inspections was compliance with the rules of investor protection and the conduct of business rules. No material breach of the said rules was identified in 2014. FSAN has stated that the thematic inspection of the Norwegian CFD-market will continue in 2015, with new inspections of Norwegian investment firms cooperating with the international providers of CFD.

Six new investment firms were licensed to provide investment services in 2014. One investment firm expanded its licence.

The supervision and licensing of fund management Companies

In addition to the usual on-site inspections, in 2014 the FSAN also started a thematic inspection of Norwegian equity funds (UCITS) which are marketed and priced as actively managed funds, but seem to be mirroring the underlying index – i.e. so-called closet-tracking. The inspection is not completed and will continue in 2015. The objective of said inspections is to investigate if these funds actually are actively managed in line with their stated and marketed investment strategy. In March 2015, the FSAN issued DNB Asset Management AS, the fund management company of Norway’s largest bank, DNB, with a corrective action order for violation of the conduct of business rules with respect to its management of the investment fund DNB Norge, a UCITS in a master-feeder structure. At the time of writing DNB Asset Management has stated that they will comply with the corrective order.

The Nordic supervisory authorities appointed in 2014 a group with the objective to create stronger co-operation with respect to the supervision of management companies carrying out cross border activities. In 2014 the FSAN also entered in to Memorandum of Understanding (MoU) with the Swiss Financial Market Supervisory Authority (FINMA) for the supervision of the fund market, and several non-EU regulators for the supervision of management of alternative investment funds. A full overview of all the MoUs the FSAN has entered into with non-EU regulators related to the supervision of management of alternative investment funds is available on ESMA’s home page.

The Alternative Investment Fund Management Directive (AIFMD) was implemented through the Norwegian AIFM Act and AIFM Regulation, with effect from 1 July 2014.

In 2014 the FSAN received a total of 39 applications to become authorised as an AIFM, and three applications to be authorised as depositary for AIFs under the Norwegian AIFM Act.

Several EEA-AIFs managed by EEA AIFMs were, subject to marketing passport under AIFMD, notified for marketing towards professional investors in Norway. The majority of said notifications included marketing of AIFs from Ireland, UK and Luxembourg.

The FSAN received a total of 66 applications to be authorised to market 104 AIFs where either the AIF or the AIFM are domiciled outside the EEA. The FSAN issued a total of 24 marketing permits in 2014. Hence, a great number of marketing applications from 2014 is still pending approval with the FSAN.  Applicants should therefore expect a significantly longer timeframe for the receipt of marketing approval in Norway than in more “mature” EEA jurisdictions.

In 2014, the FSAN also rejected an application to market two Irish AIFs – being Qualifying Investor Funds, QIFs – to non-professional investors in Norway. The reason for the FSAN’s rejection is that investor qualification requirements apply to the marketing of QIFs under Irish legislation which in, the FSAN’s view, implies that a QIF cannot be marketed to all non-professional investors in Ireland. The latter is, in the FSAN’s view, a requirement for approving a foreign AIF for marketing to non-professional investors in Norway. The FSAN’s rejection has been appealed to the Ministry of Finance, who has not considered the case yet.

Securities market supervision – market conduct rules

In 2014 FSAN investigated:

  • 66 new cases of unlawful insider trading and/or breaches of confidentiality
  • 31 new cases of market manipulation /unreasonable business methods
  • 46 new cases of securities trading requiring disclosure
  • 65 new cases of securities trading requiring Notification

FSAN developed new data systems in 2014. The new system daily scan all listed securities and all VPS accounts to identify if any transactions reach, exceeds or falls below the relevant thresholds triggering disclosure requirements. The new system has increased the probability of discovering breaches of the disclosure requirement, and led to 21 new cases of security trading requiring disclosure in 2014.

Prospectus control

Slightly less share prospectuses were approved in 2014 than in the previous years. The number of prospectuses relating to new listings of shares in Oslo Børs or Oslo Axess however increased in 2014. An overview of prospectuses vetted by the FSAN in 2014 is given in the table below:

Documents controlled by the FSAN:    
  2010 2011 2012 2013 2014
Shares (listed shares in brackets) 105
Bonds 44 110 146 178 194
Warrants 9 14 0
SUM   158 224 200 238 247



Klaus Henrik Wiese-Hansen (Partner), +47 928 06 986

Christina Riisnes, +47 480 16 533

Martin Brox, +47 952 85 345

Tore Jetmundsen, + 47 480 16 541

Christoffer Nordby Sortland, + 47 992 41 453




The Author

Klaus Henrik Wiese-Hansen
Klaus Henrik Wiese-Hansen Klaus Henrik Wiese-Hansen is a partner at Steenstrup Stordrange’s office in Oslo, and is a member of the M&A and Corporate Practice as well as the Banking and Finance group. He has 14 years' experience in all aspects of financial markets legislation and asset management, including Private Equity, Investment Fund Management, Securities Legislation, Banking and Finance, Insurance, and M&A with respect to these areas. He has advised numerous Norwegian and foreign institutional clients in all aspects of their businesses relating to the aforementioned legal areas.

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