Published: 30 March 2021
The overarching aim of regulation and supervision of the securities market is that the market should be a well-functioning source of capital for the business community, forming the basis for investment and savings. The supervision encompasses both the institutions’ operations and financial position and compliance with business rules and general market conduct rules.
About investment firms, branches and tied agents
At the end of 2020, 97 investment firms were operating in Norway, of which 18 also held a banking licence. In addition, 16 securities investment firms from other EEA states had a branch in Norway, and three firms had tied agents in Norway.
The requirements of the law as regards investor protection and conflicts of interest are of key importance in the supervision of investment firms. The firms shall act honestly, fairly and professionally in accordance with the best interests of their clients and ensure that the integrity of the market is attended to in the best possible manner. Legislation and supervision also aims to encourage the firms to maintain sufficient internal controls and to promote an informed attitude to risk.
On the basis of Finanstilsynet's risk-based approach, eight on-site inspections were initiated in 2019, one of which was completed in 2020. Seven of the inspections took place at Norwegian investment firms and one at a Norwegian branch of a foreign investment firm. In addition, work was in progress on ten inspections initiated in 2017/2018, which were all completed during 2020.
Most of the ongoing inspections through 2020 were full-scale inspections of the firm’s total operations and organisation, while the rest were thematic inspections addressing information handling. In addition, a thematic inspection concerning customer documentation and measures against money laundering and terrorist financing at a major bank engaged in investment activities was completed.
Key themes at the inspections were:
- the firms’ client testing – whether the recommended or proposed financial instruments were suitable or appropriate for the clients
- the firms’ information to their clients – whether the clients had been given appropriate guidance on and warnings about risks and information about all costs and charges related to both services and products, in an understandable manner
- whether the firms had a clear stance with respect to identifying and handling conflicts of interest
- whether the firms' customer due diligence and measures against money laundering and terrorist financing were adequate
- the firms' awareness of climate risk and their offering of green financial products – whether clients' preferences for a green investment profile had been taken into account when identifying their investment goal
- whether the firms’ internal control function was adequately resourced, structured and formalised, with particular emphasis on the firms’ compliance function and organisation
Special thematic surveys
At the end of 2018, Finanstilsynet initiated a survey aimed at all Norwegian investment firms and branches of foreign investment firms. The survey concerned compliance with the rules on product governance, independent investment advice and competence requirements for staff. Finanstilsynet’s survey revealed a number of areas where several actors had disregarded or misunderstood the requirements of the new regulations. In 2019, Finanstilsynet sent identical letters to all firms and branches, providing guidance and clarifications in areas where specifications were needed. Against this background, 30 of the firms and branches were subject to special follow-up by Finanstilsynet in 2020.
In 2019, Finanstilsynet conducted a survey aimed at all Norwegian investment firms and branches of foreign investment firms on compliance with the regulations on inducements. The survey showed that the actors only to a limited extent complied with the regulations. In January 2020, Finanstilsynet sent identical letters providing guidance and clarifications to all firms and branches. In June 2020, Finanstilsynet asked for an update from the firms that stated that they were still accepting and retaining inducements. A large proportion of the firms have changed or are in the process of changing their models, whereby fees are now paid directly from clients and no longer in the form of inducements from product suppliers. Firms that wish to continue to accept and retain inducements now largely comply with the regulations. Finanstilsynet has monitored how some of the firms have adapted to the regulations and will continue to monitor regulatory compliance in this area.
In 2020, the trading venue Euronext Growth Oslo (formerly called Merkur Market) was subject to increased attention from issuers and investors. Finanstilsynet found reason to remind the investment firms of their duty to give clients good information about risk and to ensure that their clients have the necessary knowledge and experience to understand the risks associated with the relevant investment. The reminder was sent in a public letter to all investment firms in the autumn of 2020.
Revocations and orders
Finanstilsynet issued no orders for corrective measures and made no revocation decisions based on its inspections and surveys in 2020.
Finanstilsynet discovered that one investment firm had provided the payment service money transfers without the necessary authorisation and that there were serious and extensive deficiencies in the firm’s compliance with basic requirements in the anti-money laundering legislation. In the course of the supervision process, the firm chose to renounce its authorisations and discontinue operations.
Monitoring of firms’ finances
The investment firms' profitability and financial soundness were followed up through inspections in 2020. Finanstilsynet found that a total of ten investment firms that breached the capital requirements in 2020. In four of the cases, it appeared uncertain whether the firms would be able to rectify the situation, and Finanstilsynet notified the firms of a possible revocation of their licences. None of the notifications resulted in a revocation, as the situation was rectified through cash contributions.
At the end of 2020, two firms were required by Finanstilsynet to report its capital adequacy position each month due to low capital, a negative profit trend and/or assumed poor quality reporting.
Finanstilsynet also followed up the firms’ reporting of and compliance with the rules on large exposures. Finanstilsynet registered several violations, but these were generally short-term and not severe. Finanstilsynet thus found that no further follow-up than ongoing communication with the firms was required.
Figures for the first half of 2020 showed that the large market fluctuations during this period resulted in increased activity and higher turnover for the investment firms than in the first half of 2019. There was a pronounced increase within stock and bond brokerage, which compensated for a slight decline in revenues from corporate finance operations, which are investment firms’ greatest source of income.
Seven new investment firms were granted an authorisation to provide investment services in 2020: SpareBank 1 Kapitalforvaltning AS, NEF Kapitalforvaltning AS, BTIG Norway AS, Norselab Investment Management AS, Pensum Asset Management AS, Investtech.com AS and NorQuant Kapitalforvaltning AS. Five investment firms were granted an expansion of their original authorisation to provide investment services.
Seven investment firms renounced their authorisation to provide investment services in 2020: Sector Epsilon AS, Cosmos Markets AS, Kapp Securities AS, Fearnley Project Finance AS, Bryan, Garnier & Co AS, Kron AS and Storebrand Finansiell Rådgivning AS. Eight other investment firms renounced parts of their authorisations.
In 2020, Finanstilsynet received a total of 803 notifications of cross-border activity into Norway from investment firms headquartered in other EEA states. Finanstilsynet also received some notifications from foreign firms of the provision of services through the establishment of a branch or a tied agent in Norway.
Requirements for recovery plans set out in the Banking Recovery and Resolution Directive (BRRD) entered into force on 1 January 2020 for investment firms that are authorised to provide the investment services dealing on own account and placing of financial instruments on a firm commitment basis. Twelve investment firms have such authorisations, two of which are part of a financial group where a group recovery plan is required. During 2020, Finanstilsynet received and reviewed recovery plans from the ten investment firms that are required to submit individual plans.
The UK left the EU and thus also the EEA on 31 January 2020. Temporary regulations on contract continuity allow UK firms to continue to provide investment services and engage in investment activities with eligible counterparties and professional clients in Norway for a two-year period. However, the regulations do not entitle the firms to continue to operate branches in Norway. At year-end 2020, Finanstilsynet therefore deregistered the four remaining Norwegian branches of UK investment firms.
Investigation of real estate companies possibly involved in illegal activity
In 2020, Finanstilsynet investigated several companies that were operating without authorisation and were marketing real estate investments. Finanstilsynet’s investigation of specific cases is based on a prioritisation of available resources set against its other ongoing supervisory tasks and licensing responsibilities.
Capital is raised for real estate projects in the form of both equity and debt capital. In some cases, Finanstilsynet found that the companies had provided investment services on a professional basis without permission. One company was ordered to cease its unlawful investment activities.
Four warnings were published against Norwegian entities and four warnings against foreign entities that provided investment services in Norway in 2020 without the requisite authorisation. Finanstilsynet also published 1 193 warnings issued by foreign supervisory authorities against entities providing investment services in the EEA without authorisation. Finanstilsynet's website provides information on investment fraud and advice to investors on how to protect themselves against fraud. Finanstilsynet's market warnings are also available at Finansportalen.no.
Securities seminar 2020
Finanstilsynet’s annual securities seminar was held as a half-day webinar with 1 200 participants in October 2020. The webinar covered topics such as Finanstilsynet's thematic review of compliance with the rules for inducements, new capital adequacy regulations for investment firms (IFR/IFD) and the European Commission's proposed amendments to the Markets in Financial Instruments Directive (MiFID II) and the Prospectus Regulation.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- The securities area
- Financial reporting enforcement – listed companies
- Prospectus control – transferable securities
- Mutual funds and collective investment schemes
- Investment firms
- Securities market conduct
- Infrastructure in the securities area
- ICT and payment services
- Money laundering and financing of terrorism
- Consumer protection
- International cooperation
- Current topics