Investment firms

Supervision, monitoring and control

Legal requirements concerning 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 preserved in the best possible manner. Legislation and supervision shall also contribute to ensuring that firms have adequate internal controls and risk awareness.

On the basis of Finanstilsynet's risk-based approach, six on-site inspections and one comprehensive thematic AML/CTF inspection encompassing 17 firms were initiated in 2022. The inspections involved 22 Norwegian investment firms and one Norwegian tied agent of a foreign investment firm. In addition, work was in progress on 17 inspections initiated in 2021, 15 of which were completed during 2022.

Three of the inspections that were in ongoing through 2022 were a review of the firm’s overall activities and organisation. The rest were thematic inspections addressing the firms' activities in currency, interest rate and commodity instruments, market surveillance and anti-money laundering and counter-terrorist financing.

Key themes at the inspections were:

• the firms’ client testing – whether the recommended financial instruments were suitable or appropriate for the clients
• the firms’ information to their clients – whether the clients had been given appropriate and clear guidance on and warnings about risks and information about costs and charges related to services and products
• whether the firms had a clear stance with respect to identifying and handling conflicts of interest
• the firms' evaluation and updating of employees' level of knowledge and competence
• the firms' product governance
• employees’ personal securities transactions
• whether the firms' customer due diligence and measures against money laundering and terrorist financing were adequate
• whether the firms’ internal control function was adequately resourced, structured and formalised, with particular emphasis on the firms’ compliance function and organisation
• the firms' work on preventing and identifying market abuse

In 2022, Finanstilsynet ordered one firm, Global Assets AS, to strengthen its board of directors, review all procedures and policies and conduct a complete review of documentation relating to its 25 largest clients.

Finanstilsynet made no decisions to revoke firms' authorisations in 2022.

Special thematic surveys

Finanstilsynet published a report in January 2022 following a thematic inspection of admission processes, securities transactions and audits related to selected issuers admitted to trading on Euronext Growth Oslo. A large number of companies with a short history and no or very low revenues have been admitted to trading on this trading venue. Investments in such companies involve considerable risk. Finanstilsynet’s thematic inspection encompassed Oslo Børs' admission process, eight investment firms that have acted as advisors and managers for the issuers and four audit firms that have audited the issuers' financial statements. In its report, Finanstilsynet concluded that Oslo Børs needs to improve its procedures to be able to check compliance with the terms and conditions for admission, handle conflicts of interest, provide guidance to issuers and regulate the investment firms’ role as Euronext Growth Advisors. Finanstilsynet also concluded that the investment firms must improve their handling of conflicts of interest related to the role as Euronext Growth Advisor, modify their general and extensive disclaimers in the issuer's information document, document conversations and electronic communication with issuers and meet a prudence standard with respect to employees’ personal securities transactions.

In 2022, Finanstilsynet initiated an extensive thematic inspection addressing the firms’ efforts to prevent and uncover market abuse. The thematic inspection covers matters related to the firms' market surveillance function and market surveillance systems. The purpose of the thematic inspection is to examine how the firms comply with the market surveillance and reporting requirements set out in the Market Abuse Regulation (MAR).

Finanstilsynet has also initiated a thematic inspection related to banks’ investment service activities in currency, interest rate and commodity instruments.

Finanstilsynet started a survey related to the investment firms’ measures against money laundering and terrorist financing in late 2021. All Norwegian investment firms that are not also a bank were asked to send their business-specific risk assessment, procedures and staff training plan. On the basis of submitted information, 17 investment firms were selected for a thematic inspection in 2022 where further investigations were made and random samples were reviewed.

The information received showed that some investment firms had not prepared any business-specific risk assessment, while there were weaknesses in other risk assessments. Some firms had also failed to prepare satisfactory AML and CTF procedures and lacked routine descriptions for compliance with key areas in the AML Act.

Finanstilsynet also identified weaknesses in the customer due diligence measures of a number of firms, such as inadequate documentation of risk classification and underlying assessments or inadequate ongoing monitoring. Some firms did not implement customer due diligence measures themselves and left these to third parties without entering into an agreement on the exchange of documentation or outsourcing. In addition, Finanstilsynet revealed shortcomings in the firms’ documentation of training for employees and senior management. Some firms had still designated their compliance officer as AML officer, even in cases where Finanstilsynet found that the risk assessment of the nature and scope of the business required the obliged entity to appoint a separate, independent compliance officer (second line of defence).

Finanstilsynet decided to impose administrative fines on five investment firms: Beaufort AS, BTIG Norway AS, Christiania Securities AS, HWh Energimegling AS and Stavanger Asset Management AS. Finanstilsynet has prepared a publicly available final report in the form of identical letters to all the investment firms included in the survey.

Monitoring of firms’ finances

Investment firms' reports for the first half of 2022 showed that turnover and profitability declined markedly compared with the corresponding period the previous year. This was partly due to falling prices and a lower level of activity in the capital market in 2022. Corporate finance business, which is the investment firms' main source of income overall, is also the source of income that is most affected by the prevailing market conditions. Such income was more than halved during the period, declining by more than NOK 1.5 billion.
 
Seven firms failed to meet the capital requirements in 2022, compared with only one the previous year. In six of the cases, this was rectified through equity issues. In the final case, the requirements were met by including retained interim profits in own funds.
 
Several short-term and less serious violations of the rules on limitations on large exposures were followed up through ongoing communication with the firms. In addition, one more serious case, relating to Arctic Securities AS, required further follow-up. This firm was notified in advance that two large exposures would have to be reduced and brought into compliance with the regulations.
 
At the end of 2022, one firm, Global Assets AS, was 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.

Licensing

Authorisation to provide investment services

Nine new firms were granted an authorisation to provide investment services in 2022. Eight investment firms were granted an expansion of their authorisation to provide investment services, while two firms withdrew their applications for an authorisation to provide investment services.

Two firms renounced their authorisations to provide investment services in 2022: Heidrun Finans AS and ResponsAbility Nordics AS. In addition, three firms were merged into other Investment firms: Stolt Kapitalforvaltning AS merged with Stolt Finans AS, and SpareBank 1 Kapitalforvaltning AS and SpareBank 1 Verdipapirservice AS merged with SpareBank 1 Forvaltning AS. One investment firm renounced parts of its authorisations.

Fit and proper assessments

Every year, Finanstilsynet carries out a number of fit and proper assessments in connection with changes in the board of directors, senior management or owners of qualifying holdings in investment firms. In 2022, Finanstilsynet ordered one firm to strengthen the competence of its board of directors by recruiting at least two new external board members with sound securities expertise and sufficient knowledge to understand the firm's business and risk factors.

Cross-border activities

Finanstilsynet receives a number of notifications of cross-border activity from investment firms headquartered in other EEA states. In 2022, Finanstilsynet received 161 notifications of cross-border activity and two notifications of services provided through the establishment of a branch or a tied agent in Norway.

Investigations into possible illegal activity

In 2022, Finanstilsynet investigated twelve firms that marketed investment services without having the necessary authorisation. These firms contact Norwegian investors directly and/or market licensable investment services on their websites. No firms were ordered to terminate unlawful investment activities.

Market warnings

In 2022, Finanstilsynet published seven warnings against firms offering investment services in Norway without the necessary authorisation. Five of these concerned Norwegian firms, while two concerned foreign firms. Finanstilsynet also published 1 754 warnings issued by foreign supervisory authorities against entities providing services in the EU/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.

Regulatory development

Proposed prohibition against paying and accepting inducements

In June 2022, Finanstilsynet sent a draft consultation document to the Ministry of Finance, proposing a prohibition against inducements. This means that distributors of savings products should no longer be able to accept consideration from parties other than the client when mediating savings products to retail investors. The proposal covers both financial instruments, including mutual fund units, and insurance-based investment products. The proposal was circulated for comment with the deadline for response set at 18 November 2022 and is under consideration at the Ministry of Finance.

Transitional scheme on the right to provide investment services in Norway after Brexit
It follows from a regulation from 2020 that UK firms that were entitled to provide investment services in Norway prior to the UK's exit from the EU/EEA may continue to provide such services to professional clients and eligible counterparties in Norway during a transitional period until 1 January 2023. On commission from the Ministry of Finance, Finanstilsynet has assessed whether an extension of the transitional period is required. Finanstilsynet's assessment is that it is not necessary to uphold the regulation on account of Norwegian interests, apart from a possible short-term extension. On 21 October 2022, the Ministry of Finance decided to extend the regulation up to and including 31 March 2023. The question of whether there is a need for a further extension or more permanent measures is under consideration by the Ministry of Finance.

Proper liquidation of investment firms, management companies and AIF managers – proposed new rules

In December 2022, Finanstilsynet sent a draft consultation document to the Ministry of Finance concerning, among other things, an administrator scheme that can be used when liquidating management companies, AIF managers and investment firms. The background for this is that it may be necessary for Finanstilsynet to intervene to safeguard clients’ interests in a situation where such entities have had their licence revoked and there is a risk that the business will not be liquidated in a proper manner.

Guidance

In 2022, Finanstilsynet provided guidance by publishing information on finanstilsynet.no. This included: 

• inspection reports after inspections at various firms
• a report on an inspection of admissions to Euronext Growth Oslo
• identical letters to the investment firms on private placements and equal treatment of shareholders
• descriptions of new legislation on separate topic pages
• consultations on draft legislation, both from Norway and EU consultations of relevance to the EEA

In June 2022, Finanstilsynet arranged a half-day seminar for investment firms, fund management companies, managers of alternative investment funds and depositories. The agenda included upcoming sustainability rules, employees’ own account trading and ESMA's common supervisory action, which is a tool to promote uniform supervisory practices in the EEA. Finanstilsynet has also participated in other seminars and has held presentations at Finance Norway and the Norwegian Securities Dealers Association on its experience from thematic inspections on money laundering and terrorist financing and on Finanstilsynet’s mapping of investment firms' adaptations to upcoming sustainability rules.