Proposed amendments to the ownership control rules for financial institutions following criticism from ESA
The Ministry of Finance proposes amending the ownership control rules for financial institutions following criticism from ESA. But will there be any real change?
Norwegian rules and administrative practices relating to the ownership of financial institutions, particularly banks and insurance companies, have been under discussion for years. This applies to both the maximum permissible holding in a bank or an insurance company, and the factors that may be considered when assessing whether an owner is deemed suitable for subsequent acquisitions. The rules and practices have, among other things, been subject to court proceedings in the so-called “Netfond’s case” and the EFTA Surveillance Authority (ESA) has issued no less than three reasoned opinions alleging that Norway violates the EEA Agreement in this area.
In correspondence with ESA, the Ministry of Finance has maintained its position that the Norwegian rules and practices are in accordance with the treaty. Nevertheless, the Ministry of Finance is now proposing amending the ownership control rules for financial institutions. The proposed amendments were submitted for consultation on Friday, 12 January.
The proposals specifically apply to the rules on ownership suitability assessments in the event of acquisitions of qualified holdings in financial institutions under section 6-3 of the Financial Institutions Act, in other words, in the event of subsequent acquisitions or increases in ownership which trigger a requirement of approval under section 6-1 of the Financial Institutions Act. However, the amendments do not apply to the ownership suitability assessment to be carried out in connection with licencing processes, nor to licence terms and conditions relating to the relationship with the owners.
The current section 6-3 second subsection litrae a. to g. contains a list of assessment factors, which the Financial Supervisory Authority of Norway (by delegation from the Ministry) shall “particularly take into consideration” in the ownership suitability assessment. Firstly, the provision expresses that the list is not exhaustive, and that other factors therefore may be taken into account in the assessment. Secondly, the provision lists more assessment factors than those provided by the EU directives the provision is intended to implement, more specifically the current litra c. on the acquirer’s influence, and litra d. on whether the acquirer is subject to financial supervision. ESA believes that the assessment criteria in the directives are intended to be exhaustive, so that the Financial Institutions Act gives Norwegian authorities a broader scope for discretion than what follows from EU law.
As a consequence of ESA’s view, the Ministry of Finance is now proposing amending section 6-3. The amendments to section 6-3 will be of both a technical and a substantive nature. The list of assessment factors in the second subsection of the provision will be included in the first subsection, and it will be stated that the list is exhaustive by including the phrase “[t]he assessment shall be based on the following criteria”.
The assessment factor in the current litra c. is also proposed removed. In other words, in future suitability assessments, no consideration should be given to “whether the acquirer will be able to use the influence on other business activity, and whether the acquisition could result in impairment of the institution’s independence”. The same applies to the assessment factor “whether the acquirer and its business are subject to financial supervision” in the current litra d.
With the amendments, the Ministry of Finance believes that the rules for suitability assessment of subsequent acquisitions in banking and insurance will be in accordance with the EU directives. However, it may be questioned whether this is a qualified truth. Banks and insurance companies are subject to in part significant terms and conditions in the licence granted by the Ministry. Among other things, such terms and conditions are linked to the institution’s relationship with its owners, and the owners’ possible influence on the institution. The fact that it will not be possible to consider the owner’s possible influence on the institution under the new section 6-3, does not, however, limit the terms and conditions of the institution’s licence. It is therefore unclear how already established terms and conditions relating to ownership influence in banks and insurance companies will be practiced in light of the amendments to the Act, and what significance established terms and conditions will have in future acquisitions that are subject to approval.
Furthermore, there will be (at least for the time being) no changes in the right to set terms and conditions in connection with the granting of licences to banks and insurance companies. Whether the Ministry of Finance will continue its current practices in this area is therefore also unclear, but it is not unlikely that status quo will remain. It will therefore be interesting to see whether and possibly how ESA will follow up Norway’s application of these rules.
The final word about Norwegian rules on bank and insurance company ownership has not yet been spoken. A maximum permissible holding in banks and insurance companies (particularly life insurance companies) of 20-25% (for owners other than banks and insurance companies) is still the current administrative practice, and despite ESA’s spotlight, the Ministry of Finance has not yet signalled that they will yield in this respect.
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