Consumer protection is an important factor in the development of rules for the financial market and in the supervision of financial services providers. Financially sound, well-capitalised financial institutions and well-functioning financial markets are fundamental consumer interests, both for the community and for the individual. At the same time it is important for consumers to be well protected when purchasing and selling financial products and property, and to be able to base their decisions on good information and neutral advice.
Cooperation to strengthen consumer protection
Finanstilsynet collaborates with the Consumer Authority, the Consumer Council and the Norwegian Competition Authority to achieve better consumer protection in the financial sector.
Consumer protection is also an important task of the financial supervisory authorities in other countries. Finanstilsynet participates in the work of the European Supervisory Authorities to develop regulations and supervisory methodologies in this area.
Topical consumer matters
Temporary changes in the residential mortgage lending regulations
On 23 March 2020, the Ministry of Finance adopted a temporary increase in the flexibility quota set out in the residential mortgage lending regulations, to 20 per cent. The flexibility quota is the portion of new residential mortgages that may be in breach of one or more of the requirements of the regulations. The increase initially applied during the second quarter of 2020. On 11 June, it was decided to retain the increased quota until 30 September 2020. In a letter to the Ministry of Finance on 28 August, Finanstilsynet recommended not to extend the temporary flexibility quota beyond 30 September. The Ministry followed this recommendation.
Proposed changes to the lending regulations from year-end 2020
On commission from the Ministry of Finance, Finanstilsynet prepared a proposal for amendments to the residential mortgage lending regulations and the regulations on lending practices for consumer loans. The proposal was sent to the Ministry on 28 September 2020. Among other things, Finanstilsynet proposed that the two regulations should be replaced by one lending regulation. It was further proposed that the regulation should be extended to include loans to private individuals secured on assets other than housing, that the maximum limit for borrowers' total debt when granting new loans should be reduced from 5 to 4.5 times gross annual income, that the flexibility quota for residential mortgages should be reduced from 10 per cent (8 per cent in Oslo) to 5 per cent and that the flexibility quota for other loans should be dispensed with. Finanstilsynet's proposed tightening of the rules was partly based on the fact that an increasing proportion of new mortgages are granted to vulnerable borrowers with high debt-to-income ratios who will be at risk in the event of a significant fall in house prices, interest rate increases or loss of income. A combined lending regulation was adopted by the Ministry of Finance on 9 December 2020, but the Ministry chose not to implement the changes proposed by Finanstilsynet.
Follow-up of residential mortgages
Every quarter, Finanstilsynet obtains reports on compliance with the residential mortgage lending regulations from 24 financial institutions and branches of foreign undertakings. The reports show the share of mortgages granted that do not meet the regulatory requirements on debt servicing capacity, debt-to-income (DTI) ratio, loan-to-value (LTV) ratio or instalment repayments. Finanstilsynet presented the results from the 2020 residential mortgage lending survey on 19 November 2020.
Follow-up of consumer lending
Finanstilsynet regularly runs a survey of a sample of 34 banks and finance companies offering consumer lending. See more detailed information in the banking and finance chapter.
New Financial Contracts Act
In December 2020, the Storting passed a new Financial Contracts Act that replaces the previous Act from 1999. The Act implements the private law provisions of three EU directives:
- Payment Services Directive (PSD 2)
- Payment Accounts Directive (PAD)
- Mortgage Credit Directive (MCD)
In addition to implementing the directives, the Act has been modernised, and previous non-statutory principles have now been incorporated into the Act, the objective being to strengthen consumer protection. The Act includes new rules on cooling-off periods when taking out loans, the duty to reject applications if a negative credit assessment is issued and the right to convert foreign currency loans. Customer protection is improved through new rules on burden of proof and rules on burden and standards of proof when entering into electronic agreements, as well as new provisions on liability for misuse of accounts and payment instruments.
Amendments to the Debt Collection Act
The Ministry of Justice and Public Security has launched a public consultation on the working group report ‘Review of specific issues concerning the Debt Collection Act’. The report reviews key parts of the debt collection legislation, and a new Debt Collection Act and new Debt Collection Regulations have been proposed, including a new fee system for out-of-court collection. The deadline for response was 9 June 2020, and a number of responses were given. At year-end 2020, the proposal was under consideration by the Ministry of Justice and Public Security.
As it will take time before a new Debt Collection Act and new Debt Collection Regulations will enter into force, and in light of the Covid-19 crisis, the Ministry saw the need for a more rapid implementation of fee reductions in connection with claims recovery. The most important changes are that the fees for reminders and debt collection warnings were reduced from NOK 70 to NOK 35 and that the debt collection fee for claims up to NOK 500 was reduced from NOK 350 to NOK 175. Fees for higher claims have also been reduced, but by a lower percentage. The changes concern the recovery of money claims that fell due after 1 October 2020.
Rules regarding furloughed employees in private occupational pension schemes
In connection with the Covid-19 outbreak, Finanstilsynet assisted the Ministry of Finance in preparing temporary rules on furloughed employees in private occupational pension schemes. The rules were adopted in April 2020 and mean that employers may decide that furloughed employees who are supposed to be removed from the pension scheme can nevertheless continue as members of the scheme, although the accumulation of pension savings and their risk covers are discontinued. The rules aim to avoid extensive withdrawals from occupational pension schemes because firms furlough employees, and to avoid that a large number of pension schemes are wound up because firms do not have the financial ability to pay premiums and contributions to occupational pension schemes.
In recent years, Finanstilsynet has followed up a number of firms that have mediated insurance for foreign insurers that have gone bankrupt. Among other things, Finanstilsynet has reviewed whether good mediation practice is observed, whether the intermediary adequately monitors the insurer’s solvency position and what information has been provided about guarantee schemes.
Decision to terminate operations at Tide Forsikring
On 24 June 2020, Finanstilsynet decided to remove the insurance agent Tide Forsikring AS (Tide) from Finanstilsynet's registry. The reason for the decision was that repeated and serious violations of the general legislation for insurance intermediaries had been revealed at inspections, including key provisions on customer protection. In Finanstilsynet’s opinion, the violations made by Tide could weaken the trust in insurance intermediaries in the market, and continued operations could be detrimental to its customers. Finanstilsynet therefore found that removing the agent from the registry was a necessary and proportionate response to safeguard the interests of potential future customers and the integrity of the market. Finanstilsynet’s decision has been appealed, and the appeal is under consideration by the Ministry of Finance. In a letter of 18 September 2020, the Ministry of Finance stated that the decision should not be implemented until the complaint has been resolved.
One of the steps taken by Finanstilsynet to ensure that consumer interests are safeguarded is to monitor how the management companies have 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, Finanstilsynet sent identical letters reminding the companies of their duty to act in the best interests of unit holders and not to charge unnecessary costs to unit holders when distribution costs are reduced. Unit holders must benefit from reduced distribution costs in the form of lower management fees. 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 charged redemption fees to unit holders in violation of current requirements. 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
In 2020, Finanstilsynet conducted investigations in connection with applications for permission to market alternative investment funds to retail investors and set requirements for improved information in the fund documentation. Finanstilsynet placed particular emphasis on the provision of complete information and transparent cost models. During this period, some applications for permission to engage in such marketing were rejected.
Supervision of investment firms
The requirements for investor protection figure prominently the supervision of investment firms. All information to customers – including information about risks and costs – must be balanced, clear and not misleading, and the firms' investment advice and portfolio management must be suitable for the customer. As part of this work, and as a result of the sharp rise in the attractiveness of the trading venue Euronext Growth Oslo (formerly Merkur Market) among issuers and investors, Finanstilsynet sent identical letters to all investment firms in October, reminding them of their investor protection obligations. Finanstilsynet also conducted a thematic survey targeting all Norwegian investment firms and branches of foreign investment firms concerning compliance with the rules on product governance, independent investment advice and competence requirements for staff, as well as a survey of compliance with the regulations on the receipt of inducements. On the basis of the surveys, a number of firms were subject to special follow-up by Finanstilsynet in 2020.
Illegal securities activities
In 2020, Finanstilsynet investigated several companies operating without authorisation that were marketing real estate investments. In some cases, Finanstilsynet found that the companies had provided investment services without the requisite authorisation. One company was ordered to cease its illegal 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 EU/EEA without the requisite authorisation.
Finanstilsynet regularly receives tips and inquiries about possible offences in the estate agency industry. In addition, Finanstilsynet receives information through the companies' reporting. Combined with experience from previous inspections, this forms the basis for a risk-based selection of companies that will be subject to further follow-up by Finanstilsynet. In 2020, a number of inspections were carried out at estate agencies and lawyers engaged in estate agency. In addition, Finanstilsynet conducted investigations of a number of firms and individuals, partly on the basis of such tips.