Investment firms

Supervision, monitoring and control 

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 aim 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, two comprehensive thematic inspections were initiated in 2021, encompassing 16 firms. Of these, 13 were Norwegian investment firms, while three were Norwegian branches of foreign investment firms. In addition, work was in progress on eight inspections initiated in 2020, six of which were completed during 2021. 
 
Six of the inspections that were in ongoing through 2021 were a review of the firm’s overall activities and organisation, while the other were thematic inspections on the subject of product governance, employees’ own account trading, admission processes and securities transactions related to selected issuer companies admitted to trading on Euronext Growth Oslo. In this connection, thematic inspections are in progress in eight investment firms that were involved as advisers in such admission processes.  
 
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 guidance on and warnings about risks and information about costs and charges related to services and products, in an understandable manner
• 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 
• employees’ own account trading 
• 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 

In 2021, Finanstilsynet surveyed all investment firms and branches' distribution channels and products sold during 2020. The survey covered, among other things, customer classification and total volume for various product groups during the period. Finanstilsynet is planning to carry out similar surveys in 2022. 
 
In 2021, Finanstilsynet participated in a Common Supervisory Action initiated by the European Securities and Markets Authority (ESMA) with special emphasis on compliance with the EEA product governance requirements. In this connection, Finanstilsynet carried out a thematic inspection of eight Norwegian investment firms selected on the basis of criteria established by ESMA. The review showed that the selected investment firms generally maintain a high level of  compliance. Finanstilsynet sent its final report to ESMA in December 2021. 
 
In 2019 and 2020, Finanstilsynet conducted surveys aimed at all Norwegian investment firms and Norwegian branches of foreign investment firms on compliance with the stricter regulations for acceptance of benefits from parties other than the customer (inducements). In 2021, Finanstilsynet initiated a follow-up review of inducements, asking for information about the investment firms' fee structures and receipt of inducements. Among other things, the review showed that the vast majority of investment firms have opted not to accept inducements and have introduced, or are in the process of introducing, fee structures where the client is charged directly for the firm's services. 
 
In autumn 2021, Finanstilsynet conducted a thematic survey aimed at all 34 Norwegian investment firms and credit institutions that have reported that they conduct cross-border activity directly from Norway to another EEA member state. Only three firms reported activities above a set limit and provided Finanstilsynet with extensive information about their cross-border activities. Finanstilsynet sent the results of the survey to ESMA. 

Revocations and orders 

Finanstilsynet issued no orders for corrective measures and made no revocation decisions based on its inspections and surveys in 2021.

Monitoring of firms’ finances  

Investment firms' profitability and financial soundness were monitored through audits and analyses of submitted notifications. Figures for the first half of 2021 showed that the previous year's positive development in turnover and profitability continued. The main reason for this was a very high level of activity within corporate finance, which is the investment firms' main source of income. Income from these activities more than tripled compared with the corresponding period of 2020. All other investment services areas also recorded a higher level of income. 
 
One of the effects of the significant rise in income was that only one firm did not meet the capital requirements in 2021, down from ten the previous year. This firm has returned its licence. 
 
Finanstilsynet also followed up the firms’ reporting of and compliance with the rules on large exposures. Finanstilsynet registered several short-term and less serious infringements that were followed up through ongoing communication with the firms, as well as one more serious case that required further monitoring. 
 
At the end of 2021, one firm 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 

Seven new firms, including banks, were granted an authorisation to provide investment services in 2021: REQ Capital AS, AK Jensen Norway AS, SpareBank 1 Sørøst-Norge, Alinea Capital Management AS, Verdipapirservice AS, Oro Finans AS and NRP Project Finance AS. Three investment firms were granted an expansion of their authorisation to provide investment services. One firm’s application for permission to provide investment services was rejected, while another firm withdrew its application for an expansion of its authorisation to provide such services. 
 
Nine firms, including banks, renounced their authorisations to provide investment services in 2021: Harvest Funds AS, Krafthuset AS, Totens Sparebank, Sandnes Sparebank, Sparebanken Telemark, Optimum AS, Njord Kapitalforvaltning Sør AS, Nordea Direct Bank ASA and Griff Kapital AS. Two investment firms renounced parts of their authorisations.  

Fit and proper assessment

Every year, Finanstilsynet carries out a number of fit and proper assessment in connection with changes in the board of directors, senior management or owners of qualifying holdings in investment firms. In 2021, Finanstilsynet ordered one firm to appoint a new general manager.

Cross-border activities  

Finanstilsynet receives a number of notifications of cross-border activity from investment firms headquartered in other EEA states. In 2021, Finanstilsynet received 268 notifications of cross-border activity without the establishment of a branch or tied agent and two notifications of services provided through the establishment of a branch or a tied agent in Norway.

Investigations into possible illegal activity

In 2021, Finanstilsynet investigated 15 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. One firm was ordered to cease its unlawful investment activities. The other firms have received individual warnings, and/or market warnings against them have been published on Finanstilsynet's website.

Market warnings 

In 2021, 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 1 702 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.

Securities seminar 2021

Finanstilsynet organised a half-day webinar in October on key themes at on-site inspections at investment firms, expectations concerning investment firms’ compliance function and the forthcoming regulations on the disclosure of sustainability information in the financial sector. 

Regulatory development 

On commission from the Ministry of Finance, Finanstilsynet submitted proposals in 2021 for the implementation of new capital adequacy rules for investment firms (IFR/IFD) and the implementation of amendments to the Markets in Financial Instruments Directive (MiFID), which are intended to remove unnecessary administrative burdens on securities market participants and introduce new targeted measures to reduce the economic consequences of the pandemic. The proposals are under consideration by the Ministry of Finance.  
 
In connection with the free trade agreement between the UK and the EFTA states entered into in summer 2021, the Ministry of Finance has laid down regulations that allow UK firms to provide the investment service portfolio management to certain Norwegian professional clients located in Norway. The regulations entered into force on 1 December 2021. 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 until 31 December 2022.