Infrastructure in the securities area

Supervision, monitoring and control

The war in Ukraine

Russia's invasion of Ukraine on 24 February set its mark on the supervision of the infrastructure in 2022. Finanstilsynet initially focused on location and corporate governance as well as the measures taken by the entities to be prepared for and able to handle potential cyber attacks. Various sanctions were introduced fairly quickly in the securities area, including a ban on providing investment services to Russian interests. This created a need to follow up trading venues and central securities depositories.

Throughout the summer and autumn, the war also had serious consequences for the energy market. Reduced gas deliveries to Europe, coupled with ongoing changes in energy production, have resulted in high energy prices. Higher energy prices and increased price volatility have a major impact on financial instruments with energy as the underlying asset. For one thing, the sharp rise in energy prices and increased price volatility have created liquidity challenges for market participants due to high collateral requirements (margin requirements) when trading energy derivatives.

The European Commission has proposed a number of measures to mitigate concerns about the ever-increasing energy prices. These include increasing clearing thresholds, allowing the use of a wider range of instruments as eligible collateral, introducing measures to limit volatility in the derivatives market, and imposing a ceiling on gas prices, which is expected to also have an effect on the energy market. Finanstilsynet followed developments closely in 2022, as the proposals from the European Commission may have both direct and indirect consequences for the Nordic energy derivatives market and trading on Nasdaq Oslo ASA.

Oslo Børs

In 2021 and 2022, Finanstilsynet carried out an inspection of Oslo Børs' processes for admission to Euronext Growth as part of a more extensive thematic inspection that also targeted eight investment firms and three audit firms. In its inspection report, Finanstilsynet addressed certain aspects related to the soundness of the admission application processing, the follow-up of the investment firms (Euronext Growth Advisors) and their role, as well as ambiguities in Oslo Børs' regulations for information provided by issuers.

The use of private placements has gradually become the most common way of implementing capital increases in the Norwegian market. This received greater public attention throughout 2022, as did the requirement for equal treatment of shareholders. In addition to the rules on share issues in the Norwegian Limited Liability Companies Act, the Securities Trading Act includes a provision on equal treatment of shareholders and bondholders in companies admitted to trading on a regulated market. In 2023, Finanstilsynet will follow up investment firms' compliance with the requirements of the Securities Trading Act when advising on, arranging and placing new issues, as well as how the trading venue fulfils its duties.

Finanstilsynet initiated an IT inspection at Oslo Børs in autumn 2022, focusing on how continuity and emergency preparedness are ensured for its own and outsourced IT services. The inspection is expected to be completed in the first quarter of 2023.

Nasdaq Oslo

Nasdaq Oslo offers trading in European energy derivatives, with Nordic energy derivatives accounting for the greater part of the turnover. The market has been strongly affected by the turbulence in the energy market resulting from the Russian invasion of Ukraine. The high energy prices and elevated price volatility have led to a substantial increase in collateral requirements. This creates liquidity challenges for the trading venue's members with respect to the payment of margin requirements.

During 2022, Finanstilsynet closely monitored risk factors related to the energy market turbulence, inter alia through contact with Nasdaq Oslo, supervisory authorities in other European countries, the Norwegian Energy Regulatory Authority (RME) and key market participants.

Finanstilsynet is responsible for setting position limits for commodity derivatives. The purpose of the position limits is to reduce the risk of serious disruptions to the underlying physical market. Trading venues and investment firms must report their positions on a daily basis, and Finanstilsynet followed up their reporting through 2022.

Verdipapirsentralen (the central securities depository in Norway)

In January 2022, Verdipapirsentralen ASA (Euronext Securities Oslo) was granted permission to operate in accordance with the new Norwegian Central Securities Depository Act, which implements the Central Securities Depositories Regulation (CSDR). The permission was granted subject to conditions and could not be used until these had been fulfilled. In addition, Finanstilsynet expected Euronext Securities Oslo to make certain adjustments to its operations to improve its follow-up of registrars, its risk management frameworks and the information provided about risks associated with its services. The permission granted to Euronext Securities Oslo was taken into use as of 1 March 2022, whereby its operations became subject to the rules of the CSDR. In this connection, Euronext Securities Oslo reported cross-border operations to the twelve countries in which it offers central securities depository services. Finanstilsynet reviewed all the reports and forwarded these to the supervisory authorities in the other countries.

The new regulations include a requirement to put into place arrangements that ensure highly efficient securities settlement. In addition to developing and operating these, Euronext Securities Oslo is required to submit detailed information on settlement efficiency to Finanstilsynet.

The CSDR lays down requirements for the supervision of central securities depositories. Against this background, Finanstilsynet has established a new model for its supervision of the Norwegian Central Securities Depository.

In April 2022, Finanstilsynet received an incident report from Euronext Securities Oslo about a system error where shareholders in some cases were unable vote at the general meetings of Norwegian public limited companies. Finanstilsynet conducted a supervisory follow-up of the incident and criticised Euronext Securities Oslo for weaknesses in the control and monitoring of its own system.

Nominee registration in Norwegian owner registers

Nominee registration means that a nominee is registered in a register of owners of financial instruments instead of the beneficial owner. Nominee registration of Norwegian shares, subscription rights and equity certificates registered in a central securities depository and nominee registration in the unit holder registers of Norwegian mutual funds require approval from Finanstilsynet. This mainly applies to foreign banks that act as nominees on behalf of foreign shareholders and unit holders. In addition, Norwegian banks, investment firms and fund management companies act as nominees, mainly on behalf of Norwegian fund clients.

In 2022, Finanstilsynet approved five nominees, one of whom received an extended approval. Furthermore, Finanstilsynet registered termination of 65 nominee approvals on the basis of a review of approvals issued by Finanstilsynet. The high number is due to both voluntary returns and revocations initiated by Finanstilsynet in connection with clean-up processes.

	2018	2019	2020	2021	2022	Approvals in 2022
Approved nominees (of which Norwegian)	298 (39)	305 (41)	320 (57)	307 (55)	247 (55)	5 (3)

Finanstilsynet published a new guide to the Anti-Money Laundering Act in November 2022, which also discusses nominee registration and requirements for customer due diligence when opening a nominee account.

Benchmarks

The Benchmarks Regulation aims to strengthen confidence in benchmarks used in financial instruments and financial contracts, or to measure the performance of investment funds.

In 2022, Finanstilsynet conducted an on-site inspection at Norske Finansielle Referanser AS (NoRe). NoRe is the administrator for the Norwegian Interbank Offered Rate (Nibor). Nibor, which is the inter-bank interest rate benchmark in Norwegian kroner for unsecured money market lending, is recognised by the European Commission as a critical reference value, and is therefore subject to stricter rules under the Benchmarks Regulation. At the inspection, Finanstilsynet investigated the administrator's compliance with the Benchmarks Regulation and associated Commission Regulations. This also included the administrator's overall benchmark methodology. The inspection report will be completed in the first quarter of 2023.

Clearing

EMIR is a pan-European regulatory framework that lays down rules on derivative transactions, central counterparties and transaction registers. The regulation provides requirements for obligatory clearing or exchange of satisfactory collateral for specified OTC derivatives not cleared by a central counterparty. It is possible to apply for an exemption for certain intra-group transactions. In 2022, Finanstilsynet considered one application for exemption from the requirement for the exchange of collateral and two applications for exemptions from the clearing obligation.

The regulation also allows exemptions from the reporting obligation for intra-group transactions. In 2022, Finanstilsynet considered notifications from ten groups on use of the exemption.

 

Regulatory development

European Market Infrastructure Regulation – EMIR

In May 2021, the Ministry of Finance circulated for comment a proposal from Finanstilsynet on how pan-European amendments to EMIR (EMIR Refit and EMIR 2.2) could be implemented in Norwegian law. Aspects covered by EMIR Refit include reduced derivative clearing and reporting obligations. EMIR 2.2 mainly provides rules on central counterparties, especially central counterparties established in third countries that provide services within the EU. Both amending regulations are expected to be implemented in Norwegian law during 2023.

The large price increases in the energy markets in 2022 created liquidity challenges for firms with exposures in the energy derivatives market. Several EU countries found it necessary to provide liquidity guarantees to energy firms in order to avoid disruptions to financial stability. For non-financial counterparties, the European Commission decided in autumn 2022 to raise the clearing threshold for positions held in OTC commodity derivatives (derivatives traded outside a recognised trading venue) from EUR 3 billion to EUR 4 billion. In addition, it was decided to adopt temporary emergency measures on collateral requirements for central counterparties for derivative contracts related to the production of, trading in, transfer or transportation of electricity or natural gas. The changes were implemented and entered into force in Norwegian law in December 2022.

Benchmarks Regulation

The Ministry of Finance adopted regulatory changes as of 1 January 2022 that concern several articles in the Benchmarks Regulation. This allows the European Commission and national authorities to designate replacement benchmarks if a benchmark is in cessation or no longer is deemed to qualify.

The EU decided to extend the transitional period for third country benchmarks from 1 January 2021 to 31 December 2023. An exemption has also been included in the regulation for certain benchmarks based on the spot market price of foreign currency. 

Markets in Financial Instruments Directive – MiFID 

A Commission Regulation providing supplementary provisions to MiFID II was implemented in Norwegian law on 31 October 2022. The Commission Regulation sets out new requirements for exemptions from the licensing obligation for firms providing investment services in commodity derivatives. The Regulation lays down three alternative tests for assessing when a firm is to be regarded as an ancillary activity to a group's main business and thus covered by the exemption.

Central Securities Depository Regulation – CSDR

The new Norwegian Central Securities Depository Act and the CSDR became effective on 1 March 2022 for the activities of Euronext Securities Oslo, when the firm’s authorisation under the CSDR was taken into use. The CSDR is a pan-European regulatory framework that entails a far more comprehensive and detailed regulation of central securities depositories and aims to promote a robust infrastructure. The Regulation will also facilitate competition across national borders.

The Regulation also introduces a scheme for imposing fines for transactions that are not settled in a timely manner. The purpose is to incentivise market participants to improve settlement efficiency. The scheme was also meant to include requirements for mandatory buy-ins, but this measure has been postponed. The introduction of the scheme in the Norwegian market has gone relatively smoothly with a lower than expected level of fines. So far, it has not contributed to higher settlement efficiency, neither in Norway nor in the EU.

The European Commission has carried out a consultation on the need for changes to the CSDR. Following this consultation, the European Commission published a report on 1 July 2022 concluding that there was no need for significant changes to the Regulation so soon after its entry into force.

Shareholder Rights Directive

The Shareholder Rights Directive (SRD II) introduces specific obligations for issuers and intermediaries in the nominee chain holding shares in European companies admitted to trading on a regulated market within the EEA. The purpose of the rules is to make it easier for shareholders to exercise their rights, particularly when investing in companies established in another EEA country than where the shareholder is resident. The rules of the SRD II relating to the obligations of intermediaries nominated by the issuer have been implemented in the Norwegian Central Securities Depository Act. Amendments to the Public Limited Liability Companies Act relating to the conduct of general meetings have also been adopted to enable nominee-registered shareholders to participate in the general meeting without registering ownership directly in the shareholder register. These rules will come into force on 1 July 2023.