Finance and Capital Markets | Proposal for new rules regarding third-country firms’ provision of investment services into Norway
Background:
Norway has previously enacted a temporary regulation on MiFID services by UK firms following Brexit (the “Brexit Regulation”). The Brexit Regulation allows UK firms who lost their Norwegian “services passport” after Brexit, to continue providing cross-border investment services to Norwegian per se professional clients and eligible counterparties for a temporary period. The Brexit Regulation is currently scheduled to be repealed on 1 October 2023. For more details on the regulation, see our previous newsletters here and here.
The proposed new regulation:
Under the new regulation, firms established in any third country (not only the UK) may provide investment services to eligible counterparties in Norway on a cross border basis without relying on a Norwegian license, reverse solicitation or an equivalence decision under MiFIR art. 47.
Third country firms intending to avail of the new regulation must meet the following three conditions:
- The firm must be supervised and licensed in its home country in relation to the investment services it intends to provide to Norwegian clients
- The firm must not be domiciled in a jurisdiction which is included in FATF’s “black” and “grey lists
- An agreement on supervisory cooperation must exist between Norwegian authorities and the authorities in the relevant firm’s jurisdiction. Multilateral agreements such as IOSCO’s “Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information” will suffice for these purposes.
According to the proposal, the primary purpose of the new regulation is to provide the largest Norwegian institutional investors – especially the Norwegian Central Bank (Norges Bank) and its Government Pension Fund Global (aka ‘the oil fund’) – with greater flexibility and investment options, and to remove uncertainty regarding their ability to transact with firms outside of the EEA.
Unlike the Brexit Regulation, the proposed new regulation is limited to eligible counterparties only, meaning that third country firms will need to rely on reverse solicitation or an equivalence decision under MiFIR to provide MiFID services on a cross-border basis to professional clients in Norway.
There is currently some uncertainty as to whether the new regulation will replace the Brexit Regulation, and whether the Brexit Regulation will expire on 1 October 2023 or be further extended. However, the proposal suggests that the Brexit Regulation should be continued until the new regulation enters into force.
BAHR comments:
The proposed regulation should be welcomed by non-EEA firms looking to provide MiFID services into Norway without establishing a local branch in Norway. By limiting the scope to eligible counterparties only, the new regulation will apply to a narrower client-base than the current Brexit Regulation which also allows for services to per se professional counterparties. As a result, some UK firms may find it difficult to continue existing client relationships with Norwegian professional client which are currently supported by the Brexit Regulation.
On the other hand, the new regulation is not limited to UK firms, and does not even require firm to provide cross-border services from their main office; instead, they will be free to provide services into Norway from any branch they may have regardless of where such branch is established.
In particular, the new regulation will be welcomed by any institution trading with Norges Bank as well as with Norwegian investment firms, credit institutions, fund managers or other eligible counterparties.
The proposed new regulation is on hearing until 7 June 2023.