Securitisation set for a comeback in Norway
In brief, traditional securitisation involves the sale of a loan portfolio to a special purpose entity, which in turn issues bonds in different tranches and backed by the expected cash flow from the loan portfolio. The financial institution obtains financing through the sale of its assets, and the risk on the loans is effectively transferred to the investors in the securitisation. It is also possible to transfer loan portfolio risk without the sale of assets by way of synthetic securitisation. Because of specific Norwegian banking regulation, Norwegian financial institutions are not able to securitise loan portfolios absent permissive legislation, but no such permissive legislation has existed in Norway since 1 January 2016. Accordingly, no securitisations by Norwegian banks have taken place since that date.
The new legislative proposal is based on a report issued by a working group consisting of representatives from the Financial Supervisory Authority of Norway (FSAN), the MoF and the Norwegian Central Bank (Norges Bank). A reference group comprising representatives from the Norwegian financial industry assisted the working group during the process. The working group’s report was submitted for public consultation in the autumn 2019, and most respondents expressed their support to the working group’s proposals for implementation of the EU Securitisation Regulation in Norway.
The MoF’s recent legislative proposal builds on the views expressed by the working group in the report, and to a large extent agrees with the proposals set out therein. In brief, the MoF’s legislative proposal entails that:
- Securitisation special purpose entities (SSPEs) will be exempted from Norwegian licensing requirement which would otherwise apply to acquirers of loan portfolios in Norway.
- Sale of loans to the SSPE as part of a securitisation will be fully exempt from the consent requirement in section 45 of the Financial Contracts Act
- A new maximum fee for electronic mass-registration of multiple title transfers to security rights in the Norwegian Mortgaged Movable Property Register (the Property Register) shall be introduced, similar to what is already in place for mass-registration of title changes to mortgages registered in the Norwegian Land Register for real property.
- When a bank securitises a loan portfolio, the servicer of the loans must be a bank, a non-banking credit institution or a finance company.
- No specific Norwegian requirements are introduced in addition to the EU rules, including the rules on STS securitisation (simple, transparent and standardised securitisation).
It is positive to see that the MoF is dedicated to ensure that securitisation by Norwegian financial institutions should be feasible in practice and not only on paper. As an example, the MoF did not follow up the working group’s proposal to introduce a requirement of «passive» consent from the debtor prior to a loan transfer to the SSPE, but instead proposes that no consent requirement should apply at all. The stated reason being that any consent requirement could negatively affect the feasibility of securitisation, and that the debtors are already sufficiently protected by other rules, as well as by the information which is to be provided before the securitisation is completed.
The MoF further notes that the fee structure for registration in the Property Register must be subject to a maximum aggregate amount so that it does not represent an obstacle to securitisation. The responsibility for the registration fees lays with the Ministry of Trade, Industry and Fisheries, and a proposal for a new fee structure is expected during the winter of 2020/2021.
The MoF further notes that the same EU capital requirement regime will apply for Norwegian banks and other EEA institutions. This regime is currently being amended through the so-called «banking package» consisting of CRR2/CRDV/BRRD2. A proposal for Norwegian implementation of the «banking package» has recently been published and is subject to public consultation until 6 January 2021.
In summary, the MoF’s legislative proposal represents a large step forward in respect of enabling Norwegian banks and other financial institutions to once more have access to securitisation as a tool for risk optimization and funding purposes. We expect the Parliament to vote on the proposal during 2021 and the legislation becoming effective shortly thereafter.
BAHR has on multiple occasions assisted Norwegian and foreign clients with questions regarding securitisation, and our firm assisted in the first ever securitisation by a Norwegian bank. Please do not hesitate to reach out to us if you have any questions on the current proposal or on securitisation in Norway in general.