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Newsletter: Norway to impose licensing requirements in relation to partnerships

January 2010 - Employment. Legal Developments by Wikborg Rein.

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NORWAY TO IMPOSE LICENSING REQUIREMENTS IN RELATION TO PARTNERSHIPS Norwegian authorities intend to close a regulatory loophole according to a recently published proposal for amendments to the Norwegian Securities Trading Act. Under the proposed amendment, providers of intermediary services, such as distributors of private equity funds and other closed ended collective investment schemes, must be licensed as investment firms when offering shares in partnership structures to non-professional investors in the Norwegian market.

Closing the loophole
Ownership shares in partnership structures regulated by the Norwegian Partnership Act of 1985 are not regarded as financial instruments pursuant to the Norwegian Securities Trading Act. Hence, intermediary services relating to shares in such partnerships are currently not subject to licensing requirements.

Partnership structures regulated by the Partnership Act have traditionally been used for structuring collective investments in the real estate, shipping and private equity sectors in the Norwegian market. While such investment opportunities were formerly reserved to the professional part of the market, such investments have over the last few years to an increasing extent been offered to non-professional retail investors.

Currently, Norwegian legislation permits non-licensed market participants to avoid supervision and regulation, if they base their business concept on offering investment opportunities in partnership structures rather than in e.g. transferable securities or other types of financial instruments.

Market participants' recent focus on the sale of partnership structures to non-professional investors combined with the lack of regulatory oversight of intermediaries offering such services have raised investor protection concerns with Norwegian authorities. Hence, the Ministry of Finance has proposed that in the future, only licensed investment firms shall be permitted to provide intermediary services related to partnership structures offered to non-professional investors.

Partnership structures concerned
The proposal is that licensing requirements are to apply to all partnership structures governed by the Norwegian Partnership Act, as well as to "similar foreign companies". Hence, structures similar to Norwegian Limited Partnerships (Nw.: 'kommandittselskap'), General Partnerships (Nw.: 'ansvarlig selskap'), General Partnerships with Prorated Liability (Nw.: 'ansvarlig selskap med delt ansvar') as well as Silent Partnerhsips (Nw.: 'indre selskap') are likely to be subject to the licensing requirements. Legal advice should be taken with respect to evaluating foreign partnership structures in relation to the proposed new regulations.

Services subject to licensing requirements
It is expected that licensing requirements will apply to the intermediary services investment advice, reception, transmission and execution of orders, own account dealing, discretionary portfolio management, placing of public offerings, issues and underwritings of such offerings when offered by third parties in relation to shares in partnerships structures.

Available exemptions
It appears that only intermediary services offered to non-professional customers will require a license. Hence, an exemption is likely to apply to services offered to professional investors as defined by the EU 'MiFID'-Directive, including financial institutions, large undertakings meeting specific size and capital requirements as well as institutional investors whose main activity is to invest in financial instruments. Other general exemptions from the licensing requirements of the Securities Trading Act will also be available, such as services provided in an incidental manner in the course of other professional activity regulated by law or by the profession itself.

Cross border implications
Cross border issues have not been resolved in the proposal. Hence, it is currently uncertain whether firms located within the European Economic Area (the 'EEA') will be able to passport a home state EU 'MiFID'-license for the purpose of offering their services related to shares in partnership structures to non-professional investors in the Norwegian market, or whether a specific Norwegian license will need to be obtained. Firms outside the EEA are expected to need a Norwegian license in order to offer their services in relation to shares in partnerships to non-professional investors in the Norwegian market

Expected timing
The proposal is currently the subject of public consultation until 23 December 2009. The Ministry of Finance is thereafter expected to present a revised formal proposal for legislation to the Norwegian Parliament for enactment. It is still uncertain when the proposed amendments are likely to come into force, but 1 July 2010 seems a realistic time schedule.