Norway: Securitisation

There is no active securitisation market in Norway for the time being.

Due to specific Norwegian banking regulation currently in force, financial institutions in Norway are not able to effectively securitise their assets absent permissive legislation. In Norway, both lending and the purchase of existing loans are regulated activities subject to license, supervision and capital requirements. These requirements would extend to the securitisation special purpose entity (SSPE) that acquires the underlying financial assets in a traditional securitisation. In addition, Norwegian consumer loans cannot be sold to SSPEs without an active and informed consent from the consumer. The requirement for an informed consent means that a pre-consent to a future transfer embedded into the terms and conditions of the loan when initially granted will not be effective.  Absent legislation explicitly removing these restrictions in the context of a securitisation, Norwegian financial institutions are effectively prevented from executing securitisation transactions.

Prior to 2016, Norwegian securitisation rules existed but were viewed as inflexible and inadequate to promote an active securitisation market in Norway. However, following the implementation of Regulation (EU) 2017/2402 (the Securitisation Regulation) in the EU, the Norwegian Ministry of Finance (MoF) published a legislative proposal on 4 December 2020 to implement expected corresponding EEA rules into Norwegian law by cross-reference in Norwegian legislation. The legislative proposal was passed by the Norwegian Parliament on 23 April 2021 but has not entered into force at time of writing. It is expected that the new legislation will take effect at the same time as the Securitisation Regulation is implemented in the EEA Agreement, the timing of which is still unknown but likely to occur during 2022. The new legislation will allow Norwegian financial institutions to securitise financial assets under the same legal framework as other financial institutions in the EU.

From the outset, the Securitisation Regulation only provided for simple, transparent and standardised (STS) designation for traditional securitisations. However, in April 2021 the EU passed Regulation (EU) 2021/557 and Regulation (EU) 2021/558 amending the Securitisation Regulation and Regulation (EU) 575/2013 (the Capital Requirements Regulation or CRR) to also provide an STS framework for synthetic securitisation transactions. On 7 September 2021, the MoF published a consultation paper on new legislation to implement these two regulations in Norway. The consultation paper was prepared by the Financial Supervisory Authority of Norway (FSAN) and follows on from the Norwegian Parliament’s adoption on 23 April 2021 of the new legislation to implement the Securitisation Regulation in Norwegian law. It is expected that this legislation will enter into force simultaneously with the legislation implementing the Securitisation Regulation.

Except for resecuritisation, which is banned under the Securitisation Regulation, the recently adopted legislation does not contain provisions that prevent certain assets from being securitised. However, the contract governing the underlying asset may impose restrictions on its assignment, thus prohibiting the asset from being securitised (eg contractual limitations on assignment in a loan agreement).

The recently adopted legislation amends the Norwegian Financial Undertakings Act of 10 April 2015 to permit securitisation by financial undertakings, including banks and other credit institutions. The new national legislation incorporates the Securitisation Regulation by reference, meaning that the Norwegian securitisation legislation will mirror the legislation for the EU in this area. It is expected that the Commission delegated and implementing acts to the Securitisation Regulation will be implemented in Norwegian law once the adopted legislation enters into force.

The legislation applies to securitisation as defined in Article 2(1) of the Securitisation Regulation, which captures both traditional and synthetic (on-balance sheet) securitisations.

There is no active securitisation market in Norway for the time being and thus there are no common structures established for the securitisation of different types of financial assets.

It is not expected that the type of underlying financial assets will determine the general structure of securitisation transactions. Rather, we expect the choice of legal structure to primarily depend on the rationale for carrying out the transaction (eg whether it is carried out for funding and/or capital or risk management purposes).  Further, the new legal framework does not, with certain exceptions, differentiate between different types of underlying financial assets.

The Norwegian Financial Supervisory Authority (FSAN) is the competent authority under the Securitisation Regulation and the CRR and will be responsible for the supervision of the Norwegian securitisation legislation and its effects on capital requirements for prudentially regulated entities.

There are no specific limitations in the recently adopted legislation with regards to the nature of entities that may participate in a securitisation transaction.

In Norway, lending and other forms of financing by extension of credit are regulated and licensed activities. The purchase of existing loans is also a licensable activity. Pursuant to the new legislation, SSPEs are exempted from capital and licensing requirements. Other entities involved in a securitisation are subject to the general regulatory requirements in the Norwegian legislation.

When the originator in a securitisation is a financial institution, the servicer of a securitised loan portfolio must be a bank, a non-banking credit institution or a finance company. It is worth noting that under existing Norwegian financial regulations, an originator of a loan will always be a financial institution.

The recently adopted Norwegian securitisation framework includes the concept of ‘simple, transparent and standardised’ securitisation by virtue of implementation of the Securitisation Regulation. There are no additional local law requirements in order to qualify for such designation.

Except for different transparency requirements in Article 7 of the Securitisation Regulation, neither the Securitisation Regulation, nor domestic legislation defines or distinguishes between private securitisations and public securitisations.

With regards to prospectus requirements, we note that Regulation (EU) 2017/1129 (the Prospectus Regulation) has been implemented in Norway. The application of the Prospectus Regulation to a securitisation in Norway depends on whether it involves the offering of securities to the public (the ‘public offer’ trigger), or whether securities are admitted to trading on an EEA regulated market (the ‘listing’ trigger).

Except for the requirements set out in the Securitisation Regulation, and, to the extent applicable, the Prospectus Regulation, there are no specific local law registration, authorisation or other filing requirements in Norway in relation to securitisations.

Under the recently adopted national legislation, the debtors under securitised loans shall receive information on the identity of the SSPE and the servicer, as well their respective rights and obligations against the debtor. The information must be provided at least three weeks before the loans are sold and transferred from the originator to the SSPE. However, the proposal does not afford the debtors any right to object or opt out of the securitisation.

Pursuant to the Norwegian Act on Debt Information, Norwegian financial institutions are required to report certain information about its exposures to an authorised debt registry institution. In the recently adopted legislation, this reporting requirement is placed on the servicer of the securitised portfolio (which typically will be the originator), because SSPEs are not financial institutions and thus not subject to the reporting requirement.

There are certain disclosure requirements in the Securitisation Regulation (particularly Article 7) and Regulation (EU) 575/2013 (CRR). A public securitisation is subject to the Prospectus Regulation (see question 8).

It is expected that the Commission delegated and implementing acts to the Securitisation Regulation, which include relevant reporting and disclosure templates, will be implemented in Norwegian law once the Securitisation Regulation enters into force in Norway.

Regulation (EU) 1286/2014 (PRIIPS) has not yet been implemented in Norway.

The Securitisation Regulation requires the originator, sponsor or original lender to comply with certain risk retention requirements. National legislation does not contain specific regulation regarding credit risk retention above and beyond what is set out in the Securitisation Regulation.

In general, the Securitisation Regulation requires that a minimum of 5% of the net economic credit risk must be retained.

The Securitisation Regulation sets out an exhaustive list of five acceptable risk retention methods, where the choice of method will, among other things, depend on whether the transaction involves significant risk transfer under the CRR or not:

• Vertical slice: retention of not less than 5% of the nominal value of each class of notes sold to investors.
• Revolving securitisations: retention of the originator’s interest in revolving assets of not less than 5% of the nominal value of each of the underlying assets.
• Random selection: retention of an interest in randomly selected on-balance sheet assets equal to not less than 5% of the nominal value of the portfolio, provided that the selection is made from a pool comprising not less than 100% of the underlying assets.
• First loss tranche: retention of the most subordinated tranche in the structure.
• First loss exposure: retention of the first loss exposure of not less than 5% of the nominal value of each underlying asset.

The net economic interest cannot be hedged, which shall ensure that the originator, sponsor or original lender shares the losses when the underlying assets fail to perform.

Article 5 of the Securitisation Regulation requires institutional investors to conduct a minimum standard of due-diligence measures before investing. This includes comprehensive and thorough knowledge of the securitisation position and its underlying exposures, including the exposure type, proportion of overdue loans, default rates and collateral type. The investor must also monitor the information on the exposures underlying the positions on an ongoing basis and have written policies and procedures in place for the risk management of its positions.

Upon request by the FSAN, institutional investors must be able to demonstrate comprehensive and thorough understanding of the securitisation position and its underlying exposures. National legislation does not impose further regulatory obligations to conduct due diligence before investing above and beyond what is set out in the Securitisation Regulation.

The standard penalties in the Norwegian Financial Undertakings Act will apply to breaches of the securitisation legislation. Primarily, breaches are sanctioned with fines, but in particularly aggravating circumstances breaches may also be sanctioned by imprisonment. The sanctions may be directed at both the involved legal entities and the responsible individuals.

Norwegian corporate law is not particularly well-suited to facilitate the use of Norwegian SSPEs in securitisation transactions. The expectation is therefore that Norwegian financial institutions will prefer to use SSPEs registered outside of Norway in securitisation transactions, eg SSPEs registered in Luxembourg or Ireland.

The Securitisation Regulation lays down a general framework for securitisation and sets out certain requirements for SSPEs used in securitisation transactions, including, among other things, that:

• The SSPE must be a corporation, trust or other entity, other than an originator or sponsor, established for the purpose of carrying out one or more securitisations; and
• the activities of the SSPE shall be limited to those appropriate to accomplishing the securitisation for which it has been established and its structure shall allow isolating the obligations of the SSPE from those of the originator.

An SSPE cannot be established in a third country listed as a high-risk and non-cooperative jurisdiction by the Financial Action Task Force or in a third country that has not signed an agreement with an EU member state to ensure that that third country fully complies with tax good-governance standards.

In Norway, lending and other forms of financing by extension of credit (including acquisition of existing loan portfolios) are regulated and licensed activities. However, as mentioned under question 6, SSPEs will be exempted from capital and licensing requirements under the new securitisation legislation.

Norwegian insolvency law does not have particular designs applicable to securitisation transactions. Since there is no active securitisation market in Norway for the time being, there are no common structures or measures utilised by securitising entities.

Norwegian insolvency law provides that an insolvency estate, as a starting point, may only seize assets that belong to the insolvent debtor (ie assets in the ownership of the insolvent debtor). However, this starting point is modified by legal perfection requirements which may entitle the insolvency estate to seize assets which have been sold by the debtor if the acquirer has failed to obtain legal perfection for its acquisition of the assets.  In this context, the assets of the acquirer would be ‘bankrupcty remote’ if it has taken all necessary steps to ensure that its rights to the assets are protected (ie legally perfected) in case of the seller’s bankruptcy.

A fundamental prerequisite for ensuring that the SSPE is bankruptcy remote, is that the assets are transferred to the SSPE by way of a valid and binding transfer agreement. The insolvency estate will not be bound by a pro forma transfer agreement, and a transfer which is not on arm’s length terms, and which unreasonably favours the SSPE at the expense of other creditors of the seller, may on certain conditions be overturned in bankruptcy.

To ensure that the assets of the SSPE are bankruptcy remote, the originator must transfer underlying financial assets to the SSPE following a ‘true sale’ transaction. For a transfer of monetary claims to be deemed a ‘true sale’ transaction, the originator must transfer the substantial risks associated with the underlying claims to the SSPE and the transaction must be undertaken on an arm’s length, solvent basis. Following a ‘true sale’ transaction, the SSPE becomes the owner of the underlying assets and, subject to legal perfection (see question 17), acquires the full legal title to the assets.

There is no active securitisation market in Norway for the time being, but these are expected to be the same as in the EU when the Securitisation Regulation enters into force in Norway.

There are no particular requirements that must be observed to ensure a valid transfer of financial assets between the parties to such transfer. However, certain actions are required to achieve legal perfection. The type of action required depends on the asset in question.

Legal perfection for assignment of non-negotiable monetary claims (such as consumer loans) under Norwegian law is achieved by notifying the obligors of the assignment. If the monetary claim is secured, assignment of the relevant security from the originator to the SSPE may be subject to a separate perfection requirement under Norwegian law.

Pursuant to the new securitisation legislation, each individual obligor under the securitised loans must be notified three weeks ahead of the transfer of the loans to the SSPE. The obligor is not afforded any right to object to or opt out of the securitisation, and this notification requirement comes in addition to any formal requirements for legal perfection of the transfer of non-negotiable monetary claims and any related security.

In the event of the originator’s insolvency, the administrator of the insolvency estate may invoke certain general overriding claw-back provisions in Norwegian insolvency law. In general, these are only applicable if the transaction is deemed to be objectively unfair to the other creditors of the insolvent party.

In the event of the originator’s insolvency, the transfer of assets may also be challenged by the administrator if the sale has not been duly perfected (see question 17) or if the transfer of the underlying financial assets can be re-characterised as a secured loan transaction (see question 15 on the requirements for a transfer to be deemed a ‘true sale’ transaction).

Financial institutions are subject to a strict duty of confidentiality towards their customers. In general, this means that financial institutions as originators are prohibited from disclosing information about the obligors under the underlying loans to third parties without prior consent from the relevant obligors. There are no exemptions from the duty of confidentiality in the legislation on securitisation.

Data protection in Norway is governed by Regulation (EU) 2016/679 (GDPR) and by the Norwegian Personal Data Act, which both apply to the gathering and processing of personal data. These rules will also apply to securitisation transactions.

The activities of rating agencies in Norway are regulated by Regulation (EU) 1060/2009 (CRA Regulation), Regulation (EU) 513/2011 (CRA 2) and Regulation (EU) 462/2013 (CRA 3), which are all incorporated by reference in Norwegian legislation. The FSAN is the competent authority under the CRA Regulation.

The Norwegian legislation implementing the Securitisation Regulation does not address the tax treatment of securitisation transactions. Currently, there is no active securitisation market in Norway and historically the activity in the Norwegian securitisation market has been low mainly due to an impractical framework. Thus, there is very little guidance and certainty on the tax treatment of securitisation transactions in Norway. Some general considerations are set out below:

In Norway, financial services are generally exempt from Norwegian value added tax (VAT). The exemption includes the sale of receivables and consequently also the transfer of the underlying financial assets from the originator to the SSPE. Furthermore, Norwegian income tax will generally not apply to the SSPE’s income from the acquired underlying financial assets, provided that SSPE is located outside of Norway.

Effective from 1 July 2021, a 15% withholding tax applies to interest payments made to related parties in low tax jurisdictions. Payments to entities genuinely established and conducting real economic activity in an EU/EEA member state are exempt from such withholding tax.

There is no active securitisation market in Norway for the time being. In general, there are no restrictions on global or cross-border transactions. The exemption for SSPEs from the Norwegian banking licensing requirement applies equally to SSPEs located outside of Norway.

There is no active securitisation market in Norway for the time being.

The recently adopted legislation on securitisation in Norway has been well received by representatives from the Norwegian financial industry. In particular, when comparing the new framework with the previous securitisation framework in Norway, it has been developed with a view to make securitisation feasible in practice and not only on paper. It remains to be seen whether the new framework is sufficiently attractive to develop a substantial securitisation market in Norway.

The new national legislation implements the Securitisation Regulation by reference with only a few amendments to existing Norwegian legislation. More detailed regulations are likely to be passed at a later stage when a securitisation market starts to develop in Norway. For market participants interested in carrying out securitisation transactions under the new framework, the current lack of more detailed regulation may cause some unwanted unpredictability. Also considering the limited precedents in Norway in this area, it is difficult to predict with certainty how competent authorities will interpret and apply relevant legislation on securitisation transactions to come. In any event, future national legislation will need to observe the requirements of the Securitisation Regulation and any Commission delegated or implementing acts adopted thereunder, if and to the extent incorporated into the EEA Agreement. This gives market participants some level of certainty in terms of what to expect from the Norwegian legislator and other relevant authorities.

As there is currently no active securitisation market in Norway, we have not seen parties having to deal with new or unusual legal issues caused by the pandemic.

As outlined under question 1, the MoF has published a consultation paper on new legislation to implement Regulation (EU) 2021/557 and Regulation (EU) 2021/558 in Norwegian law. These regulations amend the Securitisation Regulation and the CRR to, among other things, extend the scope of the STS framework from only true sale securitisations to synthetic securitisations and remove existing regulatory obstacles to the securitisation of non-performing exposures (NPEs). In general, the purpose of these amendments was partly to fix some of the issues caused for NPE securitisations under the previous regulatory framework and thereby aid EU banks in their efforts to tackle the increasing levels of NPEs on their balance sheets caused by the COVID-19 pandemic. The pandemic has not caused material new national regulation or legislation for securitisation specifically.

If the underlying receivables are secured, transfer of the relevant security to the SSPE may require the security to be re-registered in the name of the SSPE in order to obtain legal perfection. Such registration is subject to a fee upon filing to the relevant register. 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) is expected to be introduced in Norway, similar to what is already in place for mass-registration of title changes to mortgages registered in the Norwegian Land Register for real property.