In a reasoned opinion of 11 March 2020 the EFTA Surveillance Authority (ESA) finally concluded that Norwegian rules applying an ownership ceiling of 20-25 per cent in banks and insurance companies for non-financial institution shareholders is in breach of the EEA Agreement. Norway must ensure compliance within two months.
Norway has had an administrative practice that no single shareholder has been allowed to own more than 20-25 percent of the total shares in a Norwegian bank or insurance company, unless the shareholder is itself a financial institution. Additionally, when establishing new institutions ¾ of the share capital must be placed without preferential rights for existing shareholders.
These rules have effectively excluded private equity funds from acquiring more than 25 per cent of the shares in Norwegian banks and insurance companies. An Altor fund was, however, allowed in 2016 to own 25 % of Sbanken, a spin off from Skandia that is listed.
ESA is of the opinion that Norway has failed to fulfil its obligations arising from Articles 31 and 40 of the EEA Agreement, and is thus in breach of the EEA Agreement. ESA strongly state that the argument of the Norwegian government that such ownership restriction may contribute to financial stability of the market, is unlikely at it holds that it is questionable if the restriction may has such effect whatsoever.
Norway has two months to take the measures necessary to comply with ESA’s reasoned opinion. If Norway does not comply, ESA will bring the case to the EFTA court for a final decision.
The Norwegian government has tried to delay this matter by referring to a pending court case and setting up expert working groups. The court of first instance delivered a verdict concurring with the opinion of ESA, to which the Norwegian government has appealed. Appeal court hearing has been delayed until June 2020. However, ESA is of the very clear opinion that the arguments of the Norwegian government and its working groups are insufficient and found no reason to delay its reasoned opinion any further.
We expect the Norwegian government to acknowledge that they are fighting a lost cause and will adjust its administrative practice to concur with applicable EU law and an eligibility assessment above a statutory threshold of 10 per cent only; and abolish its statutory requirement for open placing of share capital upon establishment.
Ending the administrative practice of restricting owners from holding more than 25% will not require any legislative steps. It is unlikely that the Ministry of Finance or the Norwegian Financial Supervisory Authority will be able to continue its practice of rejecting ownership applications above 25 per cent on the basis that the acquirer is not a financial institution, as this may expose the Norwegian government to lawsuits and claims for compensation.
This should open up opportunities for private equity funds in acquiring control of Norwegian banks and insurance companies.
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