Last week the EFTA Surveillance Authority (“ESA”), the watchdog which monitors and enforces the EEA Agreement with similar powers as the European Commission, issued a final warning to Norway (a so-called reasoned opinion).
The warning states that it will bring Norway before the EFTA Court if Norway does not change national rules restricting ownership in financial institutions like banks and insurance companies. ESA opened this case in 2017, subsequent to the EFTA Court’s advisory opinion to the Oslo District Court (Oslo tingrett) in case E-08/16 Netfonds Holdings.
ESA concludes that the administrative practice conducted by the Norwegian authorities, which as a main rule denies any shareholder to own more than 20-25 percent of the total shares in financial undertakings, constitutes an unjustified restriction on the freedoms of establishment and capital movements. Consequently, ESA requires Norway to change this administrative practice. ESA has also reached the same conclusions concerning a Norwegian rule, according to which three quarters of the share capital in a bank or an insurance company shall be subscribed by capital increase without any preferential rights for shareholders or others.
Even the Norwegian Government acknowledges that such national measures constitute restrictions on the above-mentioned fundamental EEA freedoms, as they clearly hinder or make less attractive investments in such financial institutions, e.g. by excluding shareholdings above the ceiling. Hence, the contentious issue has been whether these ownership restrictions can be considered justified, as claimed by the Norwegian Government. According to the latter, the restrictive measures inter alia seek to strengthen the stability, integrity and well-functioning of the financial system. ESA recognised that the objectives allegedly pursued are legitimate, and thus in principle are capable of justifying restrictions, but rejected that they can be considered proportionate. In its proportionality assessment, ESA has inter alia focused on inconsistencies between the main rules which these ownership restrictions represent and the exemptions from them: For example, these ownership restrictions do not apply where a financial undertaking acquires control of another financial undertaking, even if the latter, if it is established in another EEA State, may be 100 % owned by one single investor.
This case is not the first time ESA puts its foot down vis-à-vis Norwegian ownership restrictions. For example, ESA has previously required Norway to give up its restriction on ownership above 20 percent in stock exchanges and securities depositories, and intervened against Norway’s ban on controlling more than 25 % of all available fish farming concessions. Regardless of whether the case will go via the EFTA Court before coming to an end, it seems much likely that Norway will end up changing these ownership restrictions.
Time will tell whether repeal of these ownership restrictions will attract new or increased investments and thus trigger changes to the ownership structure of Norwegian banks and insurance companies, or whether existing exemptions to a far extent already have accommodated the desire for ownership going beyond these ownership ceilings.