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The Norwegian Banking Law Commission has recently handed over its proposal for implementation of the Bank Recovery and Resolution Directive, 2015/59/EU ("BRRD") and the Deposit Guarantee Schemes Directive, 2014/49/EU ("DGSD") to the Norwegian Ministry of Finance. The implementation is suggested to be done by two chapters of the Financial Institutions Act of 2015 (in Norwegian: Finansforetaksloven).
The proposal has been sent out for a public hearing and the deadline for comments is 9 January 2017.
The implementation is not expected to result in any significant changes to Norwegian financial institutions or their customers.
DGSD largely continues the rules in previous directives on guarantee schemes for bank deposits. The current chapter 19 of the Financial Institutions Act of 2015, concerning the Norwegian Banks’ Guarantee Fund, has already been adapted to meet the requirements in the previous directives. The Norwegian adaption of DGSD has therefore primarily required technical and editorial amendments, by way of amendments to chapter 19 of the Financial Institutions Act of 2015.
The Bank Law Commission has proposed to maintain the Norwegian deposit guarantee scheme limit of NOK 2 million, although the directive has a lower limit of EUR 100,000. The Banking Law Commission has proposed to retain this limit until 31 December 2018. The limit is however part of an ongoing discussion with the EU, and the Norwegian Minister of Finance has admitted that the Norwegian guarantee scheme will have to be changed at some point.
It is further worth noting that the Banking Law Commission has proposed that the stipulated limit should not apply to several deposits related to client accounts, transfer of real estate and compensation payments etc., as these are proposed to be guaranteed in its entirety in a period of 12 months. The DSGD provides some flexibility on this issue, and the Banking Law Commission has proposed to exploit this scope.
The BRRD´s requirements for national legislations are formulated as minimum requirements. A state is therefore required to abolish rules that are contrary to the minimum requirements, but they are entitled to adopt stricter rules, if they see the need for such national additions.The Banking Law Commission has not seen the need to introduce new and stricter rules beyond the minimum requirements. The commission has proposed to implement the directive as it is, and at the same time keep some of the Norwegian rules that already exist. The Banking Law Commission has proposed to implement the BRRD as a new chapter 20 in in the Financial Institutions Act of 2015. The most significant changes are (i) rules requiring the banks and financial institutions to have plans ready for emergencies and emergency measures, (ii) rules concerning write off and/or conversion to equity of subordinated capital and claims against the bank/financial institution ("bail-in") and (iii) the establishment of a national emergency fund.
Under Article 55 of BRRD, EEA financial institutions are required (hereinafter, the "Article 55 Requirement") to include a special term in almost every document to which they are a party and which is governed by the law of a non-EEA country pursuant to which the financial institution's counterparties acknowledge that the institution's obligations under that document are subject to an EEA regulator's exercise of those write-down and conversion powers.
The Loan Market Association's Users Guide for recommended form of bail-in clauses assumes that the Article 55 Requirement applies to EEA financial institutions and to documents governed by the law of a non-EEA country. This assumption has been made also for Norway, although Norway is not yet technically required to implement the Article 55 Requirement, since the BRRD has not yet been included in the EEA agreement. Many banks have decided to follow the LMA's Users Guide and not implemented the recommended bail-in clauses in credit facility agreements or other finance documents governed by Norwegian law.
Given Norway's "track record" when it comes to implementation of EU directives (Norway has traditionally been the "cleverest boy in class"), we believe the assumption has been reasonable and given the current proposal to implement BRRD into Norwegian legislation, we believe that also going forward it will not be necessary to include specific bail-in provisions into credit facilities or other finance documents governed by Norwegian law. This approach will be consistent with the approach taken by several Norwegian financial institutions so far.
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