Securitisation 2024 Comparisons

There is no active securitisation market in Norway for the time being and therefore no market practice exists regarding commonly securitised financial assets.

See 1.1 Common Financial Assets.

See 1.1 Common Financial Assets.

See 1.1 Common Financial Assets.

See 1.1 Common Financial Assets.

In a traditional securitisation transaction, the issuer is a bankruptcy-remote SPE which acquires the underlying financial assets from the originator by way of a true sale. The issuer finances the acquisition of the financial assets with proceeds from notes issued by it to investors in the capital markets. In synthetic securitisation, the credit risk associated with the financial assets is transferred to the SPE with the use of financial guarantees or credit derivatives. If it is a funded transaction, the SPE issues credit-linked notes to investors to put up the cash that is required as collateral for the SPE’s obligations as credit protection seller. For further details on SPEs, see 6.2 SPEs.

The original lender, originator, servicer and sponsor will typically be the same entity, normally a bank. In these circumstances, the original lender/originator will normally remain the debtors’ primary point of contact for dealings with their loan after the securitisation.

Under Regulation (EU) 2017/2402 (the “Securitisation Regulation”), it is required that the sponsor either be an investment firm or a credit institution.

The originator/seller is the entity which was involved in the original agreement which created the financial assets being securitised or which has purchased a third party’s financial assets on its own account and then securitised them.

To fund the acquisition of the underlying portfolio in a securitisation, the SPE issues notes in the capital markets. In this process it is assisted by placement agents and underwriters, commonly referred to as arrangers and/or mangers (usually investment banks). They are responsible for structuring the securitisation transaction, marketing the notes and may also act as underwriters. If the originator itself is an investment bank, it may act on its own behalf in this role.

The servicer manages the pool of purchased receivables or the underlying credit exposures on a day-to-day basis. To protect the rights and interests of the debtors under securitised loans, recently adopted Norwegian legislation requires the servicer of a securitised loan portfolio to be either a bank, a non-banking credit institution or a finance company, if the originator is a financial institution. The requirement ensures that the servicer is proper and fit to service and collect the securitised loans.

As a general rule, there are no restrictions on the replacement of the servicer with another entity, for example if the servicer does not comply with its contractual obligations or becomes insolvent. The Norwegian Ministry of Finance (the Ministry of Finance) noted in the preparatory works to the recently adopted Norwegian legislation that the replacement should be executed in an orderly manner. Among other things, this entails protecting the rights and interests of the debtors and providing for continued reporting under the Norwegian Act on Debt Information following a replacement.

The servicer is under an obligation to take necessary steps to protect the rights and interests of the debtors under the securitised loans and to secure that the debtors are not treated differently than if the underlying loans had been transferred to a financial institution.

To ensure a sound treatment of complaints from debtors under the securitised loans arising after the transfer of the loans to the SPE, the servicer shall represent the SPE in non-judiciary dispute resolution mechanisms organised by the state.

By subscribing for the issued notes, investors of securitisation positions fund the SPE’s acquisition of the corresponding underlying financial assets. Further, the investors assume the credit risk of the securitised portfolio as investors only have recourse to the cash flows generated by the portfolio.

The Securitisation Regulation includes a number of due diligence and monitoring requirements for investors.

The trustee is appointed to safeguard the noteholders’ rights and interests and to be their representative in dealings with the issuer. Further, the trustee monitors the conduct of other parties during the life of the transaction and the distribution of cash flows generated by the underlying pool of assets. In an enforcement scenario, the trustee will act on behalf of the noteholder community.

The role of the security agent is to create, manage and, if necessary, enforce security on behalf of the noteholder community.

As outlined in more detail in 6.1 Insolvency Laws, under Norwegian law, bankruptcy-remote transfers require a legal, valid and binding transfer agreement between the originator and the SPE. Further, the transfer must be considered a “true sale”, meaning that the substantial risk on the underlying financial assets must be transferred to the SPE.

There are no specific requirements to ensure that a transfer of financial assets is valid and enforceable. For a legal charge to be valid it must be established in accordance with the Norwegian Pledge Act. To obtain legal perfection, additional requirements must be met; see 6.3 Transfer of Financial Assets.

As there is currently no active securitisation market in Norway and the adopted securitisation framework has still to enter into force, it is not possible to indicate the principal subject matters covered in documentation for securitisation transactions.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 3.1 Bankruptcy-Remote Transfer of Financial Assets.

See 4.2 General Disclosure Laws or Regulations.

The recently adopted Norwegian legislation includes a requirement to inform the debtors under securitised loans of the identity of the SPE, of the servicer, and of the rights and obligations of the SPE and the servicer towards the debtor. The information must be provided no later than three weeks before the loans are sold and transferred from the originator to the SPE. The rules do not afford the debtors any right to object to the transfer or opt out of the securitisation.

In addition to the legislative acts outlined in 4.1 Specific Disclosure Laws or Regulations, Regulation (EU) 2017/1129 (the “Prospectus Regulation”) has been incorporated in Norwegian law and will be the main source of general disclosure obligations for public securitisation transactions undertaken by Norwegian originators.

Under the Prospectus Regulation, a prospectus shall contain the necessary information which is material to an investor for making an informed assessment of:

• the assets and liabilities, profits and losses, financial position, and prospects of the issuer and of any guarantor;
• the rights attaching to the securities; and
• the reasons for the issuance and its impact on the issuer.

The prospectus shall also include risk factors, but only those risks which are material and specific to the issuer and its securities.

The application of the Prospectus Regulation depends on whether the offering or listing of securities in a securitisation requires a prospectus to be published. This is the case where there is a non-exempt public offering or a listing of the SPE’s securities on a regulated market.

The recently adopted Norwegian legislation does not contain requirements on credit risk retention above and beyond what is set out in the Securitisation Regulation.

To secure a certain degree of alignment between the investors’ and the originator’s interests in a securitisation transaction, the Securitisation Regulation requires the originator, sponsor or original lender to comply with certain risk-retention requirements. In general, a minimum of 5% of the net economic credit risk related to the securitisation must be retained.

The Securitisation Regulation includes an exhaustive list of five acceptable risk retention techniques. It is expected that many parties will prefer the less complex risk-retention methods – ie, first loss exposure (where the parties retain a first loss exposure of at least 5% of every securitised exposure in the securitisation) and vertical slice (where the parties retain at least 5% of the nominal value of each tranche sold or transferred to investors).

The Securitisation Regulation also sets out certain exemptions from the risk-retention requirement – eg, in cases where the securities are fully, unconditionally and irrevocably guaranteed by central banks or central governments.

Under the Norwegian Act on Debt Information, Norwegian financial institutions are required to report certain information to an authorised debt registry institution. As the SPE is exempted from the local licensing requirement, and thus not a financial institution for these purposes, the recently adopted Norwegian legislation instead imposes the reporting obligation on the servicer of the securitised portfolio (usually the originator).

The transparency requirements under the Securitisation Regulation include periodic reporting obligations. Pursuant to Article 7, the responsible entity in a securitisation transaction shall make quarterly investor reports available, or, in the case of asset-backed commercial paper, monthly investor reports.

The activities of rating agencies are regulated in Regulation (EU) 1060/2009 (CRA Regulation), amended by Regulation (EU) 513/2011 (CRA 2) and Regulation (EU) 462/2013 (CRA 3). These regulations provide the regulatory framework for credit rating agencies and are incorporated by reference in Norwegian law. Among other things, credit rating agencies are required to be registered and supervised, and are required to use rating methodologies that are rigorous, systematic, continuous and subject to validation based on historical experience, including back-testing.

Notably, Article 8c in the CRA Regulation requires the issuer in securitisation transactions to obtain a double credit rating, issued by two different credit rating agencies. Further, the issuer should consider appointing at least one credit rating agency which does not have more than 10% of the total market share.

ESMA is responsible for registration and supervision of credit rating agencies in the EU. In Norway, the Financial Supervisory Authority of Norway (FSAN) is the competent authority under the CRA Regulation.

Norwegian credit institutions and investment firms are subject to the regulatory capital requirements under Regulation (EU) 575/2013 (the “Capital Requirements Regulation” or CRR). The CRR has been amended by the so-called “banking package” consisting of Regulation (EU) 2019/876 (CRR II), Directive (EU) 2019/878 (CRD V) and Directive (EU) 2019/879 (BRRD II).

Norwegian legislation implementing the “banking package” entered into force in June 2022.

Under the CRR, the originator may exclude the underlying exposures in a securitisation from the calculation of its risk-weighted exposure amounts and expected loss amounts if:

• significant credit risk associated with the securitised exposures is considered to have been transferred to third parties (significant risk transfer or SRT); or
• the originator institution applies a 1.250% risk weight to all securitisation positions it holds in the securitisation or deducts these securitisation positions from its Common Equity Tier 1 items.

If any of these requirements are met, credit institutions and investment firms will only be required to hold regulatory capital for the securitisation positions they retain in the transaction. The retained securitisation positions receive risk-weights which are calculated under the applicable approach set out in the CRR.

As competent authority under the CRR, the FSAN may decide on a case-by-case basis that significant credit risk shall not be considered to have been transferred from the originator to the SPE (the commensurate risk transfer test). However, where the originator is able to demonstrate that the reduction in capital it needs to hold after the securitisation is justified by a corresponding and true credit risk transfer from the originator to third parties, this test will be passed.

The recently adopted Norwegian legislation does not include any specific provisions relating to the use of derivatives in securitisation transactions other than what follows from the Securitisation Regulation.

Norway has implemented Regulation (EU) 648/2012 (EMIR).

The key elements of investor protection consist of asset segregation, bankruptcy remoteness, risk retention and disclosure provisions in the Securitisation Regulation as well as the disclosure requirements in the Prospectus Regulation.

Further, the Securitisation Regulation requires a minimum standard of due-diligence measures from institutional investors before investing in securitisation positions. This includes a comprehensive and thorough understanding of the securitisation position and its underlying exposures. The investor is also required to monitor the positions on an ongoing basis and implement written policies and procedures for the risk management of the securitisation position.

Under Norwegian law, there are no specific rules applicable to securitisations performed by banks as compared to other financial institutions. Norwegian banks will be permitted to securitise their financial assets and also invest in securitisation positions. Accordingly, any such transactions will be subject to the same legal framework as described elsewhere in this chapter, with the overriding legal framework being the Securitisation Regulation and the CRR.       

There are no special rules that apply to the form of SPEs accomplishing securitisations in Norway. As noted in 6.2 SPEs, Norwegian corporate or similar law is not very well suited for SPEs in securitisation transactions and it is assumed that Norwegian financial institutions wishing to use securitisation would utilise SPEs registered outside of Norway, for instance in Ireland or Luxembourg.

There are no specific provisions under Norwegian law which relate to activities that should be avoided by SPEs in relation to securitisations.

Under the Securitisation Regulation, the SPE may only perform activities appropriate to accomplishing the purpose of carrying out securitisations.

There is currently no active securitisation market in Norway and thus no government-sponsored entities participate in the Norwegian securitisation market.

The new Norwegian legislation does not contain any particular rules preventing securitisation from being carried out by government-sponsored entities.

Norwegian investors are not restricted from investing in foreign securitisation positions. The impact of the new securitisation framework on the Norwegian capital market is difficult to predict. Generally, the investor base for securitisation positions in true sale securitisations are expected to consist mainly of large and institutional investors, such as financial institutions, pension funds and insurance companies. The riskier tranches of true sale securitisations and synthetic securitisations are expected to be placed with investors demanding a higher rate of return on their investment and who are willing to accept higher risk – eg, specialised funds.

See 1.3 Applicable Laws and Regulations.

Synthetic securitisation is a securitisation whereby the credit risk associated with the underlying financial assets is transferred to an SPE and/or investors without a true sale. This can be achieved either by the use of credit derivatives or financial guarantees.

Compared to traditional securitisation, synthetic securitisation is both more flexible and faster to implement, mostly due to the fact that the underlying financial assets are not transferred by way of a true sale transaction. Thus, the costs related to the transaction may be lower than for a traditional securitisation. In contrast to traditional securitisations, the purpose of a synthetic securitisation is almost always capital management and very rarely funding.

Synthetic securitisation will be subject to the same legal framework as traditional securitisation in Norway. Applicable laws depend on the structure of the transaction. For instance, the provision of a financial guarantee in a synthetic securitisation may trigger a local licensing requirement and the use of credit derivatives to transfer credit risk may be subject to the requirements under EMIR.

The Norwegian legislation currently in force does not explicitly provide for securitisation and, in practice, securitisation is therefore impossible for Norwegian financial institutions.

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 the Securitisation Regulation in the EU, the Ministry of Finance 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 in November 2023. 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. 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 the CRR to also provide an STS framework for synthetic securitisation transactions. On 7 September 2021, the Ministry of Finance published a consultation paper on new legislation to implement these two regulations in Norway. The consultation paper was prepared by the 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.

Norwegian corporate or similar law is not particularly well-suited to facilitate the use of Norwegian SPEs in securitisation transactions. Based on feedback received in the legislative hearing, the Ministry of Finance assumed in its legislative proposal that Norwegian financial institutions will likely prefer to use SPEs registered outside of Norway in securitisation transactions, for instance SPEs registered in Ireland or Luxembourg. Consequently, amendments to Norwegian corporate or similar law have not been proposed and adopted at this stage.

There are no specific requirements to ensure a transfer of financial assets is valid and enforceable by the transferee against the transferor under Norwegian law. However, legal perfection rules must be observed to ensure protection against the transferor’s creditors. In case of transfer of monetary claims, the debtor to such claims must be notified, as further described below.

Legal charges must be established pursuant to the terms of the Norwegian Pledge Act. Certain requirements must be fulfilled for the legal charge to be valid between the parties. Notably, it is not permitted to establish a “floating” charge over all the chargor’s assets. Furthermore, the chargor may not grant security over less than the chargor’s entire ownership in the charged asset.

As outlined in 6.1 Insolvency Laws, the securitised financial assets would, as a general rule, not form part of the originator’s insolvency estate as they do not “belong to” the insolvent originator following a true sale of the assets. To ensure that the underlying assets are bankruptcy remote, it is key that the substantial risks associated with them are transferred to the SPE. Further, the overriding claw-back provisions in Norwegian insolvency legislation must be observed.

See 6.1 Insolvency Laws.

There is no stamp duty or other documentary taxes on the transfer of financial assets. Certain fees must be paid for registering title transfers in the relevant mortgage registers and there are maximum fees for electronic mass-registration of multiple title transfers.

As outlined in 6.2 SPEs, it is expected that Norwegian securitisations will utilise SPEs registered outside of Norway. Generally, Norwegian income tax would not apply to the non-Norwegian SPE’s income which is derived from the acquired underlying financial assets.

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.

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.

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

The recently adopted legislation does not include any securitisation-specific accounting rules.

In general, the accounting analysis would be independent of the legal analysis. Consequently, a securitisation may be considered off-balance sheet from a legal perspective but on-balance sheet for accounting purposes.

With respect to the de-recognition of the underlying financial assets in the originator’s balance sheet, the preparatory work to the recently adopted Norwegian legislation refers to the accounting for financial instruments under International Financial Reporting Standards 9 (IFRS 9).

As already noted, there is no active securitisation market in Norway for the time being. However, it is not market practice in Norway for legal opinions to also address accounting matters.