Report from the Financial Crisis Commission

Today Minister of Finance Sigbjørn Johnsen received the report from the Financial Crisis Commission, Official Norwegian Report no. 2011: 1, Better positioned against financial crises. The Commission proposes a number of measures for more effective financial market regulation in Norway, closer Nordic cooperation on financial market regulation, a financial stability fee and measures to improve consumer protection in financial markets.

“The report enables a better understanding of the international financial crisis and its impact in Norway. It is reassuring that the Commission has arrived at a joint understanding of the causes and effects of the crisis. I fully agree with the Commission that the impact of the crisis in Norway was influenced by the way we made use of our room for manoeuvre in the fiscal and monetary policy, and our national discretions with respect to financial market regulation. We must now build on our achievements and make optimal use of our national room for manoeuvre. The Commission’s report provides useful input on how this can be done,” says Minister of Finance Sigbjørn Johnsen.

The Financial Crisis Commission
The Financial Crisis Commission was appointed in June 2009 to evaluate the Norwegian financial markets, including the Norwegian financial markets regulation, in the context of the international financial crisis and lessons learnt. The Commission was chaired by Jon M. Hippe, managing director of the Fafo Research Foundation. Members were appointed from a broad range of institutions, including the social partners, the financial sector, consumers, government authorities and academic institutions. The Commission was asked to describe the underlying causes of the crisis and to examine whether there were any specific national factors that contributed to the development of the crisis in Norway.

Nordic cooperation on stricter requirements
The Commission proposes that the Norwegian authorities take steps to expand Nordic cooperation on financial market regulation. Such cooperation may include imposition of stricter capital requirements than the EU minima and special requirements for systemically important financial institutions.

“Common cultural and social features, language and a high degree of economic integration, especially with respect to financial markets, means that the Nordic countries are in a good position to cooperate on regulation. Financial markets regulation and supervision must however also be seen in a broader European and international context,” says Mr Johnsen.

Regulation of risk in the financial system
The Commission recommends better monitoring of systemic risk in the financial sector (macro-prudential supervision). Norges Bank should according to the Commission’s proposal be made explicitly responsible for providing precise, substantiated advice concerning the need for macro-prudential regulation.

“More attention should be paid to systemic risk in our regulation and supervision of the financial sector. One of the challenges in this respect will be to arrive at a functional division of roles and responsibility between Norges Bank, the Financial Supervisory Authority and the Ministry of Finance. The model proposed by the Commission seems very interesting,” says the Minister.  

Fees and taxes as supplements to financial markets regulation
The Commission points out that direct and indirect taxes could be used to supplement regulation and to promote financial stability. It proposes that a new financial stability fee, levied on institutions’ liabilities excluding equity and secured deposits, should be imposed on Norwegian financial institutions. In addition, the Commission recommends that Norwegian authorities examine the basis for, and possible consequences of, a financial activities tax, levied on financial institutions’ profits and wage payments. This could be an effective way of taxing the added value generated by the financial sector.

“The Commission’s argument that new fees and taxes can be used to supplement financial markets regulation is interesting. I intend to follow up the Commissions’ proposals by a detailed review of the need for changes in the taxation of financial institutions. I have noted that several countries have already introduced, or are planning to introduce, new financial sector fees and taxes,” says Mr Johnsen.

Consumer protection
The Commission proposes a number of measures to improve consumer protection in financial markets, and to make it easier for consumers to make good investment decisions. Among the proposals are requirements concerning investment advice and standard risk profiles in defined-contribution pension schemes.

“There have been many examples in recent years showing that consumers and other non-professionals need sound guidance and legal protection in financial markets. Consumer protection and consumer safety in financial markets has been and is an important issue for the Ministry of Finance. I am therefore pleased that the Commission has proposed measures to strengthen the position of consumers and other non-professionals in financial markets,” says the Minister.

Following up the report
The Ministry intends to circulate the report in a public consultation as soon as possible, with a three-month deadline for comments. The Commission’s proposals cover a broad field, and the Ministry’s follow-up after the consultation will take this into account.

See also:

• Press release from the Financial Crisis Commission
• Press note from the Financial Crisis Commission
• English summary of the Commission’s report in Appendix 2 of NOU 2011:1