Co-location and Shared Operations Between Real Estate Brokerage Firms and Banks

FINANS TILSYNET Postboks 1187 Sentrum 0107 Oslo Circular Co-location and shared operations between real estate brokerage firms and banks

CIRCULAR: 9/2017 DATE: 03.10.2017 THE CIRCULAR APPLIES TO: Real estate brokerage firms

Co-location and shared operations between real estate brokerage firms and banks 2 | Finanstilsynet

1 Introduction Banks play a central role in the housing market in Norway. Banks contribute to the financing of home purchases and, in many cases, own real estate brokerage firms or have close commercial cooperation with them to distribute loans and other banking services.

Some industry actors wish to link banking services and brokerage more closely, streamline operations, and realize greater synergies. One way to achieve this is to co-locate the businesses so that customers have access to both banking and real estate brokerage services at the same location, and employees perform tasks for both the real estate brokerage and the banking business.

The purpose of this circular is to clarify within what framework a real estate brokerage firm can be co-located with a bank, and to what extent shared operations may occur. Regarding the marketing by banks and recommendations of specific real estate brokerage firms in connection with lending and other banking services, see Finanstilsynet's Circular 7/2016.

2 Co-location The Real Estate Brokerage Act does not prevent a real estate brokerage firm from being co-located with a bank. A prerequisite for this is that the co-location is not suitable to weaken trust in the real estate brokerage firm's integrity and independence¹. This places requirements on proper information handling both at the real estate brokerage firm and at the bank.

Real estate brokerage firms must have written routines to ensure proper information handling between the firm and the bank. The real estate brokerage firm also has a duty to follow up that the bank has established routines for proper information handling. The duty of confidentiality for the real estate brokerage firm and its employees² also applies towards the bank and its employees. Similarly, the rules on confidentiality in the Financial Undertakings Act³ apply to the real estate brokerage firm. Bank employees shall not have access to the broker's IT systems, customer databases, document areas, etc., and brokerage employees shall not have such access to the bank's systems. Customer and personal data may only be exchanged in accordance with the rules in the Personal Data Act.

Proper information handling also places requirements on the condition and design of the premises. The prerequisite for lawful co-location is not present when the premises are arranged in such a way that there is a real risk that the duty of confidentiality will not be observed, for example if brokerage employees can see the computer screens of bank employees, or if paper documents from the brokerage business are visible to bank employees. If a broker were to gain access to information from the bank, such as the bidder's credit limit, this would be destructive to trust in the broker's integrity and independence in conducting the bidding round. A significant part of a broker's contact with the client and interested parties takes place over the phone, and the content of the conversations is often covered by the duty of confidentiality. Therefore, the firms should not be co-located in a way that allows bank employees to overhear such conversations. Open office landscapes, where bank employees and brokerage employees sit side by side, lead to a high risk of breaching the duty of confidentiality and are therefore not acceptable.

This is, however, not an obstacle for the bank and the real estate brokerage firm to have some common areas, such as space for customer reception, dining rooms, and meeting rooms.

3 Shared Operations In the case of co-location, there may be a desire from the firms' side for some shared operations, for example so that employees of the real estate brokerage firm can also handle bank customers. Employees who perform work that is part of real estate brokerage cannot engage in other business that is suitable to weaken trust in the firm's integrity and independence⁴. This means that employees who perform work that is part of real estate brokerage cannot perform work that is part of banking business.

Employees who do not perform work that is part of real estate brokerage are not subject to these restrictions. The Real Estate Brokerage Act is therefore not an obstacle for the real estate brokerage firm and the bank to share, for example, reception, cleaning, and concierge services. For such employees, clear agreements, routines, and guidelines must be established to ensure that information from the brokerage business does not enter the banking business and vice versa.

Anne Merethe Bellamy director for market supervision Anne-Kari Tuv section chief

1 Real Estate Brokerage Act § 6-3 first paragraph second sentence 2 Real Estate Brokerage Act § 3-6 3 Financial Undertakings Act §§ 9-6, 9-7 and 16-2

Co-location and shared operations between real estate brokerage firms and banks Finanstilsynet | 3

4 Real Estate Brokerage Act § 5-2 first paragraph

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