Principle of Free Choice of Broker - Linkage Between Banking and Real Estate Brokerage Services

Circular The Principle of Free Choice of Broker - Linkage Between Banking and Real Estate Brokerage Services CIRCULAR: 7/2016 DATE: 19.04.2016 THE CIRCULAR APPLIES TO: Financial Undertakings FINANS TILSYNET Postboks 1187 Sentrum 0107 Oslo

The Principle of Free Choice of Broker - Linkage Between Banking and Real Estate Brokerage Services 2 | Finanstilsynet Introduction This circular applies to the marketing and recommendation of specific real estate brokerage firms by financial undertakings, including banks, in connection with lending and other banking services. In the following, the term "bank" will be used as a collective term for the undertakings covered by this circular. Banks play a central role in the housing market in Norway. Banks contribute to the financing of home purchases and are, in many cases, owners of real estate brokerage firms. There are thus close connections between financing activities and real estate brokerage activities, and it is not uncommon today for real estate brokerage firms and banks to market and recommend each other. Marketing and Recommendation of Real Estate Brokerage Firms Real estate brokerage firms shall not enter into an agreement for real estate brokerage if the conclusion of such an agreement is made a condition in an agreement for something other than real estate brokerage1. The principle of free choice of broker is intended to protect clients against unfair agreements and to prevent attempts to exploit a market position in areas other than real estate brokerage to acquire clients for brokerage activities. Banks shall conduct their business in accordance with good business practice2. Whoever sets conditions regarding brokerage assignments in an agreement for something other than real estate brokerage effectively deprives the client of the right to free choice of broker and results in the conclusion of an assignment agreement in violation of the Real Estate Brokerage Act. It is therefore contrary to good business practice if a bank attaches conditions regarding the use of a specific real estate brokerage firm in connection with lending or when offering other banking services. An example of this is that the client is offered financing on more favorable terms than otherwise, for example, a lower interest rate on bridge financing or mortgage loans, on the condition that the bank's real estate brokerage firm is used. Consumers who apply to banks for loans or refinancing in connection with the purchase and sale of housing may easily perceive the bank's recommendation of a broker as a condition for the loan or banking service. If the bank recommends its own real estate brokerage firm, explicit information must be given that entering into an assignment with the bank's broker is not a condition for the loan offer. This must be capable of being documented. Remuneration to Bank Employees The Financial Undertakings Act prohibits employees of the bank from receiving remuneration from the real estate brokerage firm for marketing or recommendation3. According to what Finanstilsynet has experienced, it is not uncommon for the bank's case handler to receive a fee for each loan customer who enters into a real estate brokerage assignment with the bank's real estate brokerage firm.

1 Real Estate Brokerage Act § 6-3 (3) 2 Financial Undertakings Act § 13-5 (4) 3 Financial Undertakings Act § 9-4 (1)

The Principle of Free Choice of Broker - Linkage Between Banking and Real Estate Brokerage Services Finanstilsynet | 3 Banks shall organize their business in such a way that there is little risk of conflicts of interest between the bank and its clients, or that client treatment occurs in violation of the requirements for good business practice4. Incentive schemes that are conditional on the bank customer entering into a real estate brokerage assignment will entail a risk that conditions will still be placed on the conclusion of an assignment with a specific real estate brokerage firm, and in Finanstilsynet's assessment, entail an unacceptable high risk that client treatment will occur in violation of good business practice.

Ole-Jørgen Karlsen Anne-Kari Tuv Section Manager Section Manager Section for Administration and Crisis Preparedness Section for Real Estate Brokerage and Debt Collection

4 Financial Undertakings Act § 16-1 (4)

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