Order on Third-Party Payments and Related Matters

Order on Third-Party Payments and Related Matters.1)

Pursuant to Section 45, subsections 2 and 3, Section 48, subsection 4, and Section 270, subsection 1, of Act No. 1155 of 8 June 2021 on securities dealing companies and investment services and activities, Section 50, subsection 3, and Section 373, subsection 4, of the Act on Financial Business, cf. Consolidation Act No. 1447 of 11 September 2020, and Section 7, subsection 2, and Section 26, subsection 4, of the Act on Financial Advisors, Investment Advisors and Mortgage Credit Intermediaries, cf. Consolidation Act No. 2016 of 1 November 2021, the following is stipulated:

Chapter 1
Scope of Application

Section 1. This Order applies to the following businesses, subject to subsections 2-4:

1. Credit institutions, mortgage credit institutions, and securities dealing companies that provide or perform investment services and activities.
2. Management companies for alternative investment funds and managers of alternative investment funds that provide investment services.
3. Investment advisors and financial advisors covered by the Act on Financial Advisors, Investment Advisors and Mortgage Credit Intermediaries.
4. Investment companies and credit institutions that have been granted authorization to provide investment services or activities in another country within the European Union or in a country with which the Union has concluded an agreement in the financial sector, and that conduct business in this country through a branch or a related agent established in this country.
5. Administration companies and managers of alternative investment funds that have been granted authorization to provide investment services in another country within the European Union or in a country with which the Union has concluded an agreement in the financial sector, and that conduct business in this country through a branch.
6. Branches of credit institutions and investment companies that have been granted authorization to provide investment services or activities with or without ancillary services in a country outside the European Union, with which the Union has not concluded an agreement in the financial sector, when the branch conducts such business in this country.
7. Credit institutions and investment companies that have been granted authorization to provide investment services or activities with or without ancillary services in a country outside the European Union, with which the Union has not concluded an agreement in the financial sector, when this is done as cross-border activities without establishing a branch.

Subsection 2. Sections 3 and 5 apply to credit institutions in connection with a customer's savings in funds covered by rules issued pursuant to Section 50, subsection 4, first sentence, of the Act on Financial Business.

Subsection 3. The Order does not apply when the business executes orders for customers' accounts, trades for its own account, or receives and transmits orders from customers, if the customer is a qualifying counterparty, cf. Annex 2 to the Order on Investor Protection in Securities Trading.

Subsection 4. The Order does not apply to transactions entered into in accordance with the rules applicable to a multilateral trading facility, between its members or participants or between a multilateral trading facility and its members or participants, insofar as it concerns the use of a multilateral trading facility in this country or in other countries within the European Union or in a country with which the Union has concluded an agreement in the financial sector. The Order does, however, apply to members or participants of a multilateral trading facility when they execute orders on behalf of customers through the systems of a multilateral trading facility.

Section 2. In this Order, the following terms are defined:

1. Business: The businesses mentioned in Section 1, subsections 1 and 2.
2. Investment services and activities: Services and activities as mentioned in Annex 1, Section A, in connection with the financial instruments listed in Annex 2 to the Act on Securities Dealing Companies and Investment Services and Activities. With regard to managers of alternative investment funds, the services mentioned in Annex 1, No. 3, of the Act on Managers of Alternative Investment Funds etc.
3. Ancillary services: Services as mentioned in Annex 1, Section B, in connection with the financial instruments listed in Annex 2 to the Act on Securities Dealing Companies and Investment Services and Activities.
4. Discretionary portfolio management: Service as mentioned in Annex 1, Section A, No. 4, of the Act on Securities Dealing Companies and Investment Services and Activities. With regard to managers of alternative investment funds, service as mentioned in Annex 1, No. 3, letter a, of the Act on Managers of Alternative Investment Funds etc.
5. Investment advice: Personal recommendations to a customer, either upon request or on the initiative of the business, of one or more transactions in connection with either financial instruments as mentioned in Annex 2 to the Act on Securities Dealing Companies and Investment Services and Activities, or structured deposits.
6. Independent investment advice: Advice on a broad range of financial instruments available on the market, which differ in type and issuers or product providers, so as to ensure that the customer's investment objectives are met appropriately. The financial instruments must not be limited to financial instruments issued or offered by the business itself or by other legal persons that either have narrow connections with the business or have such close legal or economic connections with the business that this may involve a risk of weakening the independent basis of the advice provided, cf. Section 47 of the Act on Securities Dealing Companies and Investment Services and Activities.
7. Durable medium: A means that enables the user to store information addressed personally to them with the possibility of future use for a period adapted to the purpose of the information, and which allows for unchanged reproduction of the stored information.
8. Research:
   a) Research material or services in connection with one or more financial instruments or other assets, or issuers or potential issuers of financial instruments, or research material or services closely linked to a specific industry or market, such that it informs the perception of financial instruments, assets, or issuers within the relevant industry or market. b) Material or services that can be used to inform an investment strategy and are relevant and capable of adding value to the investment company's decisions on behalf of customers who pay for the research, when the material or services explicitly or implicitly contain recommendations or proposals for an investment strategy and provide a reasoned opinion on the current or future value or price of financial instruments or assets, or otherwise contain analyses and new knowledge and reach conclusions based on new or existing information.

Chapter 2
Discretionary Portfolio Management and Independent Investment Advice Receipt and Transmission of Fees, Commissions, or Other Monetary or Non-Monetary Benefits

Section 3. A business that provides discretionary portfolio management or provides independent investment advice, and which in connection with the provision of the relevant service to the customer receives fees, commissions, or other monetary or non-monetary benefits from parties other than the customer or a person acting on behalf of the customer, must pass on these fees, commissions, or other monetary or non-monetary benefits to the customer as soon as possible after receipt, subject to Section 5.

Subsection 2. The business must have procedures that ensure that received fees, commissions, or other monetary or non-monetary benefits are passed on to the customer in accordance with subsection 1, and must periodically inform the customer about such payments.

Payment of Fees, Commissions, or Non-Monetary Benefits

Section 4. A business that provides discretionary portfolio management or independent investment advice must not, in connection with the provision of the relevant service to the customer, pay fees, commissions, or non-monetary benefits to parties other than the customer or a person acting on behalf of the customer, subject to subsection 3, unless all the following conditions are met:

1. The fee, commission, or non-monetary benefit is designed to enhance the quality of the relevant service provided to the customer, cf. Section 7.
2. The fee, commission, or non-monetary benefit does not give rise to conflicts of interest with the business's duty to act honestly and professionally in accordance with the customer's best interests.
3. The business has informed the customer in advance of the provision of the relevant service about the fee, commission, or non-monetary benefit, cf. Section 9, subsection 1, Nos. 1 and 2.

Subsection 2. The business must fulfill the requirements in subsection 1, No. 1, cf. Section 7, on an ongoing basis and as long as the business pays fees, commissions, or non-monetary benefits.

Subsection 3. Subsection 1 does not include fees, commissions, or non-monetary benefits that make it possible or are necessary for the business's provision of discretionary portfolio management or independent investment advice, such as custody fees, settlement and exchange fees, statutory levies, and salaries, and which, due to the nature of the fee, commission, or non-monetary benefit, do not give rise to conflicts of interest with the business's duty to act honestly and professionally in accordance with the customer's best interests.

Non-Monetary Benefits of Minor Value

Section 5. If a non-monetary benefit can enhance the quality of the business's service to the customer, a business may, regardless of Section 3, subsection 1, receive the following non-monetary benefits of minor value from parties other than the customer or a person acting on behalf of the customer:

1. Information and documentation about a financial instrument, an investment service, or an ancillary service that is of a general nature or adapted to the individual customer's circumstances.
2. Written material from a third party that is commissioned and paid for by an issuer of financial instruments, with the aim of promoting the new issuance of financial instruments, provided that the connection between the third party and the issuer is clearly stated in the material and the material is made available at the same time for all businesses wishing to receive it, or to the general public.
3. Participation in conferences, seminars, and other educational events on one or more financial instruments or one or more investment services.
4. Catering of insignificant value at a business meeting or an event etc. as mentioned in No. 3.
5. Other non-monetary benefits of minor value that can enhance the quality of the service provided to the customer.

Subsection 2. Non-monetary benefits of minor value must be reasonable and proportionate and of such a magnitude that they do not give rise to conflicts of interest in relation to the business's duty to act honestly and professionally in accordance with the customer's best interests.

Subsection 3. The business must inform the customer that it has received non-monetary benefits of minor value before the provision of the relevant investment service or ancillary service. Non-monetary benefits of minor value may be described in a general manner in accordance with Section 9, subsection 1, No. 1.

Chapter 3
Non-Independent Investment Advice and Other Investment Services Receipt or Payment of Fees, Commissions, or Non-Monetary Benefits

Section 6. A business that provides other investment services or ancillary services than those mentioned in Section 3, subsection 1, must not, in connection with the provision of the relevant service to the customer, receive or pay fees, commissions, or non-monetary benefits from or to parties other than the customer or a person acting on behalf of the customer, subject to subsection 3, unless all three of the following conditions are met:

1. The fee, commission, or non-monetary benefit is designed to enhance the quality of the service provided to the customer, cf. Section 7.
2. The fee, commission, or non-monetary benefit does not give rise to conflicts of interest with the business's duty to act honestly and professionally in accordance with the customer's best interests.
3. The business has informed the customer in advance of the provision of the relevant service about the fee, commission, or non-monetary benefit, cf. Section 9, subsection 1, Nos. 1 and 2.

Subsection 2. The business must fulfill the requirements in subsection 1, No. 1, cf. Section 7, on an ongoing basis, as long as it pays or receives fees, commissions, or non-monetary benefits.

Subsection 3. Subsection 1 does not include fees, commissions, or non-monetary benefits that make it possible or are necessary for the business's provision of investment services or ancillary services, such as custody fees, settlement and exchange fees, statutory levies, and salaries, and which, due to their nature, do not give rise to conflicts of interest with the business's duty to act honestly and professionally in accordance with the customer's best interests.

Chapter 4
Investment Services and Ancillary Services
Quality-Enhancing Services

Section 7. Fees, commissions, or non-monetary benefits are considered to be designed to enhance the quality of an investment service or ancillary service provided by a business to a customer if all the following conditions are met:

1. The fee, commission, or non-monetary benefit is justified by the provision of an additional service or a higher level of service to the customer, which is proportional to the size of the received fees, commissions, or non-monetary benefits.
2. The fee, commission, or non-monetary benefit does not directly benefit the business, or its shareholders or employees, without the customer deriving noticeable benefit therefrom.
3. Ongoing fees, commissions, or non-monetary benefits are justified by an ongoing provision of an additional service or a higher level of service to the customer.

Subsection 2. Fees, commissions, or non-monetary benefits are not considered acceptable if the provision of relevant services to the customer is affected or distorted as a result of the fee, commission, or non-monetary benefit.

Subsection 3. An additional service or a higher level of service, cf. subsection 1, No. 1, may for example be:

1. Provision of non-independent investment advice on, and access to, a wide range of suitable financial instruments, including a suitable number of financial instruments from product providers that do not have narrow connections with the business.
2. Provision of non-independent investment advice combined with
   a) an offer to the customer to assess at least once a year the continued suitability of the financial instruments the customer has invested in, or b) another ongoing service that may be presumed to be of value to the customer.
3. Provision of access to a wide range of financial instruments at a competitive price, which the business presumes meets the customer's needs, including a suitable number of financial instruments from product providers that do not have narrow connections with the business, together with the provision of tools with extra value.

Chapter 5
Documentation

Section 8. A business must possess documentation that the conditions in Section 7 are met by

1. keeping an internal list of received fees, commissions, or non-monetary benefits to or from parties other than the customer or a person acting on behalf of the customer, and
2. registering how such fees, commissions, or non-monetary benefits enhance the quality of the service delivered to the customer, and what measures have been taken for the business to comply with its duty to act honestly and professionally in accordance with the customer's best interests.

Information to Customers

Section 9. A business must provide a customer with the following information about fees, commissions, or non-monetary benefits that have been received from or paid to parties other than the customer or a person acting on behalf of the customer:

1. Before the provision of the relevant investment service or ancillary service, the business must provide the customer with information about fees, commissions, or non-monetary benefits. Non-monetary benefits of minor value may be described in a general manner. Non-monetary benefits that are not of minor value must be priced and specified separately.
2. If the business cannot determine in advance the size of fees, commissions, or non-monetary benefits received or paid, the business must instead inform the customer in an accurate and understandable manner about which method has been used to calculate the expected amount, before the provision of the relevant investment service or ancillary service. The business must subsequently provide the customer with information about the exact amount.
3. At least once a year, and as long as ongoing fees, commissions, or non-monetary benefits are received by the business in connection with the provision of investment services or ancillary services, the business must inform the customer about the exact size of fees, commissions, or non-monetary benefits received or paid. Non-monetary benefits of minor value may be described in a general manner.

Subsection 2. In observing the disclosure obligations in subsection 1, the rules on costs and fees, including formal requirements, in the Order on Investor Protection in Securities Trading and Article 50 of Commission Delegated Regulation (EU) 2017/565 of 25 April 2016 must be taken into account.

Subsection 3. If several businesses are part of the same distribution channel, the obligations in subsections 1 and 2 apply to each individual business providing investment services or ancillary services.

Chapter 6
Research from Third Parties

Section 10. A business that provides discretionary portfolio management or other investment services or ancillary services to the customer may receive research from parties other than the customer or a person acting on behalf of the customer, without these being regarded as fees, commissions, or non-monetary benefits covered by Section 3, subsection 1, Section 4, subsection 1, and Section 6, subsection 1, in the following cases:

1. The research is paid directly by the business.
2. The research is paid from a separate research payment account controlled by the business, if
   a) the research payment account is financed by a specific research fee charged to the customer, cf. Section 11, b) the business establishes a research budget that is regularly assessed, cf. Section 12, c) the business is responsible for the research payment account, cf. however Section 13, and d) the business regularly assesses the quality of the purchased research based on solid quality criteria and their ability to contribute to better investment decisions, cf. Section 14.

Subsection 2. If the business uses a research payment account as mentioned in subsection 1, No. 2, the following information must be provided to the customer:

1. Information about the budgeted amount for research and the size of the estimated research fee charged to the customer. The information must be provided before the provision of an investment service or ancillary service.
2. Annual information about the total costs the customer has incurred for research from third parties.

Subsection 3. A business may receive research from parties other than the customer or a person acting on behalf of the customer regarding issuers, if the market value of which in the 36 months preceding the provision of the research did not exceed 1 billion euros, pursuant to Section 16.

Section 11. A business may only charge a research fee as mentioned in Section 10, subsection 1, No. 2, letter a, if the business has entered into an agreement with the customer regarding this, including an agreement on the size of the fee and the frequency with which the fee will be deducted from the customer's funds during the year. The terms of the agreement must also appear in the business's customer agreement or general business terms.

Subsection 2. The research fee must be based on the research budget established by the business pursuant to Section 10, subsection 1, No. 2, letter b, and must not be linked to the quantity or value of transactions executed on behalf of the business's customers.

Subsection 3. The total amount of received research fees must not exceed the research budget.

Subsection 4. The business must have procedures that ensure that surplus funds on the research payment account are passed on to the customer or offset against the research budget and the calculated research fee charged to the customer for the following period.

Subsection 5. If the business charges a research fee to the customer simultaneously with payment for the execution of a transaction, the business must specify the fee as a separate identifiable research fee.

Section 12. A business must manage its research budget as mentioned in Section 10, subsection 1, No. 2, letter b, based on a reasonable assessment of the need for research from parties other than the customer or a person acting on behalf of the customer.

Subsection 2. Increases in the research budget may only take place when the business has provided clear information to the customer regarding this.

Subsection 3. The business must conduct appropriate control over the use of the research budget for the purchase of research to ensure that the research budget is managed and used honestly and professionally in accordance with the customer's best interests. Control includes a clear audit trail in payments to suppliers of research, and how the paid amounts are determined in accordance with the quality criteria in Section 10, subsection 1, No. 2, letter d.

Subsection 4. The business's senior management must supervise the use of the research budget for the purchase of research to ensure that the research budget is managed and used honestly and professionally and in accordance with the customer's best interests.

Subsection 5. The business must not use the research payment account to finance internal research.

Section 13. A business may outsource the administration of the research payment account, cf. Section 10, subsection 1, No. 2, letter c, to a third party. Such outsourcing presupposes that the outsourcing agreement supports the purchase of research from third parties, and that payment for research is made without undue delay in accordance with the business's instructions.

Section 14. A