Guidelines on conflicts of interest

 1. Purpose

Eika Boligkreditt AS (EBK) will take all reasonable steps to identify potential conflicts of interest, and to ensure that it is structured and organised in a way which minimises the risk of such conflicts arising between employees of EBK, their employer and the company’s clients. See section 9-11 of the Norwegian Securities Trading Act.

The purpose of these guidelines is to identify potential sources of conflicts of interest which could arise in association with EBK’s business, and to describe which measures have been established to prevent such conflicts. See section 35, paragraph 2 of the CRR/CRD IV regulations.

2. Assessing potential conflicts of interest

The company’s management is responsible for conducting regular assessments of potential sources of conflicts of interest in the company at least once a year. Such assessments will also need to be conducted in such circumstances as the choice of new priority areas, the selection of new partners, or where close ties with partners (including brokers, facilitators, banks, system suppliers and service providers) are perceived as a possible source of conflicts of interest with the employer or clients. The annual assessment is conducted by the company’s heads of departments and the CEO in connection with the annual review of internal control. The assessment must as a minimum consider whether EBK, its employees or persons who act on its behalf could find themselves in positions where they:

• could achieve financial benefits or avoid financial losses at the expense of the interests of the owner banks or the mortgagees
• have financial or other grounds for prioritising the interests of a partner, facilitator or broker ahead of the interests of the owner bank or end customer.

3.   Company’s framework for handling conflicts of interest

Division of Roles and organisation

In order to handle conflicts of interest in practice, a clear distinction will always be made between execution and controls. Such a division of roles provides a key instrument for dealing with conflicts of interest. Provision must be made for handling such conflicts to ensure that control functions and reporting in the company have adequate organisational independence in terms of who is responsible for discharging them. As far as possible, conflicts of interest must be handled by organising the potential source away. Employees must continuously provide the company with information on possible conflicts of interest which might arise. As soon as an employee becomes aware of a possible conflict, they must inform their immediate superior and risk-reducing measures must be implemented.

Personal transactions by employees

EBK’s employees may conduct trades in financial instruments on their own account (personal transactions) which could come into conflict with EBK’s interests. The company’s board has therefore specified some restrictions which could be significant in preventing possible conflicts of interest and impartiality issues from arising, and which apply for all EBK employees.

• Personal transactions are not permitted in financial instruments issued by the shareholder banks in Eika Boligkreditt AS or Eika Gruppen AS.
• Personal transactions are not permitted in debt instruments issued by financial institutions and insurance companies.[1]
• Prohibition on trading when in possession of inside information: Employees and their related parties may not trade, including subscribing to issues, if the employee is in possession of information on the financial instruments, their issuer or other conditions likely to influence the price of the financial instruments and which is not publicly available or known in the market (insider trading). Where primary insiders are concerned, special qualification requirements govern trading in financial instruments issued by the company which the primary insider is inside.
• Furthermore, the employee is required to show particular caution in relation to the above point when trading in equity instruments issued by Norwegian and Nordic financial institutions.
• Employees must not participate in other decisions in the company on the purchase or sale of or subscription to financial instruments issued by a company which the person concerned leads or holds a leading position in or where they are a director or a member of the corporate assembly.
• Nor must employees participate in the consideration of any issue which has significance for themselves or their related parties, such that the person concerned must be considered to have a special personal or financial interest in the issue.
• Employees may not buy financial instruments from their employer’s business or sell financial instruments to their employer’s business.
• Employees may not buy or sell financial instruments from/to the company’s clients.
• Where the employee has authority to conduct trading in individual financial instruments for the company, and the company utilises this opportunity, the person concerned will be prohibited from trading in corresponding financial instruments.
• Employees are not permitted to buy or sell on their own account through EBK’s primary brokers. These are securities companies which regularly provide investment services of significant scope to EBK.

“Significant scope” means more than 10 per cent of gross turnover for the past six months. The company will produce updated lists quarterly or as required specifying which securities companies may not be used. Updated lists are available in the company’s shared area.[2]

It will be possible to use online banking to trade in financial instruments at some of EBK’s primary brokers. That applies, for example, to DNB Bank ASA (as long as DNB Markets is one of the company’s primary brokers).

Restrictions on utilising primary brokers do not apply to subscribing for shares in relation to pre-emptive rights pursuant to the Norwegian Acts on limited liability and public limited liability companies.

Advance clearance 

All trading for an employee’s own account in bonds, certificates and other debt instruments must be cleared in advance in writing with the company’s CEO. Such clearance is not required for share trading.

It is considered sufficient that the clearance duty coves types of instruments which the company can invest in. The CEO can delegate this clearance to a specifically designated person. Should the latter wishes to conduct their own trades, they must clear that with the CEO. The CEO must clear their own trades with the chair of the company’s board.

Employee trades can be cleared without further investigation of the investment portfolio if the financial instrument concerned falls outside the investment range in the company’s strategy for capital management and associated investment mandates.

Office or position in other financial institutions/business activity

Sections 9-1, 9-2 and 9-3 of the Act on Financial Institutions impose restrictions on directors and executives holding boardroom and management office in other financial institutions or in undertakings which have commercial ties with the financial institution, and on participating in business activity, since such offices may come into conflict with the financial institution’s interests. Holding such offices is basically prohibited unless they are considered insignificant in relation to the considerations which the Act is intended to address.

EBK’s job instructions for the executive management and for people in key functions make it clear that taking on other work or offices requires approval. Furthermore, the instructions for the company’s board state that, as a rule, its directors cannot be directors or members of the executive management of another financial institution. However, this does not prevent employee representatives, CEOs or employees in the alliance banks from accounting for up to three quarters of the company’s directors, pursuant to section 9-1, paragraph 4 of the Act on Financial Institutions. When assessing  boardroom and management posts in EBK, notification must be made in accordance with the following structure.

As the figure above shows, the risk function, on receipt of a notification sent to risk.ebk@eika.no, must follow up the offices of directors and executive management in an ongoing overview. Notification must be given before commencing the office/post. Non-commercial work done or offices held by employees and directors, such as board membership in residential cooperatives or voluntary organisations, are not subject to the notification routine.

See also the board instructions for a description of the assessment of directors’ impartiality and their duty of loyalty.

Capital management

Furthermore, a potential risk exists that employees may have incentives to accept an undesirably high level of risk on behalf of the company for their own financial benefit. To prevent undesirably high risk, guidelines have been established for capital management in the company – including maximum interest-rate and credit spread risk and maximum limits for each counterparty. Company employees are not entitled to bonuses, which also contributes to an extremely low risk of potential conflicts of interest related to capital management. The return on the liquidity portfolio is to be measured against similarly composed reference indices – the OB Money Market 3 Month Index and the OB Treasury Bills < 180 days index with weightings of 60 and 40 per cent respectively – which provide a natural basis for comparison when investing in securities with low interest-rate and credit risk.

Remuneration

EBK’s remuneration system is described in its Guidelines for remuneration. The company does not have variable remuneration after its bonus scheme was discontinued in 2017. Its remuneration system is considered to present little risk for creating conflicts of interest.

Restrictions on competition

The company does not enter into agreements which restrict competition. It applies reputable methods when doing business with clients, suppliers and other partners. Borrowing rates charged to the distributor banks are the same for each of them, and based on the principle that EBK only covers its costs. Distributor banks determine the mortgage rates they charge to their customers. The difference between interest-rate terms for mortgagees and the bank’s borrowing rate is repaid to the bank in its entirety as commission. EBK will ensure that no information is made available which could influence behaviour to restrict competition among the distributor banks with regard either to interest-rate terms for customers or market behaviour otherwise.

Ethical guidelines

Employees are required to observe the company’s ethical guidelines with regard to possible gifts from or entertainment by business contacts. Furthermore, the guidelines regulate conditions related to impartiality and the duty of confidentiality.

Outsourcing

Where outsourcing is concerned, all possible conflicts of interest and how these are to be countered must always be assessed when entering into such contracts. Should it not be possible to establish measures for countering conflicts of interest, outsourcing must not be utilised.

1. Documentation

All potential sources of conflicts of interest must be documented and reported as part of the company’s internal control procedures. In the annual internal control review, each manager will conduct a self-assessment of management and control in their own area, including an assessment of how conflicts of interest are handled. If individual cases occur, these must also be described in the annual management confirmation.

As part of internal control, the employer can require that the employee provides a declaration confirming that the rules in these guidelines are observed.

These guidelines were approved by the board of directors of EBK on 13 October 2021 and came into force on the same date.