Financial Supervisory Authority of Norway finds multiple breaches at Cleaves Securities in placements of unlisted shares and bonds

The Financial Supervisory Authority of Norway has published a thematic inspection report on Cleaves Securities AS’s placement of unlisted shares and bonds, concluding that the firm breached several requirements for product governance, client reclassification, suitability assessments and customer communications about tradability and liquidity risk. The Authority found that the firm’s product handling did not identify the target market at a sufficiently detailed level for high-risk, concentrated and illiquid products, and that distribution was not adequately restricted to the identified target market. It also concluded that the firm did not follow the required procedure for reclassifying customers from non-professional to professional, including inadequate documentation that reclassification was customer-initiated and supported by the necessary written acknowledgements. For some customers in the Authority’s sample, suitability assessments were not performed in line with requirements, including cases where investments were assessed as suitable despite customer information indicating limited knowledge and experience, moderate risk preferences or financial circumstances suggesting limited loss-bearing capacity. The report also identifies telephone communications where tradability in the secondary market was overemphasised and liquidity risk underplayed, and stresses that information requirements apply to oral as well as written communications. The Authority noted that its follow-up on the compliance function’s role in the performance of suitability assessments is addressed in a separate report to the firm.