CPEffective Insolvency and Creditor Rights Systems
In its 2003 report for the "Best Project on Restructuring, Bankruptcy, and a Fresh Start," the European Commission's Expert Group reported that that Finland had fully adopted 19 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank. The report also states that Finland has almost fully adopted 15 principles, partially adopted 5 principles, and has not adopted 2 principles. The Finnish insolvency regime underwent an overhaul in 1995 with the passage of the Act on the Supervision of the Administration of Bankrupt Estates, which established the office of the independent Bankruptcy Ombudsman, and again in 2004, when a new Bankruptcy Act went into effect. The Act seeks to improve clarity, transparency, and predictability in the insolvency regime, as well as incorporate the necessary flexibility to permit restructuring and other options, as the individual cases require. Insolvency proceedings in Finland are deemed more efficient and less costly than the average of other member states of the Organization for Economic Cooperation and Development (OECD), according to the World Bank's 2010 "Doing Business" guide. According to the World Bank, Finland's average time and cost of bankruptcy proceedings are 0.9 years and 4 percent of the estate, respectively, which compares quite favorably to the OECD averages of 1.7 years and 8.4 percent. Return to creditors for Finland at 87.3 cents on the dollar is also above the OECD average of 68.6.
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NCInternational Financial Reporting Standards
Being a member of the European Union, Finland complies with the European Commission (EC) Regulation No. 1606/2002 which requires listed companies to use International Financial Reporting Standards (IFRSs) as endorsed by the European Union in their consolidated accounts. The provisions of Regulation No. 1606/2002 were incorporated in the Finnish Accounting Act which came into force at the end of 2004. The 2008 EC report on the implementation of Regulation No. 1606/2002 points out that Finland permits IFRSs in the annual accounts for listed companies (except insurance companies) and in the annual and consolidated accounts for all other companies that are audited by certified auditors. Companies that choose not to apply IFRSs adhere to an accounting framework governed by the Accounting Act and the Accounting Ordinance, the requirements of which, according to a 2002 KPMG report, differ from IFRSs. As indicated in the 2009 PricewaterhouseCoopers publication, no plans for convergence of the local requirements with the international standards have been announced.
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ENPrinciples of Corporate Governance
In July 2004, a corporate governance code "Corporate Governance Recommendation for Listed Companies," entered into force on a comply-or-explain basis to harmonize the existing regulations, increase operational transparency, and improve the quality of disclosure. It was replaced in October 2008 by the Finnish Corporate Governance Code. Requirements for corporate governance practices are also incorporated into a variety of laws and regulations in Finland. In a 2002 comparative study on corporate governance codes in the European Union, Weil, Gothsal & Manges report that Finnish law already includes many of the provisions that are in the corporate governance codes of most countries, so that the Recommendation serves primarily as a complement to existing requirements. A 2005 Finnish Financial Supervision Authority report states that the corporate governance framework is based on the 2004 Organization for Economic Cooperation and Development Principles of Corporate Governance. The new Limited Liabilities Companies Act entered into force on September 1, 2006, replacing the Limited Liabilities Companies Act of 1978. The new Act was designed to improve the clarity and comprehensiveness of the Companies Act, and to strengthen the legal protection of creditors and minority shareholders.
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IDInternational Standards on Auditing
Finland is a member of the European Union and as such complies with the European Union Directive No. 2006/43/EC which requires all statutory audits of annual and consolidated accounts to be carried out in accordance with international auditing standards as adopted by the European Commission (EC). Although it is not specified which standards constitute international auditing standards, it is widely anticipated that International Standards on Auditing as issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC) will be adopted. Per a 2009 EC publication, Finland has fully transposed the above-mentioned Directive into its national legislation. At present, the Finnish Institute of Authorized Public Accountants (KHT) issues generally accepted auditing standards which, according to the 2006 KHT self-assessment, are based on ISAs, but with modifications that reflect the local legal environment. These modifications, as explained in a 2009 publication by IFAC, are stated to be in the line with the IFAC’s Modifying Policy.
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IDAnti-Money Laundering/Combating Terrorist Financing Standard
The Financial Action Task Force (FATF) conducted a mutual evaluation of Finland’s anti-money laundering and combating the financing of terrorism (AML/CFT) regime in 2007. Finland was found to be at least largely compliant with 20 of the 40+9 FATF Recommendations. However, the country is only partially compliant with two of the core recommendations (R), namely, R 1 and R 5. The FATF stipulates that these recommendations should receive a largely compliant rating or above. The evaluation concluded that the AML/CFT legal framework prevailing in Finland is broad, and encompasses most of the elements of the Vienna and Palermo Conventions. It also notes that Finland applies proper preventive measures to its financial institutions. Finland’s financial intelligence unit, the Money Laundering Clearing House (MLCH), and other Finnish law enforcement officials, were found to be generally competent and effective. The country also has a comprehensive framework for national and international cooperation. The FATF report, however, points to deficiencies in the implementation of laws and regulations, evident in the low rates of actual prosecutions and convictions, as well as in the weak sanctions regime. Inadequacies in the supervision of designated non-financial businesses and professions are also highlighted in the FATF report. The Act on Preventing and Clearing Money Laundering and Terrorist Financing of 2008 came into force on August 1, 2008 transposing the Third European Union Money Laundering Directive into Finnish Law and further strengthening Finland’s AML/CFT framework. The FATF, in its 2008-2009 Annual Report, also listed Finland as one of the jurisdictions that have endorsed the FATF’s 40+9 recommendations.
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FCCore Principles for Systemically Important Payment Systems
In 2001, the International Monetary Fund (IMF) assessed Finland's systemically important payment systems, which at the time were the Bank of Finland's (BoF) real-time gross settlement system (BoF-RTGS), the large-value payment system for express transfers and checks (POPS), and the retail payment system (PMJ). BoF-RTGS was a component of the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET) system, the euro area payment system. An enhanced system, TARGET2, has gradually replaced the original TARGET. The 2001 IMF assessment concluded that the three systems observed all the Core Principles for Systemically Important Payment Systems (CPSIPS). Finland was among the second wave of countries that migrated to TARGET2 in February 2008. TARGET2 provides harmonized payment services under a single shared platform across its member countries. In May 2009, the European Central Bank (ECB) released an assessment of TARGET2's design against the CPSIPS developed by the Committee on Payment and Settlement Systems. The report concludes that TARGET2 fully observes all relevant CPSIPS, although it does make certain recommendations pertaining to Principles III and VIII. The ECB in its function as the overseer of TARGET2 aims to ensure continued compliance of the system with the CPSIPS, and will regularly monitor the implementation of its recommendations by the system. A 2008 Financial Stability Report by the BoF asserts that POPS and PMJ fully observe the CPSIPS. While Finland does not have an overarching law on payment systems, a series of acts and regulations provide for an adequate legal framework in this area. Furthermore, the ECB asserts that the BoF follows the guidelines on payment systems set by the European System of Central Banks.
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