Insufficient Information Summary
In 2001, the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of Finland. The IMF team, however, assessed the then existing securities regulator, the Finnish Financial Supervision Authority (FIN-FSA), which was replaced by a unified financial sector supervisor, the Financial Supervisory Authority on January 1, 2009. In its 2001 assessment, the IMF concluded that Finland had broadly implemented the International Organization of Securities Commissions Principles and Objectives for Effective Securities Regulation. The report noted that Finland had a well developed and transparent framework for supervision of the securities markets, but recommended further improvement in certain areas. The IMF FSSA pointed to weaknesses primarily in three areas: regulatory independence; sufficiency of regulatory powers; and potential systemic financial risks related to short selling. The release of information on the compliance of Finland's securities regulation framework has been sparse since the 2001 IMF assessment, and a comprehensive report on the new regulator is recommended.
General Overview
Based on an assessment of the then existing securities regulator, the Finnish Financial Supervision Authority (FIN-FSA), the 2001 International Monetary Fund (IMF) Financial System Stability Assessment (FSSA), found Finland to be mostly in compliance with the International Organization of Securities Commissions (IOSCO) Principles and Objectives for Effective Securities Regulation and the securities markets were "generally well regulated" (p. 5). The FSSA pointed out that Finland had a well-developed and transparent framework for the supervision of the securities markets. Weaknesses were identified primarily in three areas: "regulatory independence; sufficiency of regulatory powers; potential systemic financial risks related to short selling or the structure of market arrangements for equity settlements and trading allotments" (p. 25). The assessment also mentioned that the exchanges' ability to adopt collateral rules and insolvency laws could be enhanced.
As of December 31, 2008, the old FIN-FSA ceased to be the supervisory authority for Finland’s financial sector, and was succeeded by a new authority called the Financial Supervisory Authority that came about as a result of a merger between the former FIN-FSA and the former Insurance Supervisory Authority (ISA). The new supervisory authority, has adopted the name FIN-FSA. According to the new FIN-FSA website, the FIN-FSA commenced work on January 1, 2009, and its objectives and supervisory role is governed by the Act on the Financial Supervision Authority No. 878 2008 (with amendments up to 2009). The new FIN-FSA, aims to ensure “financial stability and the necessary smooth operation of credit, insurance and pension institutions, and other supervised entities. Another aim is to safeguard the interests of the insured and to maintain confidence in the financial markets,” as well as fostering compliance with good practice in, and public awareness of, financial markets. Furthermore, it is also responsible for “most of the supervisory functions undertaken by the former FIN-FSA and the ISA”, which includes “banks, insurance and pension companies, as well as other companies operating in the insurance sector, investment sector, investment firms, fund management companies and the Helsinki Stock Exchange (HSE)”.
All European Union (EU) Directives relevant to capital markets have been incorporated into Finnish legislation, as mentioned in the 2001 IMF FSSA. A number of other laws have been updated since the 2001 assessment. The Act of the Financial Supervision Authority was most recently amended in 2007. The new Companies Act entered into force in 2006. The newest version of the OMX Nordic Exchange Helsinki Rules entered into force in 2007. The Corporate Governance Recommendation for Listed Companies entered into force on a comply-or-explain basis in 2004. The Auditing Act of 2007 replaced the previous Auditing Act. According to the KPMG website, a new Corporate Governance code for companies on the Helsinki Stock Exchange (HSE) has been established by the Finnish Securities Market Association, and as of January 1, 2009, replaces the old code published in 2003. Per the website, the new code “is to update the self-regulation of the Finnish securities markets to correspond with the Limited Liability Companies Act of 2006, and the development of the market as well as to clarify the practices of issuers in publishing market information”. Per the website, there are a few recommendations that have different transitional periods however. In addition, the website mentions that Securities Markets Act rules on the duties of security issuers to publish information were amended as of September 1, 2008. The new amendment will require issuers to publish information on the corporate governance system, which shall be included in the issuer’s annual report. Furthermore per the website, “issuers are obligated to comply with the new rules from the first financial year starting after September 1, 2008”.
The ongoing integration of financial markets in the Nordic region, according to the 2007 Wajid et al. report on financial integration in the Nordic-Baltic region has led to strengthened cooperation between the regulators via various Memoranda of Understanding (MoUs) but future cooperation needs to better address the supervisory oversight challenges of integration. The report suggests that the MoUs should include large banks and national supervisors. Also they could provide for a disagreement resolution mechanism and allow supervisory colleges for conglomerates to take regulatory action. The effective cooperation among the regulators as the stock markets are being consolidated and challenges for cross-border supervision emerge including with regard to clearing and settlement systems. The OMX Nordic Exchange owns seven of the eight stock exchanges that deal in securities and derivatives in the region, including OMX Nordic Exchange Helsinki. In 2004, the Finnish Central Securities Depository and the Swedish Central Securities Depository merged to create the Nordic Central Securities Depository.
Finland’s FIN-FSA is an ordinary member of IOSCO and a signatory to the IOSCO MMoU. The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Being a signatory to the MMoU implies that the IOSCO screening committee considers the country's legal framework to be compliant with IOSCO Principles 11, 12, and 13 and that the country’s securities regulator has therefore the legal capacity to share supervisory information with and provide assistance to its foreign counterparts.
The Principles
II1. The responsibilities of the regulator should be clear and objectively stated.
As mentioned before, the 2001 IMF FSSA assessed the financial regulator at the time. According to the report, Finland had a well developed and transparent framework for the supervision of the securities markets. The former FIN-FSA was charged with the supervision of the securities markets by the Act on the Financial Supervision Authority, which was most recently updated in 2007, as well as other capital market regulations. It supervised investment firms, the Investor Compensation Fund, fund management companies, the Helsinki exchanges, clearing houses, clearing parties, the Central Securities Depository, and account operators, and authorized investment firms, credit institutions, fund management companies, custodians, and pawn shops. Its website indicated that it was responsible for ensuring the equal treatment of investors and that as of 2005 it had been responsible for monitoring companies' compliance with the IFRSs. The MoF and Helsinki exchanges also held regulatory responsibilities. The 2001 IMF FSSA reported that the MoF was responsible for licensing and formulating legislation, as well as authorizing securities and derivatives exchanges and central securities depositories. The stock exchanges are SROs, but their listing rules must be approved by the MoF and they were supervised by the former FIN-FSA. According to the FIN-FSA website, the FIN-FSA is responsible for the supervision of the investment sector, investment firms, fund management companies, Finnish Central Securities Depository (APK) and the Helsinki Stock Exchange (HSE)”. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.
According to the 2001 IMF FSSA, the independence of the regulator had to be improved. It suggested that the regulatory and licensing powers of the MoF be transferred to the former FIN-FSA because the current situation may potentially inhibit the FSA's ability to effectively exercise its powers. Per the new FIN-FSA website the new FIN-FSA is operationally independent in its decision making, but operates in connection with the BoF administratively. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.
The 2001 IMF FSSA, in assessing the former regulator, indicated that the inspection, compliance, and enforcement powers of the FIN-FSA should be strengthened, particularly because the detection of price manipulation required a high level of surveillance. The discretionary powers of the FIN-FSA should be clarified in law, including such powers as approval of major investments and acquisitions, overturning decisions for board of directors appointments, and establishing appropriate capital requirements. The assessment recommended that additional powers be provided to the former FIN-FSA, including direct authority over cases of market manipulation and other unfair trading practices, more extensive sanctioning powers beyond the withdrawal of licenses, and improving the legal basis allowing for foreign cooperation. The FIN-FSA's enforcement capacity and cooperation ability would be enhanced through greater administrative powers. Furthermore, the 2001 FSSA recommended that the FIN-FSA better utilize its existing powers. With regard to the personnel of the FIN-FSA, the assessment indicated that the staff was "dedicated, willing, and expert" (p. 47). The former FIN-FSA was working to improve its regulatory capacity by recruiting specialists, making use of technology for acquiring and reviewing information, and cooperating with SROs and other domestic and international regulators.
The new FIN-FSA has been given the authority through the Act on Financial Supervision Authority to safeguard the interests of the insured and to maintain confidence in the financial markets,” as well as fostering compliance with good practice in, and public awareness of, financial markets” according to the new FIN-FSA website. The amended Act also gives powers to the new FIN-FSA to impose sanctions if it finds that a supervised entity is in violation of a compliance or regulation. Despite the above information, there is no publicly available information addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II4. The regulator should adopt clear and consistent regulatory processes.
The 2001 IMF FSSA reported that the regulatory process was consistent and transparent. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.
The 1999 Act on Openness of Government Activities included provisions for the secrecy of all government entities. It prohibited the disclosure of confidential information. The former FIN-FSA website indicated that the Act on the Financial Supervision Authority sets out the governance and management system of the FIN-FSA. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.
The 2001 IMF FSSA reported that the Helsinki exchanges were self-regulatory organizations that are licensed by the MoF and supervised by the FIN-FSA. It indicated that the FIN-FSA effectively used its SROs to assist with regulation. The assessment indicated that the Finnish authorities had plans to expand the SRO requirements of non-exchange trading systems and add authority to amend the rules of the exchanges and non-exchange trading systems. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.
The 2001 IMF FSSA reported that the Helsinki exchanges were self-regulatory organizations that were licensed by the MoF and supervised by the FIN-FSA. The assessment indicated that the MoF and former FIN-FSA were then in the process of establishing a framework for effective oversight of the SROs and emphasized the importance of sufficient resources and the former FIN-FSA's regulatory independence. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II8. The regulator should have comprehensive inspection, investigation and surveillance powers.
The 2001 IMF FSSA indicated that the inspection, compliance, and enforcement powers of the then operating FIN-FSA should be strengthened, particularly because the detection of price manipulation required a high level of surveillance. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II9. The regulator should have comprehensive enforcement powers.
See Principle 8.
II10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.
See Principle 8.
EN11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.
According to the 2001 IMF FSSA, while the regulator assisted domestic and foreign counterparts and took part in the exchange of information between regulators, it did not have the authority to act on behalf of a foreign regulator. At the time of the assessment, the regulator was seeking additional powers to enable it to do so. In addition, Finland’s FIN-FSA is a signatory to the MMoU and an ordinary member of IOSCO. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. Being a signatory to the MMoU implies that the IOSCO screening committee considers the country's legal framework to be compliant with IOSCO Principles 11, 12, and 13 and that the country’s securities regulator has therefore the legal capacity to share supervisory information with and provide assistance to its foreign counterparts.
EN12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.
See Principle 11.
EN13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.
See Principle 11.
II14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors' decisions.
Detailed disclosure requirements are set out in the Securities Markets Act. According to the Corporate Governance Recommendation for Listed Companies, 2003, regulations on disclosure were incorporated into corporate, accounting, securities market laws, and the rules of the Helsinki Exchanges. In July 2004, a Corporate Governance Recommendation for Listed Companies, which is a corporate governance code, entered into force on a comply-or-explain basis to harmonize the existing regulations, increase operational transparency, and improve the quality of disclosure. A company's level of compliance with the Recommendation and explanations for non-compliance must be reported in its annual report and on the company website. The Securities Markets Association website indicates that the OMX Nordic Exchange Helsinki is responsible for monitoring listed companies' compliance with the Recommendation. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
The 2005 FIN-FSA regulatory outline conveys that auditors were required to report significant information about supervised companies and their decisions to the then operating FIN-FSA. There were a number of other disclosure requirements. The Rules of the Stock Exchange: Listing Procedures and Disclosure and Other Requirements Applicable to the Issuers of Listed Securities, 2007, included several disclosure requirements, as well. Any information that might affect the price of securities, information supporting any decision, and any changes to previously disclosed information that may be materially significant must be disclosed. Also, the Rules provided content and format requirements. Regular disclosure requirements included financial statements, annual financial reports, board of director reports, and interim reports. Ongoing financial requirements included dividend reports, audit reports, annual general meeting (AGM) proposals and decisions, amendments to the articles of association, shareholder agreements, etc. Per the 2008 FIN-FSA annual report, on March 1, 2008, amendments were enforced on the disclosure obligation of the issuer and shareholder. Additionally, the report states that “the amendments concerned the dissemination and availability of information to be published, as well as the duty to disclose major holdings” (p.56). According to the KPMG website, a new Corporate Governance code for companies on the Helsinki Stock Exchange (HSE) has been established by the Finnish Securities Market Association, and as of January 1, 2009, replaces the old code published in 2003. Per KPMG’s website, the new code “is to update the self-regulation of the Finnish securities markets to correspond with the Limited Liability Companies Act of 2006, and the development of the market as well as to clarify the practices of issuers in publishing market information”. The website mentions however that a few recommendations have different transitional periods. In addition, the KPMG website mentions that Securities Markets Act rules on the duties of security issuers to publish information were amended as of September 1, 2008. The new amendment will require issuers to publish information on the corporate governance system applied by the issuer, which shall be included in the issuer’s annual report. Furthermore per the website, “issuers are obligated to comply with the new rules from the first financial year starting after September 1, 2008. However, “the new rules of the Securities Markets Act will probably not cause any significant changes in the reporting practices of the issuers since they have already published corporate governance disquisitions based on the self-regulation rules of the securities markets”, according to the KPMG website.
II15. Holders of securities in a company should be treated in a fair and equitable manner.
According to the Corporate Governance Recommendation for Listed Companies, 2003, regulations on corporate governance and disclosure are incorporated into corporate, accounting, securities market laws, and the rules of the Helsinki Exchanges. The Companies Act accounts for the protection of minority shareholders and shareholders rights. The National Board of Patents website indicates that the new Limited Liabilities Companies Act entered into force on September 1, 2006, replacing the Limited Liabilities Companies Act of 1978. The 2005 Ministry of Justice report states that the New Act improves the clarity and comprehensiveness of the Companies Act, including strengthening the legal protection of creditors and minority shareholders. The Act eliminated the par value of shares, consolidated Companies Act-related civil disputes to eight district courts, and changed the provisions on liability for damages improving the shareholders' rights to compensation and ability to take action. In July 2004 the Corporate Governance Recommendation for Listed Companies entered into force on a comply-or-explain basis. The Recommendation included mandates on the AGM, supervisory board, board and board committees, managing director, other management, compensation, internal control, risk management and internal audit, insider administration, external audit, and communication and disclosure. However, the publicly available information does not directly address Finland's compliance with this principle.
According to the Securities Market Association, the Finnish Limited Liabilities Company’s Act requires shareholders to be treated equally. It further explains that “ the general meeting, board of directors and managing director do not have the right to make a decision that could give undue benefit to a shareholder at the expense of another” (SMA, p.7). The report further states that the principle of equal treatment is to protect minority shareholders.
II16. Accounting and auditing standards should be of a high and internationally acceptable quality.
On July 19, 2002, European Commission Regulation (EC) No 1606/2002 was passed by the European Parliament and the European Council of Ministers, requiring the adoption of the International Financial Reporting Standards (IFRSs), formerly IASs, issued by the International Accounting Standards Board (IASB). As a result of the regulation, beginning January 2005, all EU listed companies are required to prepare their consolidated financial statements following IFRSs endorsed by the EC. In 2004, amendments were made to national legislation making the application of IFRSs mandatory in the consolidated accounts of Finnish listed companies. Finland therefore, adheres to EC regulations. Additionally, the 2006 EC report on the implementation of Regulation No. 1606/2002 points out that Finland permits IFRSs in the annual accounts for listed companies and in the annual and consolidated accounts for all other companies.
On May 17, 2006, Directive 2006/43/EC of the European Parliament and Council came into force requiring all statutory audits of annual and consolidated accounts be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission (EC). The Directive aims at high-level -- though not full -- harmonization of statutory audit requirements. European Union (EU) member states shall adopt and publish the provisions necessary to comply with the Directive before June 29, 2008.
II17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.
The legal framework for collective investment schemes was judged by the IMF, in its 2001 FSSA, as sufficient and "consistent with available resources " (p. 50). The assessment team emphasizes the importance of periodic inspections for compliance with segregation requirements and mentioned that there was room to improve investor access to reports. The Act on Common Funds governs Undertakings for Collective Investment in Transferable Securities (UCITS) and non-UCITS Special Funds, and implements the 1985 EU Directive on UCITS. However, the report did not directly address Finland's compliance with this principle.
II18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.
See Principle 17.
II19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investors interest in the scheme.
See Principle 17.
II20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.
See Principle 17.
II21. Regulation should provide for minimum entry standards for market intermediaries.
There is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.
See Principle 21.
II23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.
See Principle 21.
II24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.
The 2001 IMF FSSA recommended that the bankruptcy law be reformed and that a better understanding of the regulatory approach to firm failure should be formalized. However, there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.
There is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.
According to the 2001 IMF FSSA, the surveillance of market manipulation should receive special attention. It also suggested the coordination between the old FIN-FSA and exchanges, in their role as SROs, should continue. The 2007 Wajid et al. report on financial integration in the Nordic-Baltic region indicates that there is increasing importance for effective cooperation among the regulators as stock markets are being consolidated and challenges for cross-border supervision emerged, regarding clearing and settlement systems. However, the publicly available information does not directly address Finland's compliance with this principle.
II27. Regulation should promote transparency of trading.
The publicly available information does not directly address Finland's compliance with this principle.
II28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.
According to the 2001 IMF FSSA, the surveillance of market manipulation should receive special attention. It also suggests the continuation of coordination between the FIN-FSA and exchanges, in their role as SROs. The assessment reported that the FIN-FSA was actively working to improve its surveillance over the markets, market intermediaries and offerings through better use of technology to acquire and review reports and through cooperation with domestic and international regulators. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
II29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.
The 2001 IMF FSSA reported that the procedures for managing default risk and market disruption were sufficient in the derivatives market but could be clarified for the securities market. The assessment team also recommended that a contingency plan should explain the role that the existing authorities would play in the case of default and market disruptions. However there is no information publicly available addressing Finland’s compliance with this principle since the new FIN-FSA began its duties.
CP30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.
The 2001 IMF FSSA judged that the securities settlement systems were mostly in compliance with the IOSCO Principles. The system could potentially permit exposures and the assessment team recommended that equities settlement procedures and short selling be reviewed to mitigate risks. However, it indicated that the former FIN-FSA was in the process of completing efforts that began in 2000 to reduce risk.
According to the 2007 Wajid et al. report on financial integration in the Nordic-Baltic region, in 2004, the Finnish Central Securities Depository and the Swedish Central Securities Depository merged to create the Nordic Central Securities Depository, but its effectiveness is still in question. According to information on the Bank of Finland (BOF) website, on February 2, 2009, Finland changed the name of its Central Securities Depository (APK) to Euroclear Finland Ltd. Following the name change, the BOF begun cooperative supervisory work with other supervisory authorities work within the Euroclear group’s central securities depositories under a documented and signed Memorandum of Understanding (MoU), that came in to being on October 5, 2009. Per the same website information on Clearing and Settlements, the BOF’s duty is to ensure that risks inherent in systems remain at acceptable levels, with activities aligned with efficiency targets, by verifying that system operation meets with the internationally agreed recommendations” The BOF has cooperated with the Swedish Central Bank, among others, according to the website information, and Finland looks to strengthen its cross-border activities in order to ensure that supervisory cooperation is effective and efficient.
