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In Focus
Home In Focus New Finnish Act on Credit Institutions into force on 15 August 2014

Legal Updates30.09.2014

New Finnish Act on Credit Institutions into force on 15 August 2014

The new Finnish Act on Credit Institutions (ACI) implements the EU Capital Requirements Directive (2013/36/EU) and Regulation ((EU) No 575/2013) which are based on the Basel III global standards for capital and liquidity reform. The ACI entered into force on 15 August 2014 but contains several grandfathering provisions entering into force gradually during 2015-2016.

The legislation includes substantial new regulation on capital requirements for credit institutions as well as on risk management. In addition, the new legislation lays down new tasks for the supervisor, as well as stricter sanctions regulation.

The new legislation includes enhanced requirements for common equity capital for credit institutions to cover their risks. The legislation further enables the use of a countercyclical capital buffer to stabilise credit institutions in times of economic downturn. Such discretionary capital add-ons will be imposed by the Finnish Financial Supervisory Authority (the “FFSA”).

In addition, the ACI introduces more specific provisions regarding the governance and steering systems, as well as remuneration policies. The principles guiding granting of merit pays in the current remuneration regulation are further specified. For example, any remuneration based on merit exceeding 100 per cent of the fixed remuneration of an individual shall be subject to a decision of the general meeting of the shareholders.

The new provisions on governance and steering systems deal mainly with enhanced risk management. A credit institution shall ensure, for example, that the internal monitoring functions are credible and effective, and that so called whistleblowing processes have been established. In addition, the board of directors shall at all times be able to be provided with a comprehensive overview of the risks of the institution.

The ACI lays down a new requirement for banks to comply with good banking practices in their operations. The concept is not further specified but may be based on commonly followed practices as well as on self-regulation adopted by the industry. The requirement is intended to improve especially the customer protection of consumer clients.

The ACI notably raises the maximum amount of the administrative sanctions the FFSA may impose on breaches of the ACI and related Finnish legislation. The new maximum amount of an administrative fine is 10 per cent of an entity’s annual consolidated turnover, and EUR 5 million for private individuals.

Following the establishment of the Single Supervisory Mechanism (the “SSM”) operating under the ECB, the supervision of the systemically important banks (in Finland, Nordea, Danske Bank and the OP-Pohjola Group) is assigned to the SSM. The FFSA shall act as the national macroprudential authority in charge of the supervision of smaller banks on the national level.

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