Legal Updates

Legal updates covering current topics.

Legal Updates / 20.09.2021

Quarterly Financial Sector Newsletter 3/2021

We understand that it may be difficult to stay up-to-date with the boundless financial news flow. We have therefore compiled an update on the season’s key highlights and regulative changes in the financial sector, which we hope will help you stay on track.

Below you will find key highlights on a more general level and down below more detailed highlights concerning different types of licensed companies operating in the financial sector.

Anti-Money Laundering & KYC

  • Proposal for new EU anti-money laundering and countering terrorism financing (AML/CFT) rules

The European Commission has presented a package of legislative proposals to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules. The package consists of four legislative proposals: a regulation establishing a new EU AML authority (AMLA), a regulation on AML/CFT, a sixth Directive on AM L/CTF and a revision of the 2015 Regulation on Transfer of Funds to trace transfers of crypto-assets.

Read more about the legislative package published in July here.

  • EBA consults on new Guidelines on the role of AML/CTF compliance officers

The European Banking Authority (EBA) has launched a public consultation on new Guidelines on the role, tasks and responsibilities of anti-money laundering and countering the financing of terrorism (AML/CFT) compliance officers. The draft Guidelines comprehensively address the whole AML/CFT governance set-up at the level of the EU and set clear expectations of the role, tasks and responsibilities of the AML/CFT compliance officer and the management body and how they interact, also on a group level. The consultation period runs until 2 November 2021 and once adopted, the Guidelines will apply to all financial sector operators that are within the scope of the AML Directive.

Read EBA’s Consultation and the draft Guidelines in full here.

  • Proposal for amendments to the Act on Detecting and Preventing Money Laundering and Terrorist Financing (444/2017, as amended, the “AML Act”) and certain related Acts

The Ministry of Finance has appointed a working group to assess how anti-money laundering and counter-terrorist financing legislation should be amended in the light of the shortcomings identified in the national implementation of EU money laundering directives, recommendations presented in the FATF’s report in April 2019 and national legislative needs for prevention of money laundering and terrorist financing. The Government Bill is to be published during week 50/2021.

Read the proposal in full (Finnish and Swedish only) here.

ESG and Sustainable Finance

  • New EU strategy for sustainable finance

The European Commission has adopted a new package of measures to help improve the flow of money towards financing the transition to a sustainable economy. The new sustainable finance strategy aims to support the financing of the transition to a sustainable economy by proposing action in four areas: transition finance, inclusiveness, resilience and contribution of the financial system and global ambition. The new sustainable finance strategy builds on the 2018 action plan on financing sustainable growth, the transition finance report by the Platform on Sustainable Finance and a consultation held from April to July 2020.  Further, the published package includes a proposal for a standard for European green bonds. The European green bond standard (EUGBS) is a voluntary standard to help scale up and raise the environmental ambitions of the green bond market.

Read more about the sustainable finance package published in July here.

  • ESAs have published their Q&A on the interpretation of certain SFDR issues

The ESAs (ESMA, EBA and EIOPA) have published their Q&A on the interpretation of the Regulation (EU) 2019/2088 on sustainability related disclosures in the financial services (SFDR).  The Q&A contains the following topics: application of the SFDR on registered AIFMs and on non-EU AIFMs, application of the 500-employee threshold, clarification of what ”promotion of environmental or social characteristics” under Article 8 means, clarification of Article 9 products and application of the SFDR to ”managed accounts”.

Read the questions and answers here.

Other relevant changes

  • Draft government proposal for the implementation of the Whistleblower Directive

Working groups of the Ministry of Justice and the Ministry of Economic Affairs and Employment have prepared a draft government proposal on a new act implementing the Whistleblower Directive (EU) 2019/1937. The Whistleblower Directive should be implemented into national legislation by 17 December 2021. The new act would oblige private and public organisations with more than 50 employees, as well as authorities, to establish an internal reporting channel for reporting breaches of Union law. Further, financial institutions and obliged entities under the AML Act would be required to establish an internal reporting channel, regardless of the number of their employees. In certain situations, the notification could also be made to a centralised external reporting channel, which would be the Chancellor of Justice. The Chancellor of Justice would then transfer the notifications to the competent supervisory authorities.

Read the draft government proposal in full (Finnish and Swedish only) here.

  • ESMA and EBA publish final guidance on fit and proper requirements

The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published the revised final joint guidelines on the assessment of the suitability of members of the management body and key function holders. The guidelines take into account the amendments introduced by the revised Capital Requirements Directive (CRD V) and the Investment Firms Directive (IFD). The changes concern particularly money laundering and financing of terrorism risks and gender diversity. The guidelines will apply from 31 December 2021.

Read the revised guidelines in full here.

News by Sector

Funds and fund management companies

  • ESMA publishes first overview of national rules governing fund marketing

ESMA has submitted to the European Parliament, the Council and the European Commission its first report on national rules governing the marketing of investment funds under the Regulation on cross-border distribution of funds. In the report, ESMA provides an overview of the marketing requirements across Member States, and analyses the effects of national laws, regulations and administrative provisions governing the marketing of investment funds. ESMA found that national laws, regulations and administrative provisions governing marketing requirements are usually based on the transposition of the AIFMD and the UCITS Directive, although National Competent Authorities’ (NCAs) responses showed that some additional national requirements may be applicable. Only a very limited number of NCAs carry out ex-ante or ex-post verification or marketing communications. However, it is expected that greater harmonisation of the marketing requirements will be achieved after the transposition of the Directive on cross-border distribution of collective investment undertakings.

Read the report in full here.

ESMA has published Guidelines on marketing communications under the Regulation on cross-border distribution of funds

The purpose of the guidelines published by ESMA is to specify the application of the requirements for marketing communications set out in Article 4(1) of the Regulation (EU) 1156/2019 on facilitating cross-border distribution of collective investment undertakings. The Guidelines apply to all marketing communications addressed to investors or potential investors for UCITS and AIFs. In particular they establish common principles on the identification as such of marketing communications, the description of risks and rewards of purchasing units or shares of an AIF or units of a UCITS in an equally prominent manner, and the fair, clear and not-misleading character of marketing communications, taking into account on-line aspects of such marketing communications.

Read the Guidelines in full here.

  • ESMA published fourth annual report on use of sanctions for UCITS and second annual report on sanctions under AIFMD

The number of NCAs issuing sanctions (penalties and/or measures) for UCITS increased slightly to 17 compared to 2019. A total of 100 sanctions were issued during 2020, for a total amount of €1.1M showing a declining trend in the financial amount of sanctions issued since 2018. The data gathered under the sanction reports continues to show that the sanctioning powers are not equally used among NCAs and, except for certain NCAs, the number and amount of sanctions issued at national level seems relatively low. ESMA’s report on sanctions under AIFMD shows that in 2020 17 NCAs imposed a total of 131 penalties and/or measures, compared with 87 sanctions issued in 2019, and the total amount of financial penalties decreased to €3.3M, from €9M in 2019. 13 NCAs did not impose any sanction during this period. A small number of NCAs are responsible for a majority of sanctions, and in general the numbers on a national level appear low.

Read ESMA’s reports in full here and here.

Investment firms

  • ESMA highlights areas for improvement in compliance with MiFID II requirements

ESMA has published results of the 2020 Common Supervisory Action (CSA) on MiFID II suitability requirements.  The 2020 CSA showed that firms overall comply with key elements of the suitability requirements which were already regulated under MiFID I. However, shortcomings have emerged about some of the new requirements introduced by MiFID II, notably the requirement to consider the cost and complexity of equivalent products, the costs and benefits of switching investments and suitability reports. ESMA will update its guidelines on suitability in 2021/2022 to address the areas where lack of governance has occurred.

Read the results of the CSA here.

  • ESMA consults on remuneration requirements under MiFID II

ESMA has launched a consultation on draft ESMA guidelines on certain aspects of the MiFID II remuneration requirements in July 2021. The remuneration of staff involved in the provision of investment and ancillary services and activities, or in selling or advising on structured deposits to clients is a crucial investor protection issue. Therefore, ESMA has developed draft guidelines that aim to clarify and foster convergence in the implementation of certain aspects of the new MiFID II remuneration requirements, replacing the existing ESMA guidelines on the same topic, issued in 2013. The consultation is open until 19 October 2021.

Read the consultation and the draft guidelines in full here.

  • ESMA finds NCAs imposed sanctions of €8,4 million for MiFID II breaches in 2020

ESMA has published its third report on the use of sanctions and measures by NCAs under the MiFID II. Overall, in 23 (out of 30) EU/EEA Member States, NCAs imposed a total of 613 sanctions and measures for an aggregated value of about €8.4million in 2020.

Read the report in full here.

Insurance companies

  • EIOPA’s annual report on supervisory activities

EIOPA has published its annual report on supervisory activities in 2020 setting out its activities and achievements from the year, covering both prudential and conduct of business supervision.  Due to the coronavirus pandemic and unprecedented economic challenges, EIOPA adapted its priorities to support both industry and supervisors in maintaining supervisory convergence and financial stability.

Read the annual report in full here.

  • EIOPA reports on key financial stability risks in the European insurance and pensions sectors

EIOPA has published its Financial Stability Report that addresses key financial stability risks in the European insurance and pensions sector. EIOPA emphasizes that the pandemic crisis is not over, and many uncertainties remain despite the progress in vaccination campaigns and decreasing trends in the number of new infections.  The Solvency II review will consider the current economic environment. The ongoing crisis has highlighted the critical importance of coordinated approaches among national competent authorities. Further, according to the Report, it is also important to keep focus on emerging risks, such as cyber risks and climate change.

Read the report in full here.

  • Consultation on the revision of the Solvency II Guidelines on Contract Boundaries and Valuation of Technical Provisions

EIOPA launched on 14 July 2021 two surveys on the revision of the Solvency II Guidelines on contract boundaries and the valuation of technical provisions, in place since the implementation of Solvency II in 2016. EIOPA has identified several divergent practices regarding the implementation and supervision of calculation of technical provisions. EIOPA invites stakeholders to respond to the surveys until 12 November 2021.

The consultations can be found here and here.

Credit and payment institutions

  • Retention periods of certain credit information proposed to be shortened

The Government proposal (HE 109/2021 vp) amending the Credit Information Act (527/2007), Section 86 of the Payment Services Act and Section 4 a of the Criminal Records Act to shorten the retention periods of bad credit records and to implement necessary changes under the GDPR has been published on 29 June 2021. The scope of the Credit Information Act is proposed to be further specified and limited to credit information providers, excluding provisions in Chapter 2 and Section 19, Subsections 5 and 6. The proposed amendments should enter into force as soon as possible, except for Sections 18 and 28 which shall enter into force six months after.

Read the government proposal in full (Finnish and Swedish only) here.

  • Commission revises EU rules on product safety and consumer credit

The European Commission has proposed revisions of two sets of EU rules to enhance consumer rights in a world reshaped by digitalisation and the COVID-19 pandemic. The Commission is reinforcing its safety net for EU consumers, for example, by making sure that credit offers are presented to consumers in a clear way, easily readable on digital devices. The proposal updates both the existing General Product Safety Directive as well as the EU rules on consumer credit to safeguard consumers. The revision of the Consumer Credit Directive provides that information related to credits must be presented in a clear way, adapted to the digital devices so that consumers understand what they are signing up for. Furthermore, the Directive will improve rules with which creditworthiness is assessed.

For further information please see here.

For more information please contact:

Olli Kiuru
Linda Nyman
Essi Hietaoja