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 and KYC
A new government proposal to amend the Act on Preventing Money Laundering and Terrorist Financing
A new government proposal (HE 236/2021) has been published to amend the Act on Preventing Money Laundering and Terrorist Financing (444/2017). The proposal aims to address the shortcomings identified in the national implementation of the fourth Anti-Money Laundering Directive and to reconcile the regulation with the recommendations of the OECD Financial Action Task Force. Additionally, there are certain necessary national modifications to be made to the Act.
The proposal can be found here (only in Finnish and Swedish): https://www.eduskunta.fi/FI/vaski/HallituksenEsitys/Sivut/HE_236+2021.aspx
The FIN-FSA to issue new regulations and guidelines concerning the prevention of money laundering and terrorist financing
The Finnish Financial Supervisory Authority (the “FIN-FSA”) is updating its regulations and guidelines concerning the prevention of money laundering and terrorist financing (AML/CFT). The objective of the regulations and guidelines is to provide entities supervised by the FIN-FSA with interpretations and recommendations on the application of AML/CFT regulation. The regulations and guidelines seek to guide supervised entities in taking proportionate and risk-based actions against money laundering and terrorist financing in areas where legislation does not provide adequate guidance. A further intention is to harmonise and improve the effectiveness of application of regulation concerning the prevention of money laundering and terrorist financing.
The proposed regulations and guidelines are available here: https://www.lausuntopalvelu.fi/FI/Proposal/DownloadProposalAttachment?attachmentId=17186
The FIN-FSA urges supervised entities to ensure that guidelines and systems for compliance with international sanctions are up-to-date
The FIN-FSA has urged supervised entities to ensure that their systems and instructions for complying with sanctions are up to date. The scope of EU sanctions has been extended to several hundred Russian and Belarusian natural persons as well as dozens of companies and entities. In addition, sanctions have been imposed directly on Russian banks. The FIN-FSA has also emphasised that funds and economic resources belonging to, owned, held or controlled by natural or legal persons, entities or bodies subject to sanctions must be frozen.
Read the supervision release here:
EBA has launched ‘EuReCA’, the EU’s central database for anti-money laundering and counter-terrorism financing
The European Banking Authority (EBA) has, on 31 January 2022, launched its central database for anti-money laundering and counter-terrorist financing (AML/CTF), the EuReCa. EuReCa will contain information on material weaknesses in individual financial institutions that make them vulnerable to money laundering and terrorist financing. Competent authorities across the EU will have to report such weaknesses, as well as the measures they have taken to rectify them.
EBA strengthens AML/CFT supervision in the EU through revised Guidelines and enhanced cooperation
EBA has published its revised Guidelines on risk-based supervision of credit and financial institutions’ compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) obligations. The Guidelines set out the steps supervisors should take to ensure adequate AML/CFT oversight of their sector and support the adoption, by credit and financial institutions, of effective money laundering and terrorism financing risk management policies and procedures.
The revised Guidelines can be found here:
EBA has issued final Guidelines on cooperation and information exchange between prudential supervisors, AML/CFT supervisors and financial intelligence units
EBA has published its final Guidelines setting out how prudential supervisors, AML/CFT supervisors and financial intelligence units (FIUs) should cooperate and exchange information in relation to AML/CFT, in line with provisions laid down in the Capital Requirements Directive (CRD). The guidelines set out general provisions and practical modalities for the cooperation and information exchange between the AML/CFT supervisors, prudential supervisors and financial intelligence units, while respecting the autonomy of their respective roles.
The Guidelines can be found here:
EBA consults on new remote customer onboarding guidelines
EBA has launched a public consultation on its draft Guidelines on the use of remote customer onboarding solutions. The guidelines set out a common understanding by competent authorities of the steps financial sector operators should take to ensure safe and effective remote customer onboarding practices in line with applicable AML/CFT legislation and the EU’s data protection framework. Once adopted, these Guidelines will apply to all financial sector operators that are within the scope of the Anti-money Laundering Directive (AMLD).
Read the draft Guidelines here:
EBA alerts on the detrimental impact of unwarranted de-risking and ineffective management of money laundering and terrorist financing risks
EBA has published an opinion on the scale and impact of de-risking in the EU and the steps competent authorities should take to tackle unwarranted de-risking. De-risking refers to decisions taken by financial institutions not to provide services to customers in certain risk categories. Although de-risking can be a legitimate risk management tool, it can also be a sign of ineffective money laundering and terrorist financing risk management, with at times severe consequences. The EBA’s findings suggest that de-risking has a detrimental impact on the achievement of EU’s objectives, in particular in relation to fighting financial crime effectively and promoting financial inclusion, competition and stability in the single market.
ESG and Sustainable Finance
Taxonomy lays down the foundations for sustainable finance – EU regulation on climate impacts entered into force at the beginning of 2022
A delegated act on climate change mitigation and climate change adaption, based on the science-based sustainability classification, or taxonomy, has been published in the Official Journal of the European Union. The act entered into force on 1 January 2022. One of the EU’s key actions to support sustainable finance is the sustainability classification system, i.e. taxonomy, which provides sustainable investments with a common science-based criteria. The aim is not only to support financiers looking for sustainable investments, but also to increase the transparency of sustainable investment activities and reduce greenwashing. The Commission’s taxonomy regulation shall enter into force part by part. From the beginning of 2022, the criteria for climate change mitigation and climate change adaption in selected industries will enter into force. In 2023, the criteria (delegated acts) will be extended to four remaining environmental objectives of taxonomy.
The ESAs have issued an updated supervisory statement on the application of the Sustainable Finance Disclosure Regulation
The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have updated their joint supervisory statement on the application of the Sustainable Finance Disclosure Regulation (SFDR). The statement includes a new timeline, expectations about the explicit quantification of the product disclosures under Article 5 and 6 of the Taxonomy Regulation, and the use of estimates. The ESAs recommended that national competent authorities and market participants use the current interim period from 10 March 2021 until 1 January 2023 to prepare for the application of the forthcoming Commission Delegated Regulation containing the Regulatory Technical Standards (RTS) while also applying the relevant measures of SFDR and the Taxonomy Regulation according to the relevant application dates outlined in the supervisory statement.
The supervisory statement is available here:
The European Commission has published answers to the most common questions in relation to Article 8 of the Taxonomy Regulation
The European Commission has published its Q&A (FAQ) to make it easier for large banks, insurance companies, custodians and non-financial companies to publish the information required by the Taxonomy Regulation (EU 2020/852) from 1 January 2022. The purpose of the Q&A document is to answer the most common questions received by the Commission from the delegated act on the Taxonomy Regulation (EU 2021/2178). The delegated act complements the requirements of Article 8 of the Taxonomy Regulation and requires large financial and non-financial companies to disclose to investors the environmental impact of their financial activities and assets. In the Q&A document, the Commission confirms that reporting will start in a streamlined way in 2022. This means that in the annual report or separate statement of the 2021 financial statements, the information will be provided in a “streamlined form” and from 2022 onwards in accordance with the Delegated Act.
The Q&A can be found here:
EBA has published binding standards on Pillar 3 disclosures on ESG risks
EBA has published, on 24 January 2022, its final draft implementing technical standards (ITS) on Pillar 3 disclosures on Environmental, Social and Governance (ESG) risks. The final draft ITS put forward comparable disclosures to show how climate change may exacerbate other risks within institutions’ balance sheets, how institutions are mitigating those risks, and their ratios, including the GAR, on exposures financing taxonomy-aligned activities, such as those consistent with the Paris Agreement goals. The technical standards aim to ensure that stakeholders are well-informed about institutions’ ESG exposures, risks, and strategies and can make informed decisions and exercise market discipline.
The standards are available here:
EBA publishes binding standards on Pillar 3 disclosures on ESG risks | European Banking Authority (europa.eu)
Other relevant changes
The government’s proposal on whistleblower protection is delayed
The government proposal implementing the so-called Whistleblower Directive is delayed from its deadline. According to the current assessment, the government’s proposal on whistleblower protection, which is being prepared by the Ministry of Justice, is expected to be submitted in June. The delay is to a substantial extent caused by the considerable and varied feedback received from the consultation. The purpose of the Whistleblower Directive is to provide protection to individuals who notify about breaches to the legislation referred to in the Directive which they have identified or suspect to have occurred in the course of their work.
The draft government proposal is available here (only in Finnish and Swedish):
Changes to the Finnish Consumer Protection Act in force as of 1 January 2022
New and amended provisions on conformity of goods, defect in goods and related remedies as well as on the sale of digital content and digital services have been introduced to the Finnish Consumer Protection Act following the national transposition of the EU’s Sale of Goods Directive and the Digital Content Directive. These amendments strengthen the consumers’ position and aim to improve the basis for cross-border trade within the EU in accordance with the EU’s Digital Single Market Strategy.
Consumer protection in the EU to be strengthened – Working group’s proposal for an opinion
A working group of the Ministry of Justice has proposed new legislation to create a representative action procedure. The aim of the procedure is to improve consumers’ access to compensation in cases consumer rights are breached. The reform’s purpose is to implement the Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers. According to the proposal, class actions are to be dealt with in general courts as at the present. Representative actions for injunctions, on the other hand, would be dealt with by the Market Court. The laws are scheduled to take effect in June next year.
The news can be found here:
Digital Finance: new Commission strategy paves the way for modern and streamlined supervisory data reporting
The European Commission has presented a new strategy to improve and modernise financial supervisory reporting in the EU. The strategy’s main objective is to put in place a system that delivers accurate, consistent, and timely data to supervisory authorities at EU and national level, while minimising the overall reporting burden on financial institutions. Further, the strategy aims at tackling the challenges arising from the increased volume and complexity of the data required to oversee the financial system.
Read more about digital finance here:
European data protection authorities have found the use of Google Analytics on website to be in breach of the GDPR
European data protection authorities have jointly assessed the conditions under which personal data collected through Google Analytics have been transferred to the United States and the risks to data subjects from the transfer. In particular, the authorities have examined the implications of the so-called Schrems II judgment of the European Court of Justice in July 2020 for the use of Google Analytics. In the judgment, the European Court of Justice emphasized that the transfer of personal data runs the risk of falling into the hands of the US intelligence service if the transfers are not adequately protected.
News by Sector
FUNDS AND FUND MANAGEMENT
The FIN-FSA’s Thematic review: UCITS’ costs and fees
The FIN-FSA has conducted a thematic review of UCITS’ costs and fees. The purpose of the thematic review was to carry out a supervisory action of the European Securities Markets Authority (ESMA) in selected management companies concerning two subject areas: funds’ pricing processes and the use of efficient portfolio management techniques. As a result of several identified shortcomings, the FIN-FSA has requested management companies to discuss the observations and application examples provided in the appendix of the thematic review and to take appropriate measures regarding the shortcomings.
The thematic review and relevant appendixes are available here:
ESMA launches a common supervisory action with NCAs on valuation of UCITS and open-ended AIFs
The European Securities and Markets Authority (ESMA) is launching a Common Supervisory Action (CSA) with National Competent Authorities (NCAs) on the valuation of UCITS and open-ended Alternative Investment Funds (AIFs) across the EU. The CSA aims to assess compliance of supervised entities with the relevant valuation-related provisions in the UCITS and AIFMD frameworks. It will be conducted throughout 2022 and will focus on authorised managers of UCITS and open-ended AIFs investing in less liquid assets.
ESMA has updated its Q&A on the AIFMD
ESMA has updated its Q&A in relation to the AIFM Directive. The updated version includes a new question relating to investing to crypto assets, namely, whether managers of undertakings investing in crypto-assets subject to the AIFMD. According to ESMA it is important to assess on a case-by-case basis whether the relevant undertaking meets the definition of an ‘AIF’ as legally defined in Article 4(1)(a) of the AIFMD. As the AIFMD does not provide for a list of eligible or non-eligible assets, AIFs may in principle invest in any traditional or alternative assets as long as the AIFM can ensure compliance with the AIFMD. However, ESMA reminds market participants and investors of the high risks involved in investments in crypto-assets.
The revised Q&A can be found here:
ESMA has updated its Q&A on the application of the UCITS Directive
The latest Q&A document consolidates into a single document all Q&As relating to the UCITS Directive previously issued by ESMA. These include questions on the Key Investor Information Document (”KIID”) for UCITS, ESMA’s guidelines on ETFs and other UCITS issues, notification of UCITS and exchange of information between competent authorities; and risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS. The updated Q&A also addresses new issues including issuer concentration and advance notice for the marketing of new share classes of UCITS notified for cross-border marketing.
The revised Q&A can be found here:
ESMA: Actively managed funds fail to outperform benchmarks during market stress
ESMA has published an outcome of a study, which analyses the performance of actively managed equity UCITS relative to their prospectus and market benchmark indices, between 19 February 2020 and the end of June 2020. It was concluded that the sample of funds considered active funds, net of ongoing costs, did not on average outperform their related benchmarks. More than half of the active UCITS analyzed underperformed their benchmarks during the stressed period (between 19 February and 31 March) and more than 40% during the post-stress period (between 1 April and 30 June). Only funds belonging to the highest-rated class consistently outperformed the benchmarks.
ESMA consults on the review of MIFID II suitability guidelines
ESMA is consulting on certain aspects of suitability requirements under the Markets in Financial Instruments Directive (MiFID II), in order to update its guidelines following amendments to MiFID II relating to sustainability. The assessment of suitability applies to all types of investment advice and is one of the most important protections for investors under MiFID II. The main amendments introduced to the MiFID II Delegated Regulation and reflected in the guidelines on the topic of sustainability include the collection of information from clients on sustainability preferences, the assessment of sustainability preferences and organisational requirements. The consultation closes on 27 April 2022. ESMA will consider the feedback it receives to the consultation in Q2 2022 and expects to publish a final report in Q3 2022.
The consultation can be found here:
Response to the European Commission’s Better Regulation consultation on its proposals for the review of the Solvency II regulatory framework
According to Insurance Europe, the Solvency II review must take into account and correct excessive capital burden and solvency volatility, maintain SCR as supervisory intervention point, improve proportionality and not increase costs. Insurance Europe has also expressed, for instance, that the framework requires improvements as it does not correctly reflect insurers’ long-term business models. Further, the Solvency II review should not lead to a fundamental overhaul of the system.
Read Insurance Europe’s response here:
European Commission’s Insurance Recovery and Resolution Directive must not be a “copy paste” from banking regulation
Insurance Europe has published its response to a consultation conducted by the European Commission (EC) on its proposals for the establishment of an Insurance Recovery and Resolution Directive (IRRD). In its response, the Insurance Europe holds that the EC’s proposals to implement a framework for recovery and resolution go beyond what is necessary given the extensive safeguards that are already in place to protect policyholders. Furthermore, simply applying a banking recovery and resolution style regime to the insurance industry without considering insurance specifics is highly inappropriate and would undermine the different resolution processes of a failing insurer.
Insurance Europe’s response to EC’s consultation is available at:
EIOPA publishes paper on methodological principles of insurance stress testing climate risks
The European Insurance and Occupational Pensions Authority (EIOPA) published, on 27 January 2022, its third paper in a series of papers on the methodological principles of insurance stress testing. The paper sets out methodological principles that can be used to design bottom-up stress test exercises that aim to assess the vulnerability of insurers to climate risks. Climate stress testing is an important tool to raise awareness of climate-related risks, understand how insurers assess such risks, enhance risk management capabilities and evaluate potential spillover effects to other parts of the financial sector and to the real economy.
EIOPA highlights key risks for the insurance and pension sectors
EIOPA has published its December 2021 Financial Stability Report, which examined key macroeconomic developments and the prevalence of risks that are key for the insurance and pension sectors. The report focuses on key macroeconomic developments and the prevalence of risks that are key for the insurance and pension sectors.
The report can be found here:
EIOPA has published its Supervisory Convergence Plan for 2022
EIOPA has on 9 February 2022 published its Supervisory Convergence Plan for 2022. The priorities revolve around three main areas including common supervisory culture and tools, risks to the internal market and level playing field and supervision of emerging risks. EIOPA has also added new priorities such as exclusions from insurance cover and the lack of clarity in insurance contracts revealed by the COVID-19 pandemic, the supervision of captives and issues related to digital transformation.
The supervisory convergence plan can be found here:
EIOPA insurance stress test shows industry resilience but also reliance on transitional measures
EIOPA has published the results of its 2021 Insurance Stress Test in which it assessed the industry’s resilience to a prolonged COVID-19 scenario in a “lower for longer” interest rate environment. EIOPA conducted a capital and solvency assessment and, for the first time, also examined participants’ pre- and post-stress liquidity positions. The test allowed participants to calculate their post-stress position using two distinct approaches, the fixed balance sheet approach without management actions and the constrained balance sheet approach, where reactive management actions were permitted.
EIOPA consults on its proposals on Retail Investor Protection
EIOPA has on 28 January 2022 launched a public consultation on retail investor protection in relation to the sale of Insurance-Based Investment Products (IBIPs). The consultation is a response to a Call for advice, which the European Commission sent to EIOPA in July 2021. The Call for advice relates to the implementation of the European Commission’s Capital Markets Union Action Plan and, more specifically, its Retail Investment Strategy, which aims to improve consumer outcomes and increase consumer participation in capital markets.
The consultation is available here:
OECD has published a report on global insurance market trends
The Organisation for economic co-operation and development (OECD) has on 24 February 2022 published a report on global insurance market trends. The annual report monitors global insurance market trends to support a better understanding of the overall performance and health of the insurance industry. The report is compiled using data from the OECD Global Insurance Statistics (GIS) database covering 59 jurisdictions. The monitoring report and its associated database represent one of the few global publicly available sources of comparable cross-country data on insurance sector developments.
Read the report here:
FIN-FSA’s findings from supervision of life and non-life insurance companies in 2021
The FIN-FSA highlighted certain issues that have arisen in the supervision of insurance companies during 2021 and the supervisor’s expectations for 2022. Despite the pandemic the year 2021 was a year of economic recovery. As a result of the combined effect of various factors solvency in the sector has improved.
Read the FIN-FSA’s letter here:
CREDIT AND PAYMENT INSTITUTIONS
Potential amendments to the consumer credit legislation
The working group of Ministry of Justice has published a draft Government proposal on 11 March 2022 in relation to potential amendments to consumer credit legislation. The interest rate cap is proposed to be reduced to 15 %, so that the new interest rate cap would also be applicable to old ongoing revolving credit agreements to the extent that new withdrawals are made under such agreements. Furthermore, it is planned to tie the interest rate cap to the reference rate referred to in the Interest Act (633/1982) (being currently 0 %). Further, the regulation applicable to the marketing of consumer credits is proposed to be refined and restricted. Finally, it was proposed that the identity verification obligation is extended to all consumer credits, including situations where the consumer chooses an online payment as a method for payment. The proposal is scheduled to be presented to the Parliament in September.
The draft proposal can be found here:
Amendments to the Debt Collection Act
The Government’s proposal amending the Debt Collection Act (513/1999) was published in January. The purpose is to impose maximum amounts on the recovery costs of non-consumer customers. Amendments proposed in relation to non-consumer customers include, inter alia, maximum amount that can be charged for individual recovery proceedings, rules on which debt collection procedures are entitled to compensation for debt collection, rules on the number of debt collection procedures entitled to compensation for debt collection and that costs for lengthening the credit period may be claimed only if the payment period is lengthened by at least 14 days. These amendments should enter into force on 1 May 2022.
Read the Government proposal here (only in Finnish and Swedish):
Draft proposals of the Ministry of Finance to limit excessive indebtedness of Finnish households
The Ministry of Finance is preparing laws that would regulate the maximum repayment period for private individuals’ mortgages, the maximum amounts of loans to housing companies and strengthen the supervision of consumer lending.
The aim of the proposal is to contribute to preventing household over-indebtedness. However, the measures shall be proportionate and must not unduly restrict people’s life plans and choices. According to the draft proposal, maximum maturity for housing loans would be 30 years. Further, the amount of housing community credits in new construction should not exceed 60% in relation to the debt-free price of houses for sale. The legislative amendments are proposed to enter into force in the summer of 2023.
The draft proposal can be found here (only in Finnish and Swedish):
Single Rule Book: Debt collecting and bill payment service subject to authorization and registration as payment service provider under the PSD2?
The latest Q&A statement issued by European Banking Authority (EBA) indicates that bill payment service providers and debt collectors would fall under the scope of payment services regulation and would be subject to authorisation or registration in case they receive and forward funds according to Article 4(3) Directive (EU) 2015/2366 (“PSD2”) in conjunction with Annex I PSD2. The statement prepared by the European Commission took a strict approach on interpreting the exemptions from the scope of the PSD2. This interpretation is in line with the Finnish Financial Supervisory Authority’s previous practice.
According to the statement, the settlement of the payer´s debt to the payee is not in itself a reason to exclude the service provider from the scope of PSD2. Also, the commercial agent exception under PSD2 Article 3 point (b) only applies to situations when a commercial agent is authorised by the payee to negotiate or conclude a sale of goods or services and if it does not also act on behalf of the payer.
The answer by the European Commission is available here:
EBA has published a Discussion Paper on its preliminary observations on selected payment fraud data under the Payment Services Directive
EBA has analysed payment fraud data reported by the industry and subsequently aggregated by national authorities covering the years 2019 and 2020. The paper presents the main findings related to three payment instruments: credit transfers, card-based payments and cash withdrawals and also outlines other patterns that appear to be inconclusive and that would benefit from comments and views from market stakeholders.
The Discussion Paper is available here:
EBA: Asset quality has further improved, but cyber risk remains a source of concern for EU banks
EBA has published its quarterly Risk Dashboard together with the results of the autumn edition of the Risk Assessment Questionnaire (RAQ). In general it was observed, that bank capital ratios remain well above regulatory requirements, asset quality has further improved, but there are concerns for loans that have benefited from moratoria and public guarantee schemes, profitability has stabilised at levels above those seen before the pandemic and the majority of banks expect a rise in operational risks mainly due to elevated cyber risks.