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
Amendments to the Act on Preventing Money Laundering and Terrorist Financing (444/2017)
The Finnish AML Act has been amended, as the Parliament and the President have approved the changes proposed by the Government. The amendments mainly concern the KYC obligations, provisions governing risk assessments and the definitions provided in the AML Act. The key changes include, for example, a definition for ‘suspicious transaction’ and certain clarifications on the applicability of the AML. Most of the amendments entered into force on 31 March 2023. Certain amendments, such as the enhanced due diligence of PEPs, will enter into force on 1 March 2024.
Read more here: https://vm.fi/paatos?decisionId=0900908f808183ab
EBA has published draft Guidelines to tackle de-risking
The European Banking Authority (EBA) has published Guidelines regarding effective management of money laundering and terrorist financing (ML/TF) risks when providing access to financial services. The aim is to ensure that customers, especially the most vulnerable ones, are not denied access to financial services without valid reason.
The Guidelines are available here: https://www.eba.europa.eu/eba-issues-guidelines-challenge-unwarranted-de-risking-and-safeguard-access-financial-services
FIN-FSA publishes the findings of its risk assessment of capital market operators
The Finnish Financial Supervisory Authority (FIN-FSA) has published a summary of the sectoral risks assessment of money laundering and terrorist financing associated with the activities of investment firms, fund management companies and alternative fund managers. The risk assessment revealed weaknesses in companies’ risk-based approach. Based on the risk assessment, the focus of supervision will be on the control of risk management tools and the monitoring of customers and transactions in companies.
The summary is available here: https://www.finanssivalvonta.fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2023/finanssivalvonnan-laatiman-paaomamarkkinatoimijoiden-rahanpesun-ja-terrorismin-rahoittamisen-riskiarvion-yhteenveto-on-julkaistu/
ESG and Sustainable Finance
Delegated Regulation (2023/363) enters into force
The disputed Taxonomy Delegated Regulation (RTS) in relation to nuclear and gas disclosures entered into force. Amendments were made to the RTS is, in particular, to update template disclosures for products investing in environmentally sustainable activities set out in the Delegated Regulation (EU) 2022/1288. In accordance with the amendment, templates have been updated to include information on taxonomy aligned investments in nuclear and gas.
The Delegated Regulation is available here: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32023R0363
Consumer protection: enabling sustainable choices and ending greenwashing
The Commission is proposing common criteria against greenwashing and misleading environmental claims. According to the proposal, when companies choose to make a ‘green claim’ about their products or services, they will have to respect minimum provisions on how they substantiate these claims and how they communicate them. Further, such claims will need to be independently verified and proven with scientific evidence. The directive, however, does not apply to mandatory or voluntary disclosures in Union law in relation to financial services.
Read the news here: https://ec.europa.eu/commission/presscorner/detail/en/ip_23_1692
Draft legislation on implementing the CSRD
Finance Finland (FF) has issued a statement on the draft legislation on implementing the Corporate Sustainability Reporting Directive (CSRD). Entities in scope of the CSRD will have to report information on a wide range of ESG issues under the ESRS developed by the European Financial Reporting Advisory Group. The first companies will have to apply the new rules for the first time in the 2024 financial year, for reports published in 2025. The FF has suggested a number of specifications on the draft legislation in relation to timelines, management and supervisory bodies and the possibility of an exemption for subsidiaries. In addition, the FF has proposed adding some definitions, as well as harmonising terms.
The statement is available here: Luonnokset kestävyysraportointidirektiivin (CSRD) voimaansaattamisen edellyttämiksi säännöksiksi – Finanssiala.
Other relevant changes
The FIN-FSA has updated its supervision strategy for 2023–2025
The FIN-FSA has updated its supervision strategy for 2023–2025. The objective of the strategy is to be a proactive and predictable supervisor. The strategy focuses on economic uncertainty, cyber security and long-term changes in the operating environment, such as climate change, digitalisation, and demographic factors (e.g. the changing population structure).
Read more here: https://www.finanssivalvonta.fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2023/valvonnassa-painottuvat-taloustilanteen-epavarmuus-ja-kyberturvallisuus-seka-toimintaympariston-pitkakestoiset-muutokset/
FIN-FSA adopted a two-step verification method for the delivery of secure emails
The method of delivery of secure emails sent by the FIN-FSA has changed in accordance with the amendments of the Act on Information Management in Public Administration (906/2019). As of the change, the recipient has been subject to a two-step verification by means of a text message or a pre-generated password before the email sent by the FIN-FSA can be read.
Representative actions possible from June 2023 onwards
Consumer protection will be strengthened in summer when the national implementation of Directive (EU) 2020/1828 on representative actions for the protection of the collective interests of consumers enters into force. Representative actions can be used to seek an injunction against a trader’s conduct and compensation for consumer detriment. In addition to consumer sales, representative actions can be brought in areas such as data protection, financial services, transport or electronic communications. As a result of the implementation, several acts, such as the Act on class Actions and the Market Court Proceedings Act, have been amended. Amendments will enter into force on 25 June 2023.
Read more here: https://valtioneuvosto.fi/hanke?tunnus=OM029:00/2021
The Digital Operational Resilience Act (DORA) entered into force
EU is strengthening IT security of financial entities such as banks, insurance companies and investment firms by the Digital Operational Resilience Act (DORA) which will make sure the financial sector in Europe is able to stay resilient through a severe operational disruption. DORA sets uniform and specific requirements for the security of network and information systems of companies and organisations operating in the financial sector as well as critical third parties which provide ICT-related services to them. EBA, EIOPA and ESMA (ESAs) are creating technical standards for financial institutions, which must be complied with. The DORA entered into force on 16 January 2023 and will apply from 17 January 2025.
Implementation of the Directive on gender balance among directors of listed companies
In December 2022, the EU published a Directive on improving the gender balance among directors of listed companies and related measures (EU) 2022/2381. The Directive aims to ensure the application of the principle of equal opportunities between women and men and achieving a gender-balanced representation among top management positions by establishing a set of procedural requirements concerning the selection of candidates for appointment or election to director positions based on transparency and merit. The deadline for the national implementation of the Directive is 28 December 2024.
Read more here: https://oikeusministerio.fi/hanke?tunnus=OM017:00/2023
News by Sector
Funds and Fund Management
ESMA sees high risks amid fragile market
The European Securities and Markets Authority (ESMA) published the first Trends, Risks and Vulnerabilities (TRV) Report of 2023. Overall, risks in ESMA’s remit remain high, and investors should be prepared for further market corrections. In particular, contagion and operational risks are considered very high, as are liquidity and market risks.
Amendments to the Investment Services Act and the Act on Book-Entry System and Settlement Activities have been adopted
The Parliament of Finland approved the amendments proposed by the Government (HE 278/2022 vp) to the Investment Services Act and the Act on Book-Entry System and Settlement Activities and other related acts. The amendments implement the new Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT Pilot Regime), and they have been in force since 24 March 2023.
Read more here: https://vm.fi/paatos?decisionId=0900908f80819033
FIN-FSA’s thematic review: Reporting the costs of investment services and products to clients leaves room for improvement
In 2022, the FIN-FSA carried out a thematic review of the reporting of costs of investment services and products to customers. The review was part of a joint supervisory exercise coordinated by ESMA. On the basis of the review, the FIN-FSA reminds that clients must receive, at least annually, information on the total actual costs of all their investment services and products and their impact on returns (the so-called ex-post cost reporting). In addition, clients shall receive a more detailed breakdown on request. Furthermore, the FIN-FSA recommends that companies report annual expenses no later than three months after the end of the reporting period.
The thematic review is available here: https://www.finanssivalvonta.fi/globalassets/fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2023/yleinen-valvottavakirje.pdf
ESMA has updated its Guidelines on MiFID II product governance requirements
ESMA has published its final report on Guidelines on MiFID II product governance requirements. The amendments to the guidelines include information on defining the sustainability objectives which the product is compatible with, defining a target group for a product group, rather than just for individual products, and defining a compatible distribution strategy for more complex products that may be sold without advice.
The report is available here: ESMA35-43-3448 Final report on MiFID II guidelines on product governance (europa.eu)
ESMA’S final report on trading venue perimeter
ESMA has issued its final report on trading venue perimeter. The report provides important guidance on when systems should be considered multilateral and seek authorisation as a trading venue. The report aims to harmonise interpretations of, among other things, new technology providers and tendering systems, which in some cases can de facto operate as multilateral systems without a proper authorisation. Furthermore, the report elaborates how to classify a system and when third party trading interests interact within a system.
ESMA: Costs of retail investment products continue slow decline
ESMA has published its fifth annual report on the costs and performance of European Union (EU) retail investment products. In the report ESMA looks at the market between 2012 and 2021 and finds that the costs of investing in the most important retail financial products has continued to decline, albeit at a very slow pace.
Government’s letter to the Parliament on the Commission proposal to make capital markets more attractive and to facilitate the listing of small and medium-sized enterprises (Listing Act)
In December 2022, the European Commission released a package of measures to further develop the EU’s Capital Markets Union (CMU). A part of this proposal is the Listing Act, which includes important changes to the Prospectus Regulation, the Market Abuse Regulation, and the Markets in Financial Instruments Regulation. The proposal aims to simplify the listing requirements, including post-listing, in order to make public capital markets more attractive for EU companies and facilitate access to capital for small and medium-sized enterprises. The Parliament continues to work on the proposal on the basis of the Government’s letter.
Read more here: https://vm.fi/paatos?decisionId=0900908f8080ac0d
EIOPA aims to strengthen oversight of third country governance arrangements with supervisory statement
The European Insurance and Occupational Pensions Authority (EIOPA) has published a Supervisory Statement to strengthen the supervision and monitoring of insurance undertakings’ and intermediaries’ activities when using governance arrangements in third countries. EIOPA and National Competent Authorities expect, among other things, that undertakings and intermediaries using third country branches retain an appropriate level of corporate substance within the EEA. In addition, third country branches shall serve primarily the markets in which they are established and branches with the sole objective of supporting EU-based undertakings and intermediaries should be avoided. Furthermore, undertakings and intermediaries considering or operating such third-country arrangements shall demonstrate to supervisors that the structuring of their activities safeguards the ability of the supervisory authority to undertake proper supervision.
The Supervisory Statement is available here: https://www.eiopa.europa.eu/eiopa-aims-strengthen-oversight-third-country-governance-arrangements-supervisory-statement-2023-02-03_en
EIOPA published corrected updated representative portfolios to calculate volatility adjustments to the Solvency II risk-free interest rate term structures for 2023
EIOPA published corrected updated representative portfolios that will be used to calculate volatility adjustments (VA) to the relevant risk-free interest rate term structures for Solvency II. The updated portfolios enable more accurate reflection of the impact of market volatility under the Solvency II framework.
EIOPA supervisory statement takes aim at unfair ‘price walking’ practices
EIOPA published a supervisory statement on differential pricing practices with the aim of eliminating price-setting strategies which lead to the unfair treatment of customers. The statement underlines that providers falling under the scope of the Insurance Distribution Directive (IDD) shall always act honestly, fairly and professionally in accordance with the best interests of their customers. The statement also underlines that product oversight and governance processes should cover pricing techniques and ensure that these techniques do not adversely affect customers.
The supervisory statement is available here: https://www.eiopa.europa.eu/system/files/2023-03/EIOPA-BoS-23-076-Supervisory-Statement-on-differential-pricing-practices_0.pdf
FIN-FSA’s thematic review on telephone compensation decisions in voluntary consumer non-life insurance
The FIN-FSA completed a thematic review that collected information on the use of compensation decisions issued by non-life insurance companies by telephone. Based on the findings of the review, the FIN-FSA highlighted the need for a written decision particularly in relation to negative decisions. Extensive or more opaque compensation decisions are not suitable for issuing by telephone.
The thematic review is available here: https://www.finanssivalvonta.fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2023/teema-arvio-puhelinkorvauspaatokset-kuluttajien-vapaaehtoisissa-vahinkovakuutuksissa/
Implementation of the Motor Insurance Directive (2021/2118)
The Ministry of Social Affairs and Health is preparing the national implementation of the Motor Insurance Directive (2021/2118). According to the committee report, the definition of “vehicle” will be amended. In the future, slow or light-weight vehicles will not fall in the scope of the Act. Furthermore, information on motor insurance claims history shall be provided on a standardised insurance and claims history certificate form. In addition, an injured person resident in Finland could submit a claim to the Finnish Motor Insurers’ Centre in case the insurance company in question was insolvent.
Credit and Payment Institutions
Government proposal HE 317/2022 vp on legislation on the information obligation of payment service providers has been approved
The Act amending Sections 29 and 31 of the Act on the Taxation of Direct Taxes and the Act on the Duty of Payment Service Providers to Provide Information on Cross-Border Payments have been approved. The information obligation will apply to payment service providers, such as credit institutions, payment institutions, issuers of electronic money and credit institutions, as further defined in the Acts. Payment service providers will be obliged to keep information on cross-border payments and report it to the Tax Administration on a quarterly basis. The Acts are scheduled to enter into force on 1 January 2024.
Government proposal HE 218/2022 vp on changes to the Consumer Protection Act takes effect as of 1 October 2023
The President has approved the Acts amending the Consumer Protection Act (the “CPA”), Section 13 of the Act on Certain Powers of Consumer Protection Authorities and Chapter 5, Section 3 of the Code of Judicial Procedure. In accordance with the amendments, the interest rate cap is lowered to 15 % but also linked to the reference rate defined in the Interest Act. The total interest rate including the reference rate may together not exceed 20 %. In addition, Chapter 7, Section 13 of the CPA regarding good credit granting practice has been specified so that it now includes more concrete examples. The amendments will enter into force on 1 October 2023.
The Government proposal is available here: https://www.eduskunta.fi/FI/vaski/HallituksenEsitys/Documents/HE_218+2022.pdf
Regulations and guidelines 26/2013: Amendments to the FIN-FSA’s regulations and guidelines on Common European Reporting
The FIN-FSA has made certain amendments to its regulations and guidelines on 26/2013 Common European Reporting (Corep). The amendments implement EBA’s three new guidelines on the collection of data on high earners and remuneration reporting. In 2023, reporting will follow a transition period, during which the data concerning the financial year ending in 2022 must be submitted to the FIN-FSA no later than 31 August 2023. In the future, the data must be submitted no later than 15 June in each calendar year during which the data is collected.
Read more here: https://www.finanssivalvonta.fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2023/mok-262013-finanssivalvonnan-yhteiseurooppalaista-raportointia-koskevan-maarayksen-ja-ohjeen-muuttaminen/
EIOPA gives a warning to insurance companies and banks providing loan protection insurance
EIOPA has issued a warning due to a thematic assessment report on providing loan protection insurance. The warning is directed to insurance companies and banks providing loan protection insurance as agents of insurance companies. If they do not address the high commissions and conflicts of interest related to loan protection insurance, they might be subject to supervisory measures.
EBA updates some important Q&As in the area of own funds and eligible liabilities
The EBA has updated some of its existing Q&As on own funds and eligible liabilities to ensure consistency with the revised final draft Regulatory Technical Standards (RTS) on own funds and eligible liabilities submitted to the Commission in May 2021. In particular, the EBA updated Q&A 2017_3277 on the notion of ‘sufficient certainty’ which relates to when an institution has to deduct from its own funds the amounts for which it has received a prior permission from the competent authority.
FIN-FSA’s supervision release: Thematic review on unreasonable restrictions on high-risk customers’ access to banking services
The FIN-FSA has investigated the undue restriction of banking services to high-risk customers and the occurrence of the so-called de-risking phenomenon. Based on the findings of the review, the FIN-FSA recommends that banks consider the effects of financial inclusion and the compliance with equality legislation. Furthermore, The FIN-FSA reminds that it does not expect that banks have zero AML/TF risks in their activities. However, the risks should be identified and assessed, and banks should take proportionate measures to manage these risks. In addition, banks should prepare a long-term risk appetite assessment and collect data on AML/TF measures, refusals and terminations of customer applications, and the reasons behind the refusals.
The supervision release is available here: https://www.finanssivalvonta.fi/tiedotteet-ja-julkaisut/valvottavatiedotteet/2022/teema-arvio-korkeariskisten-asiakkaiden-aiheettomista-pankkipalveluiden-rajoittamisista/