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
Regulations and guidelines 2/2023 on prevention of money laundering and terrorist financing have entered into force in June 2023
The FIN-FSA’s regulations and guidelines 2/2023 on the prevention of money laundering and terrorist financing became applicable as of 26 June 2023. The objective of the new regulations and guidelines is to provide entities supervised by the FIN-FSA with interpretations and recommendations on the application of AML/CFT regulation. They 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. The regulations and guidelines mainly incorporate changes resulting from the new partial reform of the AML Act.
The FIN-FSA invites comments on regulations and guidelines on customer due diligence related to compliance with sanctions regulation and freezing orders
The objective of the regulations and guidelines is to provide entities supervised by the FIN-FSA with binding regulations, interpretations and recommendations to comply with sanctions regulation. The regulations and guidelines seek to guide supervised entities in their actions to ensure compliance with sanctions regulation and freezing orders. Comments are invited through the lausuntopalvelu.fi service at the latest on 22 September 2023.
Read more here: FIN-FSA invites comments on regulations and guidelines on customer due diligence related to compliance with sanctions regulation and freezing orders – consultation closes on 22 September 2023 – 2023 – www.finanssivalvonta.fi
FIN-FSA’s supervisory strategy for preventing money laundering has been published
The FIN-FSA has published its anti-money laundering supervisory strategy adopted at the beginning of 2023, which also covers the prevention of terrorist financing and the monitoring of compliance with sanctions. The key objectives of the strategy are that supervised entities receive effective information on the level of anti-money laundering measures required by the FIN-FSA, supervision is targeted on a risk basis, and that supervision is proportionate and effective. Supervisory measures to prevent money laundering will be targeted at different sectors based on the risk and significance of money laundering and terrorist financing associated to them. However, all supervised entities may be subject to supervisory measures, even if they operate in a lower-risk sector.
EBA finds that money laundering and terrorist financing risks in payments institutions are not managed effectively
The European Banking Authority (EBA) has published its Report on money laundering and terrorist financing (ML/TF) risks associated with EU payment institutions in June. Its findings suggest that ML/TF risks in the sector may not be assessed and managed effectively by institutions and their supervisors, and AML/CFT internal controls in payment institutions are often insufficient to prevent ML/TF. The findings also suggest that not all competent authorities are currently doing enough to supervise the sector effectively. Failure to manage ML/TF risks in the payment institution sector can impact the integrity of the EU’s financial system.
EBA guidelines on the use of remote customer onboarding solutions
The EBA has issued guidelines (EBA/GL/2022/15) on the use of remote customer onboarding solutions applicable from 2 October 2023. The FIN-FSA has informed the EBA that it will comply with the guidelines. The aim of the guidelines is to create common EU practices for the use of remote customer onboarding solutions, and to help credit and financial institutions effectively meet their obligations to prevent ML/TF. The guidelines set out the steps that credit and other financial institutions should take when assessing the adequacy and effectiveness of remote customer onboarding solutions from the perspective of the supervised entities’ own activities. The FIN-FSA’s regulations and guidelines 2/2023 include further instructions on remote identification for obliged entities.
EBA publishes fourth Opinion on money laundering and terrorist financing risks across the EU
The European Banking Authority (EBA) has published its fourth biennial Opinion on the risks of money laundering and terrorist financing (ML/TF) affecting the European Union’s financial sector. It also sets out what competent authorities and EU co-legislators can do to mitigate those risks. Overall, AML/CFT supervision has improved and an increasing number of AML/CFT supervisors are conducting formal AML/CFT risk assessments in line with EBA guidelines. However, AML/CFT controls are not always effective or proportionate to the level of risk of money laundering and terrorist financing.
Legislative initiatives on improving exchange of information in activities that prevent money laundering and terrorist financing
A working group has prepared an action plan and a draft Government proposal on improving the exchange of information in activities that prevent money laundering and terrorist financing. In addition to the above-mentioned, draft Government proposals on amending the Anti-Money Laundering Act, the Act on the Financial Supervisory Authority, and the Government decree on significant public functions have been published.
Read more here: Hallituksen esitys eduskunnalle tietojenvaihdon tehostamista rahanpesun ja terrorismin rahoittamisen estämistoiminnassa sekä kansallisen turvallisuuden suojaamista koskeviksi laeiksi – Valtiovarainministeriö (vm.fi)
ESG and Sustainable Finance
ESAs present common understanding of greenwashing and warn on related risks
The European Supervisory Authorities (ESAs) published progress reports on greenwashing in the financial sector on 1 June 2023. The ESAs put forward a common high-level understanding of the concept of greenwashing. The report shows a clear increase in the total number of potential cases of greenwashing across all sectors, including for EU banks. Pledges about future ESG performance are considered to be the most prone to greenwashing, followed by ESG strategy and objectives of entities, as well as ESG labels and certificates. The materiality of greenwashing for banks and investment firms is expected to increase in the future. Lastly, the EBA finds that several elements in the current or planned regulation and supervision may contribute to tackling greenwashing.
ESAs propose amendments to extend and simplify sustainability disclosures
The three European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published a Consultation Paper with amendments to the Delegated Regulation of the Sustainable Finance Disclosure Regulation (SFDR). The ESAs are proposing changes to the disclosure framework to address issues that have emerged since the introduction of SFDR.
Sustainable finance package
The Commission has put forward a new package of measures to build on and strengthen the foundations of the EU sustainable finance framework. The aim of the package is to ensure that the EU sustainable finance framework continues to support companies and the financial sector, while encouraging the private funding of transition projects and technologies. The package includes taxonomy regulation, proposal for regulation for ESG rating providers and recommendation on transition finance.
Other relevant changes
Digital finance: Council adopts new rules on markets in crypto-assets (MiCA)
The EU brings crypto-assets, crypto-assets issuers and crypto-asset service providers under a regulatory framework. Setting an EU level legal framework for this sector for the first time, the Council has adopted a regulation on markets in crypto-assets (MiCA). The new rules cover issuers of utility tokens, asset referenced tokens and so-called ‘stablecoins’. It also covers service providers such as trading venues and the wallets where crypto-assets are held. The regulatory framework aims to protect investors, preserve financial stability, while allowing innovation and fostering the attractiveness of the crypto-asset sector.
Representative actions now possible – consumer organisations may apply for the right to act as consumer representatives
As of June 2023, consumer organisations accepted as qualified entities have been able to bring representative actions. They may be brought besides consumer trade, for example, in relation to data protection, financial services and electronic communications. Representative actions may be brought on behalf of consumers by so-called qualified entities which include consumer organisations and public authorities. In order to become a qualified entity, a consumer organisation must first apply to the Ministry of Justice for designation.
Government proposal on national implementation of DORA
Government proposal on national implementation of DORA is planned to be published in spring 2024. The purpose of the presentation is to harmonize the requirements regarding the digital interference tolerance of financial sector operators. The aim is to ensure the stability and integrity of the Union’s financial markets and at the same time promote the maintenance of a high level of investor and consumer protection throughout the Union. In addition, financial sector actors should have at their disposal extensive capabilities for information and communication technology (ICT) risk management, ICT deviations and their reporting, as well as ICT testing and ICT-related risk caused by third parties.
News by Sector
Funds and Fund Management
Capital markets union: provisional agreement reached on alternative investment fund managers directive and the rules in the framework for undertakings for collective investment in transferable securities (UCITS)
A provisional agreement has been reached on new rules to improve European capital markets and strengthen investor protection in the EU. The provisional agreement reviews the alternative investment fund managers directive (AIFMD). It also modernises the rules in the framework for undertakings for collective investment in transferable securities (UCITS), i.e. plain-vanilla EU-harmonised retail investment funds such as unit trusts and investment companies.
Read more here: https://www.consilium.europa.eu/en/press/press-releases/2023/07/20/capital-markets-union-provisional-agreement-reached-on-alternative-investment-fund-managers-directive-and-plain-vanilla-eu-investment-funds/
Council and Parliament reach provisional political agreement on financial services contracts concluded at a distance
A provisional political agreement has been reached on the directive concerning financial services contracts concluded at a distance. The agreement aims to improve the rules on information disclosure and aims to modernise pre-contractual information obligations and keeps the possibility for member states to impose stricter national rules in this area, avoiding any risk of lowering the level of protection for consumers. It also clarifies the scope of application and the safety net-feature in the directive, in particular for financial services that are excluded from other sectoral legislation or only partially covered by it.
Read more here: https://www.consilium.europa.eu/en/press/press-releases/2023/06/06/council-and-parliament-reach-provisional-political-agreement-on-financial-services-contracts-concluded-at-a-distance/
ESMA calls for legislative amendments to prevent undue costs in funds
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has published an Opinion to the European Commission with suggested clarifications of the legislative provisions under the UCITS Directive and the AIFMD relating to the notion of “undue costs”. Apart from the high investor protection relevance of this matter, ESMA deems that a lack of supervisory convergence on this topic leaves room for regulatory arbitrage and risks hampering competition in the EU market. Furthermore, it may lead to different levels of investor protection depending on where a fund or fund manager is domiciled.
Government proposal to amend the Finnish Securities Markets Act (746/2012)
The Ministry of Finance has initiated a project to amend the Finnish Securities Markets Act. The amendment mainly concerns the provisions governing takeover bids and flags to include MTFs.
Read more here: https://vm.fi/hanke?tunnus=VM039:00/2023
ESMA updates its guidance on the definition of advice in a supervisory briefing
ESMA has published a supervisory briefing on understanding the definition of advice under MiFID II. ESMA reviewed and updated the CESR Q&A on Understanding the Definition of Advice under MiFID, a document that is widely used by supervisors and firms, to align it with new business models and recent technological developments.
Capital Markets Union: Commission proposes new rules to protect and empower retail investors in the EU
The Commission has today adopted a Retail Investment Package that places the consumers’ interests at the centre of retail investing. The aim is to empower retail investors (i.e. consumer investors) to make investment decisions that are aligned with their needs and preferences, ensuring that they are treated fairly and duly protected. The package consists of an amending Directive, which revises the existing rules set out in the Markets in Financial Instruments Directive (MiFID II), the Insurance Distribution Directive (IDD), the Undertaking for Collective Investment in Transferable Securities (UCITS) Directive, the Alternative Investment Fund Managers Directive (AIFMD), and the taking-up and pursuit of the business of Insurance and Reinsurance Directive (Solvency II), as well as an amending Regulation, which revises the Packaged Retail and Insurance-based Investment Products (PRIIPs) Regulation.
Read more here: https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2868
FIN-FSA: Thematic Assessment of Compliance with Insurance Distribution Regulation
The Financial Supervisory Authority (FIN-FSA) has carried out a thematic assessment with the aim of obtaining an overview of the compliance and application by insurance companies of the comprehensive regulation on insurance distribution that entered into force in 2018. Topics covered by the thematic evaluation included insurance companies’ product management systems, the good repute and professionalism of insurance company staff, and the conduct of the insurance provider and the customers’ best interests, use of registered insurance intermediaries and key information documents.
Credit and Payment Institutions
Amendments to the Act on Credit Institutions for the purpose of controlling over-indebtedness of consumers
Certain amendments to the Act on Credit Institutions (610/2014) for the purpose of controlling over-indebtedness of consumers have entered into force on 1 July 2023. The provisions impose restrictions on housing corporation loans, expand the scope of the maximum lending ratio, and set a maximum repayment period for housing loans. Some important provisions regard insolvency risk management in consumer lending for consumer creditors and provide new obligations; for example, reporting on insolvency risks to the FIN-FSA. The FIN-FSA has confirmed that the reporting obligation will not start from day one, and it may later issue further guidance on the subject.
FIN-FSA’s macroprudential decision: housing loan ceiling and banks’ variable capital requirements remain unchanged
On 28 June 2023, the FIN-FSA’s Board of Directors decided to maintain the loans ceiling, i.e. the maximum lending ratio, at its previous level of 85%. The variable capital requirement for banks will remain at its basic level (0%). The Board of Directors of the FIN-FSA also approved the partial applicability of the Norwegian systemic risk buffer requirement to Finnish banks operating partly in Norway.
Read more here:
Legislative project assesses the need for changes to the regulation of basic banking services as part of a broader assessment of the need for changes to the Credit Institutions Act
The aim is to examine the current state of the legislation from the perspective of ensuring that regulation safeguards the provision of affordable basic banking services throughout the country, including in situations where market-based service provision is not sufficient to meet customers’ needs.
Banking sector: Council agrees its position on the implementation of Basel III reforms
The EU is working to boost the resilience of banks operating in the Union and strengthen their supervision and risk management by finalizing the implementation of the globally agreed Basel III regulatory reforms. Negotiators, led by the Council and the European Parliament, have reached a preliminary agreement on amendments to the Capital Requirements Regulation and the Capital Requirements Directive. The agreement is conditional and therefore provisional, as it still needs to be confirmed by the Council and the Parliament before it can be formally adopted.
Read more here: https://www.edilex.fi/uutiset/84881
Government proposal on amending the act on the positive credit register (OM057:00/2023)
The Ministry of Justice has set up a committee to prepare a Government Proposal on urgent technical and other amendments to the Act on the Positive Credit Register (739/2022). The new amendments are related to the transfer of credit data from the register to Statistics Finland for scientific research and statistical studies on social conditions. The purpose of the proposal is to ensure smooth implementation and operation of the register as scheduled.
Reform of payment service legislation (EU preparation)
The EU Commission intends to amend and modernize the current Payment Services Directive (PSD2) (to become PSD3) and establish a Payment Services Regulation (PSR). The Commission is also putting forward a legislative proposal for a framework for financial data access (FIDA).
A project page has been opened and project number has been given to this legislative project by the Ministry of Justice.