Legal Updates
Legal updates covering current topics.
2021 Quarterly Financial Sector Newsletter 2/2021
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
- National risk assessment on money laundering and terrorist financing
The new Finnish national risk assessment on money laundering and terrorist financing was published by the Ministry of Finance in April 2021. The document describes the threats, vulnerabilities and risks arising from money laundering and terrorist financing in all sectors of obliged entities and in the activities of non-profit organisations.
Read in full (Finnish only): Kansallinen rahanpesun ja terrorismin rahoittamisen riskiarvio 2021 (valtioneuvosto.fi)
- EBA highlights key money laundering and terrorist financing risks across the EU
The European Banking Authority (EBA) has published a biennial Opinion on risks of money laundering and terrorist financing (ML/TF) affecting the European Union’s financial sector. The ML/TF risks identified by the EBA include those that are applicable to the entire financial system, for instance the use of innovative financial services, while others affect specific sectors, such as de-risking.
Read EBA’s Opinion in full: Opinion on MLTF risks.pdf (europa.eu)
- Judgement by the Supreme Court on money laundering by negligence
Ålands Penningautomatförening (Paf), a gambling association, was convicted of negligent money laundering by the Finnish Supreme Court (HD 2021:6). In January 2012, Paf reported a suspicious transaction to the Finnish Financial Intelligence Unit (FIU) regarding a customer whose playing behaviour had caused a money laundering suspicion. After this, the customer had been allowed to continue gambling with Paf’s products until October 2012, with some EUR 580 000. According to the Supreme Court, Paf had not exercised due care and attention for the prevention of crime and, therefore, the Supreme Court imposed a corporate fine of EUR 250,000 on Paf for negligent money laundering.
Read the judgement in full (Swedish only) here.
ESG and Sustainable Finance
- EU Taxonomy Delegated Act
The first Delegated Act defines the technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation and climate change adaptation. The criteria cover the economic activities of roughly 40% of EU-domiciled listed companies, in sectors which are responsible for almost 80% of direct greenhouse gas emissions in Europe.
The Taxonomy (EU) 2020/852 will help create the world’s first-ever “green list” – a classification system for environmentally sustainable economic activities. The Regulation tasked the Commission with establishing technical screening criteria through Delegated Acts. The College of Commissioners reached a political agreement on the text of the first Delegated Act on 21 April 2021.
Read more about the sustainable finance package published in April: Sustainable finance package | European Commission (europa.eu)
News by company sector
Funds and fund management companies
- FIN-FSA’s and ESMA’s results of the 2020 assessment of UCITS liquidity risk management
The FIN-FSA conducted two assessments of UCITS liquidity risk management (LRM) in 2020. The assessments were a part of the European Securities and Markets Authority’s (ESMA) Common Supervisory Action. Both the FIN-FSA and ESMA have now published their results of the LMR assessments.
Read FIN-FSA’s results here: Sijoitusrahastojen likviditeetinhallinnassa vielä kehitettävää – 2021 – www.finanssivalvonta.fi
Read ESMA’s results here: ESMA assesses the compliance with UCITS liquidity rules and highlights areas for vigilance (europa.eu)
- ESMA’s report on costs of retail investment products
ESMA has published a report on the costs and performance of retail investment products. In the report ESMA states that the costs of retail investment products, such as UCITS funds, AIFs and structured investment products, remain high and undermine investors’ ultimate returns. ESMA attaches particular importance to providing clear and comprehensible information on the impact of costs on revenue, so that investors can make informed investment decisions.
Read ESMA’s report in full: esma_50-165-1710_asr_performance_and_costs_of_eu_retail_investment_products.pdf (europa.eu)
- Draft government proposal regarding the national implementation of the directive on cross-border distribution of funds
A draft government proposal has been published regarding the national implementation of the regulation on cross-border distribution of funds (EU) 2019/1156. The proposal is open for public consultation until 17 June 2021.
Read the proposal in full here (Finnish only): Lausunto – Lausuntopalvelu
Investment firms
- IFR and IFD will become applicable on 26th June 2021
The Investment Firm Regulation (IFR) and the Investment Firm Directive (IFD) will cause significant changes to investment firms’ prudential framework. The IFR becomes directly applicable on 26th June 2021. Furthermore, Member States are required to implement the IFD before 26th June 2021 to national legislation. The government proposal implementing the IFD into the Finnish Act on Investment Services was approved by the parliament in April, but still awaits approval from the president.
The IFR: EUR-Lex – 32019R2033 – EN – EUR-Lex (europa.eu)
The IFD: EUR-Lex – 32019L2034 – EN – EUR-Lex (europa.eu)
The amended Act (Finnish and Swedish only): EV 41/2021 vp (eduskunta.fi)
Insurance companies
- EIOPA launches its IDD single rulebook
European Insurance and Occupational Pensions Authority (EIOPA) has published the IDD Single Rulebook. The Single Rulebook is an online tool that promote the consistent implementation of the regulatory framework for insurance supervision.
The main benefit of the Single Rulebook is that it enables the navigation across different legal acts such as the IDD, Delegated and Implementing Regulations, as well as EIOPA Guidelines and IDD questions and answers submitted via EIOPA’s dedicated Q&A process.
The Single Rulebook: IDD Single Rulebook | Eiopa (europa.eu)
- The European Commission has provided new questions and answers on the IDD
The European Commission has provided answers to a series of questions regarding the legal interpretation of provisions of the IDD and its implementing measures.
Read the questions and answers here: Questions & Answers on the Insurance Distribution Directive | Eiopa (europa.eu)
Credit Institutions
- Initial proposal for the establishment of a positive credit information register published by the Ministry of Justice
The working group of the Ministry of Justice has published a memorandum concerning the establishment of a positive credit information register. The memorandum includes an initial proposal for the enactment of a new act on the positive credit information register. The proposed legislation is planned to enter into force in 2022, but the register would be introduced in 2024.
Read the memorandum in full (Finnish only): Positiivista luottotietorekisteriä koskeva lainsäädäntö. Työryhmän mietintö (valtioneuvosto.fi)
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Partial revocation of a trade name in administrative proceedings possible as of 1 May 2021
In connection with the reform of the Finnish Trademarks Act in 2019, the Finnish Trade Names Act was also amended. The amendment introduces a possibility to partially revoke a trade name due to non-use by filing an action in administrative proceedings with the Finnish Patent and Registration Office (“Office”), as an alternative to civil proceedings.
Background to the amendments
Until now it has only been possible to revoke a trade name due to non-use when the trade name has not been in use at all (the company has had no business activities) during the preceding five years. Simultaneously it has been (and still is) possible to register trade names for a broad (in fact unlimited) line of business such as “general business line” (in Finnish “yleistoimiala”) or “all legal activity” (in Finnish “kaikki laillinen toiminta”). As the Office examines ex officio prior rights, prior trade name registrations are often cited as an obstacle to registration of later trademark applications and trade name notifications, even though the actual line of business of the parties in practice have been completely different. In such case the applicant may have had no other alternative than to ask for a consent from the holder of the prior right, to try to overcome the cited obstacle. If refused, the applicant was left with basically no means to proceed with the planned trademark or trade name application.
Partial revocation of trade names
In order to at least partly overcome the problem caused by overly broad trade name registrations. the possibility to file an action for partial revocation of a trade name due to non-use is now introduced. The amendment is a significant improvement as it implies that it will be clearly easier to overcome blocking trade name registrations.
Revocation of a trade name in administrative proceeding
In order to further lower the threshold for overcoming obstacles caused by overly broad trade name registrations, the possibility to file a revocation action due to non-use before the Office is simultaneously introduced, while civil action in the Market Court has been the only alternative until now.
It is up to the claimant to choose whether to initiate administrative or civil proceedings. Civil proceedings do always, however, have a priority in relation to administrative proceedings in the sense that if a court proceeding concerning the same trademark or name are initiated between the same parties, the proceedings at the Office will be terminated.
Cost-effectiveness
Administrative revocation proceeding is, however, meant to be a lighter and more cost-efficient alternative to civil revocation proceedings especially in clear non-use cases. The burden of proof of genuine use of a trade name for a certain line of business lies with its holder. If the company does not file any response or is not able to prove genuine use for a particular line of business, the trade name will partially or whole be revoked provided the application is not manifestly unfounded.
The Office charges no fee for revocation proceedings while the Market Court fee for bringing a civil action is EUR 2 500. As a main rule the parties bear their own costs in administrative proceedings, whereas the losing party pays the winning party’s legal costs in civil proceedings.
Our partner Åsa Krook was a member of the working group appointed by the Ministry of Employment and the Economy for the revision of the old Finnish Trademark Act and Trade Names Act.
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Quarterly Financial Sector Newsletter
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
• The EBA Guidelines on money laundering and terrorist financing risk factors
EBA has published its final revised Guidelines on money laundering and terrorist financing risk factors. The Guidelines set out factors that obliged entities under the AML Act should consider when assessing the money laundering and terrorist financing risks associated with a business relationship or an occasional transaction.
Read the revised Guidelines in full: EBA publishes final revised Guidelines on money laundering and terrorist financing risk factors | European Banking Authority (europa.eu)
• The Finnish Government proposal regarding amendments to the Act on Preventing Money Laundering and Terrorist Financing
The final Finnish government proposal regarding amendments to the Act on Preventing Money Laundering and Terrorist Financing has been published. The legislative amendments are expected to enter into force on 1 April and 1 September 2021.
Read the proposal in full (Finnish only): HE 261/2020 vp (eduskunta.fi)
ESG and Sustainable Finance
• Final report on RTS and joint ESA supervisory statement on the application of the SFDR
The European Supervisory Authorities (ESAs) have published their final report and draft Regulatory Technical Standards (RTS) under the Regulation on sustainability-related disclosures in the financial services sector (SFDR). Furthermore, the ESAs have published a joint supervisory statement on the application of the SFDR. The objective of the supervisory statement is to ensure consistent application of the SFDR within the period from the application date of the SFDR (10 March 2021) to the application date of the RTS.
Read more: The three European Supervisory Authorities publish Final Report and draft RTS on disclosures under SFDR (europa.eu)
ESAs issue recommendations on the application of the Regulation on sustainability-related disclosures (europa.eu)
• ESAs’ letter to the European Commission regarding priority issues relating to the application of the SFDR
The ESAs sent a letter to the European Commission regarding several important areas of uncertainty in the interpretation of SFDR. The priority areas relate to the application of the SFDR on registered and non-EU AIFMs, the application of the 500-employee threshold for principal adverse impact reporting, the meaning of promotion in the context of product promoting environmental or social characteristics, the application of Article 9 SFDR and the application of SFDR product rules to portfolios and dedicated funds.
Read in full: jc_2021_02_letter_to_eu_commission_on_priority_issues_relating_to_sfdr_application.pdf (europa.eu)
• ESAs consult on Taxonomy-related product disclosures
The ESAs have issued a consultation paper seeking input on draft RTS regarding the disclosures of financial products investing in economic activities that contribute to an environmental investment objective. The proposed RTS create a single rulebook for the SFDR and the Taxonomy Regulation.
Read in full: ESAs consult on Taxonomy–related product disclosures (europa.eu)
PRIIPS KID
• EIOPA’s board of supervisors agree on changes to the PRIIPS Key Information Document
The ESAs have submitted draft RTS to the European Commission on amendments to the Key Information Document for packaged retail and insurance-based investment products (PRIIPs).
Read in full: EIOPA’s Board of Supervisors agrees on changes to the PRIIPs key information document | Eiopa (europa.eu)
News by Company Sector
Funds and fund management companies
• ESMA launches a common supervisory action with NCAs on the supervision of costs and fees of UCITS
ESMA is launching a common supervisory action (CSA) with National Supervisory Authorities (NCAs) on the supervision of costs and fees of UCITS across the EU. The CSA aim to assess the compliance of supervised entities with the relevant cost-related provisions in the UCITS framework, and the obligation of not charging investors with undue costs.
Read in full: ESMA launches a Common Supervisory Action with NCAs on the supervision of costs and fees of UCITS (europa.eu)
• ESMA publishes Cloud Outsourcing Guidelines
ESMA has published a final report on its Guidelines on outsourcing to cloud service providers. The Guidelines are intended to help firms identify, address and monitor the risks arising from cloud outsourcing arrangements.
Read in full: ESMA publishes cloud outsourcing guidelines (europa.eu)
Insurance companies
• EIOPA identifies business model sustainability and adequate product design as strategic supervisory priorities
EIOPA has identified business model sustainability and adequate product design as two Union-wide strategic supervisory priorities relevant for NCAs.
Read in full: Business model sustainability and adequate product design identified as new strategic supervisory priorities for national supervisors | Eiopa (europa.eu)
Investment firms
• ESMA updates Q&A on costs and charges
ESMA’s Q&As on MiFID II and MiFIR investor protection and intermediaries’ topics includes one new Q&As on ‘Information on costs and charges’ that aim to give guidance on how firms can present ex-post costs and charges information to clients in a fair, clear and not misleading manner.
Read in full: ESMA updates Q&A on costs and charges (europa.eu)
• EBA publishes final draft technical standards under the IFD and IFR
EBA has published a number of final draft Technical Standards under the IFD and IFR, related to e.g. the prudential treatment of investment firms, identifying investment firms’ risk takers and variable remuneration.
Read more: EBA publish final draft technical standards on the prudential treatment of investment firms | European Banking Authority (europa.eu)
EBA publishes final draft technical standards to identify investment firms’ risk takers and to specify the instruments used for the purposes of variable remuneration | European Banking Authority (europa.eu)
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Mehiläinen/Pihlajalinna tie-up falls apart in the Market Court
The Market Court has rendered its much awaited, albeit brief, decision in the case concerning the proposed “3 to 2” merger in the Finnish health care market between Mehiläinen Yhtiöt Oy and Pihlajalinna Oyj on 29 December 2020. The Market Court did not rule on the merits of the proposed merger due to the deal having been abandoned. Read more
The Effects of UK leaving the EU on EU Trademarks and Community Designs
After 1 January 2021, UK is no longer part of the EU. Consequently, EU trademark applications and Community design applications filed after 31 December 2020 will no longer receive protection in the UK.
In relation to existing EU trademarks, Community designs, unregistered Community designs as well as any pending applications, the UK trademark authority has agreed to take following measures: Read more
International transfers of personal data – recent developments post CJEU Schrems II judgement
In July 2020 the Court of Justice of the European Union (CJEU) delivered its judgement in the Schrems II case where the CJEU declared that the Privacy Shield mechanism, enabling a legal transfer of personal data from the EEA to the US, is invalid. This mainly because US laws, not following the principle of proportionality included in the GDPR, allow excessive access and use by US surveillance authorities to personal data. Also, there is no remedy available to EU data subjects to ensure protection of their personal data after it has been transferred to the US. Organizations that have relied on the Privacy Shield mechanism must post Schrems II have alternative transfer mechanisms in place in order to be able to legally transfer personal data from the EEA to the US. Such alternative transfer mechanisms may, amongst others, include Standard Contractual Clauses (SCC). Read more
New rules concerning non-compete obligation in employment contracts
Under the Employment Contracts Act, the employer and the employee may agree on a non-compete obligation only in limited circumstances. However, in practice the criteria have been vague and non-compete obligations have been more commonly used than what was intended. The reform of the Employment Contracts Act aims to change this situation and force employers to carefully consider when to include non-compete obligation in an employment contract. Read more
Marketing of UK funds in Finland after the end of Brexit transitional period
ORIGINALLY PUBLISHED ON 14 OCTOBER 2020, UPDATED ON 4 NOVEMBER 2020
The Finnish Financial Supervisory Authority (“FIN-FSA”) has on 13 October 2020 issued guidance regarding funds and fund managers (AIFMs and UCITS) domiciled in the United Kingdom as regards enabling uninterrupted marketing activities in Finland after the end of the Brexit transitional period on 31 December 2020. Read more
Interest rates and direct marketing of consumer loans to be temporarily restricted as of 1 July 2020
The Finnish parliament has on 16 June 2020 approved the government’s proposal regarding certain amendments to the legislation on consumer loans due to the coronavirus outbreak. According to the new temporary legislation, the applicable interest rate on consumer loans will be temporarily capped at 10 per cent instead of the current 20 per cent. Also, any direct marketing to consumers will be banned. These restrictions are scheduled to enter into force on 1 July 2020 and apply until 31 December 2020. Read more
Impact of COVID-19 on Finnair – Legal and contractual issues
The Finnish government has started to gradually lift COVID-19 restrictions as Finnish society
steadily aims to resume its former course. Accordingly, schools began to reopen from 14 May 2020
and restaurants from 1 June 2020. However, some of the restrictions will remain in force until the
end of October 2020 and will be revisited periodically. A hopeful sign for the transport sector in
general is that the state-owned railway operator VR has announced that it aims to return to
approximately 85% of normal traffic levels starting from mid-June 2020. Read more
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