According to the International Monetary Fund's (IMF) Financial System Stability Assessment (FSSA), published in 2001, Finland has broadly implemented the International Organization of Securities Commissions Principles and Objectives for Effective Securities Regulation. The report noted that Finland has a well developed and transparent framework for the supervision of the securities markets, but recommends further improvement in certain areas. The IMF FSSA pointed to weaknesses primarily in three areas: regulatory independence; sufficiency of regulatory powers; and potential systemic financial risks related to short selling or the structure of market arrangements for equity settlements and trading allotments. The IMF indicated that additional administrative powers would enhance the Finnish Financial Supervision Authority's (FIN-FSA) ability to enforce the rules and regulations that applied to the securities markets, while cooperating with other regulators. The report further noted that although the FIN-FSA's regulatory and surveillance powers met international standards, it exhibited some weaknesses in its enforcement and sanction capabilities.

General Overview

According to the 2001 IMF FSSA, Finland is mostly in compliance with the International Organization of Securities Commissions (IOSCO) Principles and Objectives for Effective Securities Regulation and the securities markets are "generally well regulated" (p. 5). The FSSA points out that Finland has a well-developed and transparent framework for the supervision of the securities markets, but recommends further improvement, particularly in the areas of the regulators' independence, the supervision and enforcement powers of the regulator, and risk management related to short selling and the "structure of market arrangements for equity settlements and trading allotments" (p. 25). The assessment also mentioned that the exchanges' ability to adopt collateral rules and insolvency laws could be enhanced..

The FIN-FSA is charged with the supervision of the securities markets by the Act on the Financial Supervision Authority, as well as other capital market regulations. It supervises investment firms, the Investor Compensation Fund, fund management companies, the Helsinki exchanges, clearing houses, clearing parties, the Central Securities Depository, and account operators; and authorizes investment firms, credit institutions, fund management companies, custodians, and pawn shops. The FIN-FSA website indicates that it is responsible for ensuring the equal treatment of investors and that, as of 2005, it has been responsible for monitoring companies' compliance with the International Financial Reporting Standards (IFRS). The Ministry of Finance (Valtiovarainministeriö, or MoF) and Helsinki exchanges also hold regulatory responsibilities. The 2001 IMF FSSA reports that the MoF is responsible for licensing and formulating legislation, as well as authorizing securities and derivatives exchanges and central securities depositories. The stock exchanges are self-regulating organizations (SROs), but their listing rules must be approved by the MoF and they are supervised by the FIN-FSA.

All European Union (EU) Directives relevant to capital markets have been incorporated into Finnish legislation, as mentioned in the 2001 IMF FSSA. A number of other laws have been updated since the 2001 assessment. The Act of the Financial Supervision Authority was most recently amended in 2007. The new Companies Act entered into force in 2006. The newest version of the OMX Nordic Exchange Helsinki Rules entered into force in 2007. The Corporate Governance Recommendation for Listed Companies entered into force on a comply-or-explain basis in 2004. The Auditing Act of 2007 replaced the previous Auditing Act.

There is ongoing integration of financial markets in the Nordic region, according to the 2007 Wajid et al. report on financial integration in the Nordic-Baltic region. Memoranda of understanding (MoUs) strengthen cooperation between the regulators but need to better address the supervisory oversight challenges of integration. The report suggests that the MoUs should include large banks and national supervisors. Also they could provide for a disagreement resolution mechanism and allow supervisory colleges for conglomerates to take regulatory action. There is an increasing importance for effective cooperation among the regulators as the stock markets are being consolidated and challenges for cross-border supervision emerge, including with regard to clearing and settlement systems. The OMX Nordic Exchange owns seven of the eight stock exchanges that deal in securities and derivatives in the region, including OMX Nordic Exchange Helsinki. In 2004, the Finnish Central Securities Depository and the Swedish Central Securities Depository merged to create the Nordic Central Securities Depository, but its effectiveness is still in question.

The IOSCO multilateral memorandum of understanding (MMoU) is based on the thirty IOSCO Objectives and Principles of Securities Regulation (IOSCO Principles) adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The FIN-FSA is a signatory to the MMoU and an ordinary member of IOSCO.

The Principles

1. The responsibilities of the regulator should be clear and objectively stated.

II

According to the 2001 IMF FSSA, Finland has a well developed and transparent framework for the supervision of the securities markets. The FIN-FSA is charged with the supervision of the securities markets by the Act on the Financial Supervision Authority, which was most recently updated in 2007, as well as other capital market regulations. It supervises investment firms, the Investor Compensation Fund, fund management companies, the Helsinki exchanges, clearing houses, clearing parties, the Central Securities Depository, and account operators, and authorizes investment firms, credit institutions, fund management companies, custodians, and pawn shops. Its website indicates that it is responsible for ensuring the equal treatment of investors and that as of 2005 it has been responsible for monitoring companies' compliance with the IFRSs. The MoF and Helsinki exchanges also hold regulatory responsibilities. The 2001 IMF FSSA reports that the MoF is responsible for licensing and formulating legislation, as well as authorizing securities and derivatives exchanges and central securities depositories. The stock exchanges are SROs, but their listing rules must be approved by the MoF and they are supervised by the FIN-FSA. However, the publicly available information does not directly address Finland's compliance with this principle.

2. The regulator should be operationally independent and accountable in the exercise of its functions and powers.

II

According to the 2001 IMF FSSA, the independence of the regulator should be improved. It suggests that the regulatory and licensing powers of the MoF be transferred to the FIN-FSA because the current situation may potentially inhibit the FSA's ability to effectively exercise its powers. However, the publicly available information does not directly address Finland's compliance with this principle.

3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers.

II

The 2001 IMF FSSA indicates that the inspection, compliance, and enforcement powers of the FIN-FSA should be strengthened, particularly because the detection of price manipulation requires a high level of surveillance. The discretionary powers of the FIN-FSA should be clarified in law, including such powers as approval of major investments and acquisitions, overturning decisions for board of directors appointments, and establishing appropriate capital requirements. The assessment recommends that additional powers be provided to the FIN-FSA, including direct authority over cases of market manipulation and other unfair trading practices, more extensive sanctioning powers beyond the withdrawal of licenses, and improving the legal basis allowing for foreign cooperation. The FIN-FSA's enforcement capacity and cooperation ability would be enhanced through greater administrative powers. Furthermore, the 2001 FSSA recommends that the FIN-FSA better utilize its existing powers. With regard to the personnel of the FIN-FSA, the assessment indicates that the staff is "dedicated, willing, and expert" (p. 47). The FIN-FSA is working to improve its regulatory capacity by recruiting specialists, making use of technology for acquiring and reviewing information, and cooperating with SROs and other domestic and international regulators. The FIN-FSA website lists the agency's administrative sanctions. They include fines, public reprimands, public warnings, penalty payments, prohibitions from holding a managerial position, and the revocation of licenses. Despite the above information, there is little information publicly available that directly address Finland's compliance with this principle.

4. The regulator should adopt clear and consistent regulatory processes.

II

The 2001 IMF FSSA reports that the regulatory process is consistent and transparent. However, it suggests that more "user-friendly technology" (p. 49) would improve user access to existing procedures, such as a website that explicitly lists the confidentiality requirements. However, the report does not directly addresses Finland's compliance with this principle.

5. The staff of the regulator should observe the highest professional standards, including appropriate standards of confidentiality.

II

The 1999 Act on Openness of Government Activities includes provisions for the secrecy of all government entities. It prohibits the disclosure of confidential information. The FIN-FSA website indicates that the Act on the Financial Supervision Authority sets out the governance and management system of the FIN-FSA. However, the publicly available information does not directly address Finland's compliance with this principle.

6. The regulatory regime should make appropriate use of Self-Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, to the extent appropriate to the size and complexity of the markets.

II

The 2001 IMF FSSA reports that the Helsinki exchanges are self-regulatory organizations that are licensed by the MoF and supervised by the FIN-FSA. It indicates that the FIN-FSA effectively uses its SROs to assist with regulation. The assessment indicates that the Finnish authorities have plans to expand the SRO requirements of non-exchange trading systems and add authority to amend the rules of the exchanges and non-exchange trading systems. However, the report does not directly addresses Finland's compliance with this principle.

7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities.

II

The 2001 IMF FSSA reports that the Helsinki exchanges are self-regulatory organizations that are licensed by the MoF and supervised by the FIN-FSA. The assessment indicates that the MoF and FIN-FSA were then in the process of establishing a framework for effective oversight of the SROs and emphasized the importance of sufficient resources and the FIN-FSA's regulatory independence. However, the publicly available information does not directly address Finland's compliance with this principle.

8. The regulator should have comprehensive inspection, investigation and surveillance powers.

II

The 2001 IMF FSSA indicates that the inspection, compliance, and enforcement powers of the FIN-FSA should be strengthened, particularly because the detection of price manipulation requires a high level of surveillance. The discretionary powers of the FIN-FSA should be clarified in law, including such powers as approval of major investments and acquisitions, overturning decisions for board of directors appointments, and establishing appropriate capital requirements. The assessment recommends that additional powers be provided to the FIN-FSA, including direct authority over cases of market manipulation and other unfair trading practices, more extensive administrative sanctioning powers, beyond the withdrawal of licenses, and improving the legal basis allowing for foreign cooperation. The FIN-FSA's enforcement capacity and cooperation ability would be enhanced through greater administrative powers. Furthermore, the 2001 FSSA recommends that the FIN-FSA better utilize its existing powers. With regard to the personnel of the FIN-FSA, the assessment indicates that the staff is "dedicated, willing, and expert" (p. 47). The FIN-FSA is working to improve its regulatory capacity by recruiting specialists, making use of technology for acquiring and reviewing information, and cooperating with SROs and other domestic and international regulators Finally, the assessment suggests that the FIN-FSA ensure sufficient investigative resources, monitor financial disclosure, and review other failures to meet regulatory requirements. The FIN-FSA website lists its administrative sanctions and they include fines, public reprimands, public warnings, penalty payments, prohibitions from holding a managerial position, and the revocation of licenses. However, the publicly available information does not directly address Finland's compliance with this principle.

9. The regulator should have comprehensive enforcement powers.

II

See Principle 8.

10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program.

II

See Principle 8.

11. The regulator should have authority to share both public and non-public information with domestic and foreign counterparts.

II

According to the 2001 IMF FSSA, while the regulator assists domestic and foreign counterparts and takes part in the exchange of information between regulators, it does not have the authority to act on behalf of a foreign regulator. At the time of the assessment, the regulator was seeking additional powers to enable it to do so. The IOSCO MMoU is based on the thirty IOSCO Objectives and Principles of Securities Regulation adopted in 1998 and the experience gathered by securities regulators in using bilateral MoUs. The IOSCO MMoU provides a standardized framework for sharing enforcement-related information and a gradually expanding network of participating regulatory agencies. IOSCO members who wish to sign the IOSCO MMoU participate in a comprehensive screening process to establish that they have the legal capacity to fully comply with the terms of the IOSCO MMoU. The FIN-FSA is a signatory to the MMoU and an ordinary member of IOSCO. However, the publicly available information does not directly addresses Finland's compliance with this principle.

There is ongoing integration of financial markets in the Nordic region, according to the 2007 Wajid et al. report. MoUs strengthen cooperation between the regulators but need to better address the supervisory oversight challenges of integration. The report suggests that the MoUs should include large banks and national supervisors. Also they could provide for a disagreement resolution mechanism and allow supervisory colleges for conglomerates to take regulatory action. There is an increasing importance for effective cooperation among the regulators as the stock markets are being consolidated, and challenges for cross-border supervision emerge, including with regard to clearing and settlement systems. The OMX Nordic Exchange owns seven of the eight stock exchanges that deal in securities and derivatives in the region, including OMX Nordic Exchange Helsinki.

12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts.

II

See Principle 11.

13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers.

II

See Principle 11.

14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors’ decisions.

II

According to the 2001 IMF FSSA, there are disclosure requirements, and the publication of information on the company website is required. The FIN-FSA should ensure the access of investors to information. In addition, there are ongoing improvements in accounting standards and their implementation. However, the publicly available information does not directly address Finland's compliance with this principle.

The FIN-FSA website indicates that detailed disclosure requirements are set out in the Securities Markets Act. According to the Corporate Governance Recommendation for Listed Companies, 2003, regulations on disclosure are incorporated into corporate, accounting, securities market laws, and the rules of the Helsinki Exchanges. In July 2004, a Corporate Governance Recommendation for Listed Companies, which is a corporate governance code, entered into force on a comply-or-explain basis to harmonize the existing regulations, increase operational transparency, and improve the quality of disclosure. A company's level of compliance with the Recommendation and explanations for non-compliance must be reported in its annual report and on the company website. The Securities Markets Association website indicates that the OMX Nordic Exchange Helsinki is responsible for monitoring listed companies' compliance with the Recommendation.

The 2005 FIN-FSA regulatory outline conveys that auditors are required to report significant information about supervised companies and their decisions to the FIN-FSA. There are a number of other disclosure requirements. The Rules of the Stock Exchange: Listing Procedures and Disclosure and Other Requirements Applicable to the Issuers of Listed Securities, 2007, include several disclosure requirements, as well. Any information that might affect the price of securities, information supporting any decision, and any changes to previously disclosed information that may be materially significant must be disclosed. Also, the Rules provide content and format requirements. Regular disclosure requirements include financial statements, annual financial reports, board of director reports, and interim reports. Ongoing financial requirements include dividend reports, audit reports, annual general meeting (AGM) proposals and decisions, amendments to the articles of association, shareholder agreements, etc.

15. Holders of securities in a company should be treated in a fair and equitable manner.

II

According to the Corporate Governance Recommendation for Listed Companies, 2003, regulations on corporate governance and disclosure are incorporated into corporate, accounting, securities market laws, and the rules of the Helsinki Exchanges. The Companies Act accounts for the protection of minority shareholders and shareholders rights. The National Board of Patents website indicates that the new Limited Liabilities Companies Act entered into force on September 1, 2006, replacing the Limited Liabilities Companies Act of 1978. The 2005 Ministry of Justice report states that the New Act improves the clarity and comprehensiveness of the Companies Act, including strengthening the legal protection of creditors and minority shareholders. The Act eliminates the par value of shares, consolidates of Companies Act-related civil disputes to eight district courts, and changes to the provisions on liability for damages improving the shareholders' rights to compensation and ability to take action. In July 2004 the Corporate Governance Recommendation for Listed Companies entered into force on a comply-or-explain basis. The Recommendation includes mandates on the AGM, supervisory board, board and board committees, managing director, other management, compensation, internal control, risk management and internal audit, insider administration. external audit, and communication and disclosure. However, the publicly available information does not directly address Finland's compliance with this principle.

Weil, Gothsal & Manges' 2002 study reports that mergers, increases in share capital, changes to shareholders rights, and conversion into a private limited company all must be approved by the shareholders. Shareholders take part in decision making at the AGM, and the decision to remove board members may take place at the AGM. Also, the Companies Act prohibits the board of directors or any individual director from providing special privilege to any shareholder at the expense of others. The one-share/one-vote principle is generally applied. However, allowances can be made for the uneven voting rights of different classes, if provided for in the articles of association. Preferential share are permitted, but have no voting rights.

Airaksinen's 2000 presentation on the Enforcement of Minority Shareholders' Rights indicates that Finnish company law provides for mandatory protection for minority shareholders. There are significant controls on decision-making procedures and strict disclosure requirements before a decision. However, the rules may not always be updated with the "sophisticated practices of the securities markets" (p. 2). Sanctions for not enforcing minority shareholder protections are liability to compensate all damage incurred by shareholders, the minority can invalidate an AGM decision or require it to be changed, criminal sanctions (particularly for providing false information), and redemption rights. However, minority shareholders have had little success in taking legal action against directors. The court process is inhibited by lengthy process, poor predictability, and high costs. Still, the nature of the market, being completely liberalized and having a market-oriented system of financing, has strengthened the position of minority shareholders in public companies.

16. Accounting and auditing standards should be of a high and internationally acceptable quality.

EN

On July 19, 2002, European Commission Regulation (EC) No 1606/2002 was passed by the European Parliament and the European Council of Ministers, requiring the adoption of the International Financial Reporting Standards (IFRSs), formerly IASs, issued by the International Accounting Standards Board (IASB). As a result of the regulation, beginning January 2005, all EU listed companies are required to prepare their consolidated financial statements following IFRSs endorsed by the EC. In 2004, amendments were made to national legislation making the application of IFRSs mandatory in the consolidated accounts of Finnish listed companies. Finland therefore, adheres to EC regulations. Additionally, the 2006 EC report on the implementation of Regulation No. 1606/2002 points out that Finland permits IFRSs in the annual accounts for listed companies and in the annual and consolidated accounts for all other companies.

On May 17, 2006, Directive 2006/43/EC of the European Parliament and Council came into force requiring all statutory audits of annual and consolidated accounts be carried out on the basis of International Standards on Auditing (ISAs) as adopted by the European Commission (EC). The Directive aims at high-level -- though not full -- harmonization of statutory audit requirements. European Union (EU) member states shall adopt and publish the provisions necessary to comply with the Directive before June 29, 2008.

17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a collective investment scheme.

II

The legal framework for collective investment schemes is judged by the IMF, in its 2001 FSSA, as sufficient and "consistent with available resources " (p. 50). The assessment team emphasizes the importance of periodic inspections for compliance with segregation requirements and mentions that there is room to improve investor access to reports. The Act on Common Funds governs Undertakings for Collective Investment in Transferable Securities (UCITS) and non-UCITS Special Funds, and implements the 1985 EU Directive on UCITS. However, the report does not directly addresses Finland's compliance with this principle.

18. The regulatory system should provide for rules governing the legal form and structure of collective investment schemes and the segregation and protection of client assets.

II

See Principle 17.

19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a collective investment scheme for a particular investor and the value of the investor’s interest in the scheme.

II

See Principle 17.

20. Regulation should ensure that there is a proper and disclosed basis for asset valuation and the pricing and the redemption of units in a collective investment scheme.

II

See Principle 17.

21. Regulation should provide for minimum entry standards for market intermediaries.

II

As reported on its website, the FIN-FSA is responsible for the authorization of investment firms, credit institutions, fund management companies, custodians, and pawnshops. The MoF is responsible for the authorization of securities and derivatives exchanges and central securities depositories. The Ministry of Social Affairs and Health is responsible for the authorization of insurance companies. The FIN-FSA's 2005 Framework for FIN-FSA Regulatory Policy reports that its standards, which are a compilation of rules and guidelines, include a section on capital adequacy and risk management. However, the publicly available information does not directly address Finland's compliance with this principle.

22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake.

II

See Principle 21.

23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters.

II

See Principle 21.

24. There should be procedures for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk.

II

The 2001 IMF FSSA recommends that the bankruptcy law be reformed and that a better understanding of the regulatory approach to firm failure should be formalized.

25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight.

II

The FIN-FSA website indicates that the MoF is responsible for authorizing securities and derivatives exchanges and central securities depositories, while the FIN-FSA is in charge of their supervision. However, the publicly available information does not directly address Finland's compliance with this principle.

26. There should be ongoing regulatory supervision of exchanges and trading systems which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants.

II

According to the 2001 IMF FSA, the surveillance of market manipulation should receive special attention. It also suggests the coordination between the FIN-FSA and exchanges, in their role as SROs, should continue. The 2007 Wajid et al. report on financial integration in the Nordic-Baltic region indicates that there is an increasing importance for effective cooperation among the regulators as the stock markets are being consolidated and challenges for cross-border supervision emerge, including with regard to clearing and settlement systems. However, the publicly available information does not directly address Finland's compliance with this principle.

27. Regulation should promote transparency of trading.

II

The publicly available information does not directly address Finland's compliance with this principle.

28. Regulation should be designed to detect and deter manipulation and other unfair trading practices.

II

According to the 2001 IMF FSSA, the surveillance of market manipulation should receive special attention. It also suggests the continuation of coordination between the FIN-FSA and exchanges, in their role as SROs. The assessment reports that the FIN-FSA is actively working to improve its surveillance over the markets, market intermediaries and offerings through better use of technology to acquire and review reports and through cooperation with domestic and international regulators. However, the publicly available information does not directly address Finland's compliance with this principle.

On its website, the FIN-FSA reports that it is responsible for ensuring compliance with legislation on insiders. The OMX Nordic Exchange Helsinki monitors member compliance with its Guidelines for Insiders. It also mentions that the Securities Markets Act and the Penal Code include provisions for insiders, and prohibit the use of insider information. Companies are required to make all information on insiders publicly available in a register of insider holdings and publish the information on its website. New legislation on the declaration of insider holdings and registers entered into force in September 2005.

29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption.

II

The 2001 IMF FSSA reports that the procedures for managing default risk and market disruption are sufficient in the derivatives market but could be clarified for the securities market. The assessment team also recommends that a contingency plan should explain the role that the existing authorities would play in the case of default and market disruptions. However, the report does not directly addresses Finland's compliance with this principle.

30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk.

CP

The 2001 IMF FSSA judged that the securities settlement systems were mostly in compliance with the IOSCO Principles. The system could potentially permit exposures and the assessment team recommended that equities settlement procedures and short selling be reviewed to mitigate risks. However, it indicates that the FIN-FSA was in the process of completing efforts that began in 2000 to reduce risk.

According to the 2007 Wajid et al. report on financial integration in the Nordic-Baltic region, there is an increasing importance for effective cooperation amongst the regulators as the stock markets are being consolidated, and challenges for cross-border supervision emerge, including with regards to clearing and settlement systems. In 2004, the Finnish Central Securities Depository and the Swedish Central Securities Depository merged to create the Nordic Central Securities Depository, but its effectiveness is still in question.