Financial Supervision Authority and Insurance Supervisory Authority merger to create a single national supervision authority
The Government Programme specifies that supervision in the financial and insurance sectors should be integrated. The Government submitted a bill to Parliament today, 22 May 2008, to merge the existing Financial Supervision Authority and Insurance Supervisory Authority to create a single national supervisory authority. The duties of the new supervisory authority would be essentially the same as those of the two existing supervisory authorities and it would be located in the premises of the Bank of Finland. The Ministry of Finance would be responsible for presenting the new authority's matters in Government. The proposal is based on a report published in February by a financial supervision working group. The new legal provisions would enter into force in time to allow the new supervisory authority to start operating on 1 January 2009. The President of the Republic is expected to present the proposal to Parliament on Friday 23 May 2008.
Based on the bill, the new authority's objective would be to enable balanced operation of credit, insurance and pension companies and other supervised entities in stable financial markets, secure the rights of the insured and foster overall public confidence in financial market operations. The authority would supervise the financial market activities of the supervised entities as stipulated in the legal provisions governing financial supervision. The authority would also be responsible for promoting compliance with good practice and to disseminate general knowledge about the financial markets.
The new authority's duties would be largely the same as those of the two existing supervisory authorities, except pawnbroker supervision would be transferred to the State Provincial Office of Southern Finland. In addition, the Committee of Unemployment Benefit Supervision, which is included in current legislation, would not be included in the new legal provisions.
According to the reasoning in the proposal, once the new supervision authority has been set up, prompt action should be taken to identify which tasks of the existing Insurance Supervisory Authority involving social insurance implementation and administration can be assigned to other authorities. They include at least the supervision of the Finnish Centre for Pensions and of the Education Fund, and guidance and supervision in the execution of unemployment benefits as well as endorsement of the budgets of the Pensions Appeal Board and Employment Accidents Appeal Board and verification of the magnitude of the judicial administration fees.
Governing body: Parliamentary Supervisory Council, Board and Director General
The Parliamentary Supervisory Council and the board and director general of the new supervision authority would form the governing body of the new organisation. The Board of the Bank of Finland would verify the new authority's budget while the Parliamentary Supervisory Council would be responsible for supervising the expediency and efficiency of the new organisation. The Council would appoint the board members and, unlike in existing legislation and by motion of the board, the director general for the new authority.
The board would consist of five members, one of whom would be appointed by the Ministry of Finance, one by the Ministry of Social Affairs and Health and one by the Bank of Finland.
The main tasks of the board would be to set specific objectives for the operation of the new organisation, to draw up operating guidelines, and to guide and supervise in achieving the objectives. The board could deliberate and rule on matters that might significantly impact the stability or functioning of the financial markets. To assess how well the financial supervision authority's objectives are met, the board should also consult the supervised entities once a year.
The main responsibilities of the director general would be to manage the operation of the new organisation and to make decisions on matters outside the scope of the board. Unlike under current legislation, the post of director general would be of fixed term duration.
Supervisory powers and sanctions the same as now
In the proposal, the supervisory powers and administrative sanctions applied to supervised entities are identical in both the financial and insurance sectors. In order to rank executive powers, the supervised entities and financial markets operators would be classified into groups in legislation.
The new supervision authority's activities in international cooperation would be governed by legal provisions based on common rules. In addition, existing legal provisions on appeal procedures for decisions taken by supervision authorities, which are currently written into different acts, would be brought together into one legislative act.
Supervision fees to cover most costs
In line with existing legislation, supervision costs should be covered mainly by supervision fees and parafiscal taxes defined as supervision fees, which would be collected from the supervised entities and other financial markets operators. They would cover altogether 95% of all supervision costs, while the rest of the expenses would be incurred by public authorities.
The feeswould be passed into legislation and the basis for assessing the fees would be harmonised. The Bank of Finland would be responsible for collecting the fees and hence also for any deficit incurred by the new supervision authority. However, insofar as the deficit would be subtracted from the portion of the Bank's profits to be transferred to the State, it would in practice be met by the State.
Inquiries: Mr Erkki Sarsa, Senior Legal Expert (Ministry of Finance), tel. 358 9 1603 3064 or 358 40 7346936