Wide support for further preparation of legislation concerning bondholder representatives
The Ministry of Finance’s assessment memorandum on the need for separate legislation concerning bondholder representatives (i.e. trustees under common law) was extensively circulated for consultation between 24 June and 5 September 2014. The opinions voiced supported clarification of the legislation relating to the operating prerequisites of bondholder representatives.
Representatives or trustees are widely used in international bond markets. The representative acts in accordance with their mandate in the interests of all bondholders. In principle, all the parties operating in the bond market benefit from a functional representative model.
A functional and predictive model
* lowers transaction costs,* improves the access of bondholders to information about an issuing company and the status of their investment,
* enhances communication between the issuer and bondholders, and
* speeds up important decisions in potentially problematic situations faced by the issuer.
According to a number of opinions, there are legal ambiguities and uncertainties in Finland’s present legislation both in terms of a representative’s competence and their prerequisites to actin insolvency, in other problems of the issuer and with the regard to the permanence of the bondholder representative relationship. The shortcomings in the existing legislation were considered to give rise to uncertainty on the part of market operators and thus to be detrimental to the development of the domestic bond market.
Benefits especially for small and middle-sized companies
In March 2014, the Government began drafting legislation on the so-called representative model concerning bonds as part of its structural policy programme. The rationale behind the decision was a view that the clearer legal position of representatives would support the Finnish bond market and fund-raising by Finnish companies. This would mean that the law chosen to be applied to bonds issued in Finland and to bonds issued by a Finnish company would probably be Finnish more frequently than is currently the case.
Clearer legislation would boost the issue of bonds and related activity in Finland and in this way would benefit the entire financial sector. Diversification of investment opportunities would benefit issuers, especially small and medium-sized companies and investors in Finland. Wider sources of funding for small and middle-sized companies would support their growth and the emergence of domestic jobs.
The Minister of Finance, Mr Rinne, is pleased with the support received by the project which aims to develop the bond market. “In the current economic situation, it is important to strengthen the activities of the domestic financial market and attract foreign investors as well to Finland and to Finnish companies. Clarification of bond market legislation is one way to increase the attractiveness of the Finnish financial market and the predictability of its operations,” says Mr Rinne.
Limited framework law proposed as solution
Based on the summary of opinions, the domestic bond market could be developed by enacting a limited framework law concerning the representative model, which would not, however interfere with the issues of market actors arranged in accordance with current practice under freedom of contract.
“The aim is to keep regulation administratively lean and to intervene as little as possible in current functional market structures. Nevertheless, it is important to eradicate the deficiencies that are detrimental to legal security and investor protection observed in conjunction with the project,” Mr Rinne surmises.
“Clarification of the legal position could contribute to the diversification of the funding channels available for small and middle-sized companies, improve their financial position and in this way their opportunities to make necessary investments and seek growth,” says Antti Rinne.
Preparation will continue during 2015
The project falls within the domain of both the Ministry of Finance and the Ministry of Justice. The ministries will continue preparation of the project in co-operation with each other.
The organisation and scheduling of further preparation of the project will be decided on in the next few weeks.
* Hanke valtioneuvoston hankerekisterissäFurther information:
Ministerial Adviser (LL.M.), Mr Aki Kallio, telephone: 358 2955 30477 and e-mail: [email protected]