Working group advocates more competition and competitiveness in the Finnish s...
Investors should be free to choose whether to keep their Finnish securities with Euroclear Finland or with a custodian bank. Nominee registration of securities issued in Finland should be permitted for Finnish retail and institutional investors. These are the proposals made by a working group appointed to reform securities markets legislation. The working group handed its report on 18 February 2011 to Tapani Tölli, Minister of Public Administration and Local Government.
Multi-tiered securities holding into wider use
The working group proposes the introduction of provisions that would enable wider use of multi-tiered holding of securities in Finland. The purpose is to eliminate the existing difference in expenses whereby expenses incurred by Finnish investors investing in Finnish companies are much higher than those of foreigners investing in Finnish companies. By boosting competition it is possible to make clearing and settlement operation more effective. It is believed that the proposed changes will have a positive impact on domestic ownership.
The proposed new legislation on securities would have provisions on the custody of securities, account holder rights and custodian responsibilities in a multi-tiered holding system. Custodian services could be offered by investment firms and credit institutions by separate licence only.
The working group paid particular attention to ensuring that the authorities have access to information in the multi-tiered holding system. Under the proposal, tax authorities, enforcement authorities and other public authorities as well as securities issuers would retain the right to access to information on account holders of securities. Primary responsibility for establishing who is the ultimate account holder would lie with the custodian institutions. With this reform information on ultimate account holders and owners would no longer be in the public domain.
Clearer and more comprehensible legislation
A key objective in the reform is to make securities markets legislation clearer and more comprehensible. The working group proposes to overhaul the legislative structure, so that each substantive area is separated into parts that are more easily differentiated and which better reflect the structure of EU regulation. Proposals on new provisions on the scope of application of individual legislative provisions, revoking of reference provisions in the legislation, uniform use of terminology and composition conventions and the adoption of a more consistent hierarchy of legal provisions would all help improve the technical quality of the legislation.
More investor protection and supervision
The system of administrative sanctions exerted by the Financial Supervisory Authority would be made more stringent. It is proposed that maximum sanction fees would be raised many times higher from the current level and their scope of application be extended to a considerably broader spectrum of breaches and violations than at present. The sanction fees would be determined by the Market Court, as proposed by the Financial Supervisory Authority.
Public insider registers of issuers would be brought together under the Financial Supervisory Authority register. In the working group?s view a centralized register would make the system more reliable and supervision more effective, and would improve investors? access to information on insider ownership, and above all it would ease the administrative burden of small and middle-sized enterprises. The need to unify the register system relates to the structural reforms in securities trade settlement operations and to proposals relating to the multi-tiered holding of securities.
The Securities Markets Act and the new legislation would have regulations on damage liability based on malicious intent and negligence with regard to trading of financial instruments, the book-entry system, clearing and settlement operations and book-entry accounts. The liability of senior management in investment firms would become comparable to that applicable to credit institutions and would include, among other things, a provision on mens rea assumption.
The working group also proposes closer collaboration between the Financial Supervisory Authority and other authorities to combat the shadow economy and other financial crime.
Competitive operating environment for securities markets
The new legislation would provide a competitive operating environment for both Finnish and foreign actors, and hence also a wide and competitive supply of financial services and products in Finland. The working group?s understanding is that there is a significant structural reform in progress in Europe which will lead to more unified and comprehensive regulation of European securities markets legislation, supervision, market conventions and infrastructure. The proposals made by the working group draw on international comparisons on legislation, notably ones relating to Finland?s main competing economies.
The working group believes that the new legislation should be brought into force before the comprehensive EU regulatory reform currently being prepared is actually implemented. Moreover, the adoption of a multi-tiered holding system for securities should take place well before any major market structure changes are made relating to clearing and settlement operations.
In tandem with the preparation of these proposals, the Ministry of Finance is examining the need for amendment of tax legislation, especially in relation to revising taxation of dividends and capital gains, and related duty of disclosure.
The working group was chaired by Ms Tuija Taos, Senior Adviser of Legislative Affairs at the Ministry of Finance. Besides members from the Ministry of Finance, there were representatives from the Ministry of Justice, the Ministry of Employment and the Economy, the Bank of Finland, the Financial Supervisory Authority, the Confederation of Finnish Industries, the Federation of Finnish Financial Services, the Chambers of Commerce, Listayhtiöiden neuvottelukunta (an advisory committee for listed companies), NASDAQ OMX Helsinki Ltd, Osakesäästäjien Keskusliitto ry (shareholder?s association), Euroclear Finland Ltd and the Finnish Bar Association.
Inquiries: Ms Tuija Taos, Legislative Affairs, Ministry of Finance, tel. 358 9 160 33095.