The Finnish securities markets regulation is being reformed
Maria Rantamaa and Toni Siimes
Roschier
Helsinki
Maria Rantamaa (Bio)
Toni Siimes (Bio)
The Finnish securities market legislation is undergoing a reform. The reform was initiated in 2009 by a working group appointed by the Ministry of Finance. The working group submitted its proposals on the legislative amendments in the spring of 2011. The main objectives of the working group proposals are to improve the clarity, comprehensibility and competitiveness of the securities market legislation, to increase the effectiveness and competitiveness of custody and settlement operations and to ease the administrative burden of listed companies. The proposals were written in the form of a draft government bill that was circulated for comments to the market participants. The government bill is expected to be presented to the Parliament for approval in the spring of 2012.
Split up of the Securities Market Act
One of the main goals of the reform is to improve the technical quality, clarity and comprehensibility of the securities market legislation through a more functional system. After years of implementing new EU legislation into the old framework, the current Securities Market Act (the SMA) will be split into several different acts, namely the new SMA, the Act on Trading in Financial Instruments, the Act on the Book-Entry System and Clearing Operations and the Investment Services Act. Together with the currently in force Acts on the Book-Entry Accounts and on the Financial Supervisory Authority, these acts will constitute the new securities market framework.
In the new SMA, the scope of application of general principles for the conduct on the securities markets is proposed to be extended from offering and marketing of securities to cover the entire SMA as well as all the participants on the securities markets. The general principles are (i) the prohibition of actions against good conduct on the securities markets and the prohibition of improper business practices, (ii) the prohibition to give false or misleading information on the securities market, and (iii) the duty to provide investors with equal access to sufficient information on matters that may have a material effect on the value of the relevant security. The extended scope of these vaguely defined amorphous principles as general principles of law is problematic as a breach of the SMA, including these general principles, may result in sanctions being imposed.
Improve competitiveness
Another central aim of the reform is to improve the competitiveness of the Finnish securities markets by, among other things, improving the rules on custody and settlement of securities. The working group also strives to ease the administrative burden of listed companies. Unfortunately, in the public discussion leading up to the Parliament elections of 2011, the custodial holding of Finnish securities by Finnish entities and individuals was strongly opposed and this efficiency improving amendment will likely be abandoned.
Civil sanction system
The civil sanction system relating to violations of the securities market legislation is proposed to undergo a complete reform. The regulations on liability for damages under the SMA will be clarified to govern losses caused by wilful misconduct or negligence. The liability for damages under the SMA will mainly be imposed on the company in question; whereas the liability of the board and executives will, in general, be determined in accordance with the Companies Act. Administrative sanctions to be imposed by the Financial Supervisory Authority (the FSA) are proposed to be made clearly stricter. According to the proposal, the FSA may impose conditional and administrative fines, public warnings and penalty payments. The scales of the administrative fine and penalty payment will be significantly increased and all administrative sanctions imposed by the FSA will be made public. Under the new regime, the FSA will have an obligation to order an administrative sanction in all cases unless there are grounds for not ordering one, e.g. if the offender has on its own initiative and without delay undertaken sufficient actions to correct the offence and the offence is minor or recurrent. It appears that the threshold for administrative sanctions is proposed to be lowered, which could in practice lead to comparably severe sanctions for even lesser offences. The aim of the amendments to the sanction system is to enhance investor protection and confidence in the securities market.
Additional reforms
Moreover, the proposed reform of the securities market includes detailed proposals regarding, among other things, prospectus requirements, flagging obligation, market abuse and insider registers as well as public tender offers and mandatory offer obligation. The proposed new provisions have, to some extent, been previously included in decrees of the Ministry of Finance or in the standards issued by the FSA, but will now be implemented at the level of law and consequently included in the new SMA.
Conclusion
It is unclear to what extent securities market legislation can improve the competitiveness of the Finnish stock markets. The market place attractiveness is generally driven by other factors. The market participants will surely appreciate the structured approach of the new legislation over the current patchwork of implemented amendments. Nevertheless, room for further improvement remains, for example as regards defining what constitutes insider information and the publication requirements thereof.