Supervision responsive to changes in operating environment
The stability of the Finnish financial markets remained solid while the operating environment of the financial sector continued to evolve in the review year. Key change trends affecting the financial sector included the development of digitalisation and preparation for climate change, which continue to be significant. The weaker economic cycle and the protracted low level of interest rates are also challenging financial sector operators. The changes in the operating environment were taken into account in steering the FIN-FSA’s supervisory work in the review year and in planning its operations for 2020.
The FIN-FSA's strategy for 2020–2022 was reformed in the review year to be in line with the changes in the operating environment. The strategy highlights three topics with significant supervisory implications for the coming years: climate change, digitalisation and anti-money laundering. The strategy now also emphasises a risk-based approach more clearly than before.
Nordea's prudential supervision was conducted in accordance with the supervision plan prepared with the European Central Bank (ECB). The comprehensive assessment (AQR1 and stress test) were published in July. Nordea's first supervisor's assessment (SREP2) was completed in accordance with the schedule set by the ECB. Inspections of Nordea also proceeded as planned. The supervision plan concerning Nordea's consolidated financial statements was finalised at the end of the review year.
Banks under the ECB's direct supervision (SI banks3) were supervised according to the supervision and inspection plans of the single banking supervision for the euro area. Two supervisor’s assessments were prepared as planned during the first half of the year. In addition, the planned six other supervisor’s assessments on other banks under indirect ECB supervision (LSI banks4) were carried out during the year.
A survey on the pricing and availability of basic banking services was published in December. As part of the survey, there was a questionnaire on the availability and adaptations of digital services. Banks were also surveyed on how the changes to their authentication methods required by the Payment Services Directive would be implemented while ensuring the uninterrupted availability of the authentication tools to all customer groups.
The operational focus of insurance supervision was shifted from regulation to supervision. Supervision and insurance observations were publicised in supervision and press releases to improve the effectiveness of supervisory work. To ensure regulatory compliance at sector level, a comprehensive assessment of compliance functions was launched in pension, non-life insurance and life insurance companies.
The supervision of pension companies and of the appropriate use of funds held by them were supported by a supervision release on the management of disability risk and sectoral boundaries. Special attention was paid in the release to the implementation of activities aimed at reducing claims risk allowed for pension companies within the scope of their operating sector.
In the supervision of unemployment insurance, attention was paid to the internal control and risk management of unemployment funds, preparation for the entry into force of the General Data Protection Regulation, and follow-up to previous findings.
In the ongoing supervision of non-life and life insurance undertakings, the focus areas included questions related to governance systems, control functions and the assessment of the fitness and propriety of persons in managerial positions. As regards non-life and life insurance companies, the sector was informed of the supervisory findings made during the year. The FIN-FSA pointed the companies’ attention to, among other things, own risk and solvency assessment, the role of the board of directors in the preparation thereof and the stress tests to be used therein, and the importance of preparing for the low-interest environment, for example when making decisions on profit distribution.
Many applications were processed from various entities in the insurance sector. In the supervision of conduct, the implementation of changes resulting from regulation concerning the distribution of insurance (IDD) had an impact on the number of registrations of insurance agents in particular.
From the point of supervision, it is important that regulation is developed so that requirements concerning the sector correspond with the changed operating environment and are uniform. In a legislative proposal submitted to the Ministry of Social Affairs and Health, the professional competence and expertise requirements for pension insurance companies were proposed to be aligned more with the current competence requirements applying to life and non-life insurance companies as well as to many supplementary pension insurance institutions. In addition, the FIN-FSA participated in the reassessment of regulation for non-life and life insurance companies in the European Insurance and Occupational Pensions Authority EIOPA.
The Board of the FIN-FSA made several decisions in the review year to promote macroprudential stability in the financial markets and to contain the growth of systemic risks. In addition to the quarterly macroprudential decisions on the loan cap (maximum loan-to-income ratio) and the countercyclical capital buffer, the decisions on the systemic risk buffer and the risk weights on housing loans were renewed at the end of June. At the same time, it was found that there is no need to revise the current capital requirements on the so-called O-SII5 buffers, since there have not been significant changes in market structures in this regard.
The supervision of the asset management sector focused on valuation of non-UCITS funds investing in real estate as well as liquidity management and depositary activities. The FIN-FSA made a thematic review on the valuation practices and liquidity management for non-UCITS funds investing in real estate and the arrangements of depositary activities. As regards non-UCITS’ valuation and liquidity management, the FIN-FSA found that there is further room for development in the practices for more challenging market conditions.
Together with the European securities markets supervisors, the FIN-FSA used its MiFID II6 product intervention powers. The supervision of new IFRSs on revenue (turnover) and leasing contracts proceeded as planned. Supervision of the new standard on insurance contracts has advanced more slowly than planned. In addition, the requirements of the revised regulation on prospectuses were highlighted in the supervision of investor information provided by issuers.
Cooperation with the Ministry of Finance continued in the authorisation process concerning Euroclear Finland Ltd. The model for the ongoing supervision of Euroclear Finland was developed further, and it will be rolled out in 2020.
As a result of the financial crisis, the EU's regulation of auditing was significantly reformed. The FIN-FSA was appointed the competent authority for the assessment and monitoring of the activities of audit committees in public-interest entities (PIE). This expanded the FIN-FSA's scope of activities concerning audit committees.
Supervision of anti-money laundering
Resources for the supervision of anti-money laundering were strengthened considerably and the activities were organised into a separate division as of March. The division achieved its target headcount at the end of the year, which has enabled the specialisation of its experts on, for example, regulation, risk assessment, ongoing supervision and inspection activities. The FIN-FSA imposed its first sanction on misconduct in anti-money laundering in December 2019.
During the review year, the FATF and the European Commission assessed anti-money laundering and its supervision in Finland. The FIN-FSA takes the observations and recommendations made seriously and has taken them into account in developing its activities.
Cooperation with other Nordic supervisors in the ongoing supervision of anti-money laundering has been intensified. Quarterly meetings have addressed, among other things, risk assessments, actions concerning high-risk customers, transaction monitoring and other key AML areas. Based on the information, a view of the risk situation and AML development needs is formed.
Supervision of digitalisation
During the review year, a digitalisation strategy for supervision was prepared. The strategy describes the FIN-FSA's long-term tasks in the supervision of digital activities and the objectives for the supervisor's own systems, process digitalisation and development of expertise. The main objectives of supervision of digitalisation presented in the strategy will be elaborated on and implemented in the three-year initiative “Supervision of the digitalising financial sector”, launched at the beginning of 2020.
From 1 May 2019, the FIN-FSA began the registration and supervision of virtual currency providers based on new legislation. In connection with the registration process, the FIN-FSA will ascertain that the applicant has adequate procedures for anti-money laundering and countering terrorist financing, that the client assets are protected in an adequate manner and that its management and key personnel meet the reliability criteria. By the end of the review year, the FIN-FSA registered five virtual currency providers.
The FIN-FSA developed its own digitalisation expertise by, among other things, participating in the Financial Technology knowledge exchange programme, FIN-TECH, organised by the Faculty of Management and Business of the University of Tampere.
Support for Finland's EU presidency
The FIN-FSA participated in the preparation of three legislative initiatives during Finland's EU presidency. These were the taxonomy of sustainable finance, recovery and resolution legislation for central counterparties, and legislation on crowdfunding.
1 AQR = Asset Quality Review.
2 SREP = Supervisory Review and Evaluation Process.
3 SI bank = Significant Institution, bank subject to direct ECB supervision.
4 LSI bank = Less significant Institution, bank subject to indirect ECB supervision.
5 O-SII = Other Systemically Important Institutions.
6 MiFID = Markets in Financial Instruments Directive.