Financial Regulation in the Nordic Countries — Observations from 2020 and Expectations for 2021

Authors: Sanna Boow, Albert Danielsson, Paula Röttorp, Pauliina Sutinen and Jari Tukiainen

2020 was an interesting year for our financial regulatory practice group. In addition to COVID-19, the dominating feature of 2020 for us was Brexit. We advised several UK-based clients in their Brexit planning in Finland and Sweden.  In 2018 in Finland, we assisted clients in successfully lobbying for a third country cross-border licencing regime for investment services, and subsequently the regime was introduced into legislation in early 2019. Since then, we have advised a number of leading UK financial institutions on their licensing process. By the end of 2020, some 140 applications had been filed with the Finnish Financial Supervisory Authority (“Finnish FSA”).  The cross-border licence does not cover banking or fund management services. However, it is still a valuable and practical option for UK firms wishing to continue to do business with Finnish clients. Sweden has taken a different approach and implemented only limited temporary rules for investment firms to continue serving certain existing Swedish per se professional clients on a cross-border basis and trading for their own account throughout 2021.  

The Finnish FSA also issued long-awaited Brexit guidance for UK fund managers and funds (both UCITS and alternative investment funds (AIFs)) regarding fund marketing notifications. The Finnish FSA noted that any UK fund managers and UK funds that had not applied for a new fund marketing notification before the end of 2020 would be automatically de-registered and removed from the Finnish FSA’s register and would not be allowed to continue marketing in Finland, while the Swedish Financial Supervisory Authority (the “Swedish FSA”) has initiated an update to their public registers to reflect the fact that the UK is now considered a third country.

In the field of payment services, we have seen increased activity of third party providers (TPPs), such as payment initiation service providers (PISPs) and account information service providers (AISPs) entering into the payment services market. However, the effect of the Payment Services Directive 2 (PSD2) is still limited due to, for instance, the lack of dedicated interfaces and related obstacles. We still expect to see the practical impact and national interpretation of the European Banking Authority’s opinion published on 4 June 2020 on obstacles to the provision of TPP services relating to dedicated interfaces.

The temporary COVID-19 regime introduced to the Finnish Consumer Protection Act continues to have a significant impact on consumer credit providers. The temporary regime includes, for example, a temporary interest rate cap of 10 %, a prohibition to increase credit costs, and certain marketing restrictions. The current restrictions apply, in principle, to new consumer credit and new withdrawals made between 1 January 2021 and 30 September 2021 under existing revolving consumer credit with certain exceptions.

What to Expect from Financial Services in 2021

The free trade agreement of 24 December 2020 between the UK and the EU has a limited effect on the provision of financial services. As of today, from a regulatory perspective, the UK is treated as a third country in the EU financial markets. However, the UK and the EU have agreed to enter into a memorandum of understanding by March 2021, thus establishing a framework for regulatory co-operation on financial services. We are also eager to see whether 2021 will lead to equivalence decisions by the European Commission or the UK for the financial services industry, which would allow better market access for financial services firms on both sides. 

The legislative package on EU cross-border distribution of collective investment undertakings will also be implemented during 2021. The aim of the changes is to reduce regulatory barriers to the cross-border distribution of both UCITS and AIFs in Europe, including the harmonisation of “pre-marketing” of AIFs before the completion of the passporting process. The implementation will introduce changes to the Finnish Act on Alternative Investment Fund Managers (in Finnish: Laki vaihtoehtorahastojen hoitajista) and the Swedish Act on Alternative Investment Managers (in Swedish: lag om förvaltare av alternativa investeringsfonder),  including a definition of “pre-marketing” and certain disclaimer and notification requirements. The new rules are expected to become applicable from 2 August 2021.

The EU Commission is also currently consulting on the Alternative Investment Fund Managers Directive (AIFMD) as part of its review.  Some of the issues covered in the consultation include the scope of the AIFM licence and its potential extension to smaller AIFMs, access to retail investors, and the level of delegation to non-EU entities. The consultation closes on 29 January 2021, and the Commission is expected to publish a legislative proposal amending the AIFMD in Q3 of 2021.

Towards the end of 2021, the European Commission will initiate the review of the application and impact of PSD2 as a part of its digital finance strategy. We will follow closely the process and outcome of this review in the next few years.

Finally, another current issue is the implementation of the CRD/CRR reform package in our jurisdictions. The amended banking laws have the goal of making the financial industry more resilient and stable by strengthening the institutions’ ability to withstand financial shocks. The new laws will impact, inter alia, the criteria for systemic risk buffers, maximum capital requirements, and capital distributions. In addition, the new provisions amend the rules on remuneration and provision of loans or other financing to directors and related persons. Furthermore, the package will impose licensing requirements on financial holding companies. Finally, with regard to amendments to the recovery and resolution regime, the amended laws will impact the calculation of the minimum requirement for own funds and eligible liabilities; vest the resolution authorities with further powers to impose moratoria on institutions’ liabilities; and impose on institutions extended requirements to include, in a financial contract governed by third country law, a reference to the powers by the resolution authority to suspend or restrict contractual rights and obligations.