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In December 2000, the Ministry of Finance and the Ministry of Social and Health Affairs appointed a working group to prepare legislative amendments that could be implemented urgently. The report of the working group was delivered to the two ministries in June 2001. Under the existing provisions, the supervisory duty divided between the Finnish Financial Supervision Authority (FSA) and the Finnish Insurance Supervision Authority (ISA) is not clearly determined. It is possible that newly created banking and insurance groups could operate in the Finnish market without belonging to the area of responsibility of either of the above supervisory authorities.

In order to reduce and avoid the possible risks caused in the event of a major banking and insurance group being declared subject to insolvency proceedings, the working group issued a proposal to a specific act on the supervision of banking and insurance groups (the Proposed Act) as well as a number of amendments to other laws and regulations. According to the working group, possible risks may include, among other things, market disturbance, the endangered position of depositors, investors as well as the insured, conflicts of interest and regulatory/supervisory arbitrage.

The purpose of the Proposed Act is to determine more clearly the role and areas of responsibility of the FSA and the ISA and to ensure that no areas are left without supervision. The Proposed Act would apply to groups that are composed of: (i) an insurance company controlled by a bank or an investment services company; (ii) a bank or an investment services company controlled by an insurance company; or (iii) both an insurance company and a bank or an investment services company under the control of a joint holding company. According to the proposal of the working group, there would be one coordinating supervisory authority appointed to supervise each banking and insurance group. The relevant authority would always be either the FSA or the ISA, decided mainly on basis of the status of the parent company of the group.

According to the report of the working group, the Proposed Act further aims for more effective supervision of the ownership and management of group holding companies. The Proposed Act would grant the authorities the right to monitor the ownership structure as well as the suitability and reliability of the management, regardless of whether the parent company is an authorized bank, insurance company or investment services company or simply a non-authorized holding entity. In addition, the secrecy regulations would be amended to alleviate the transfer of customer information (excluding sensitive data as defined in the Personal Data Act) inside the groups for the purposes of customer service, marketing and risk management. Allowing the intra-group transfer of customer information would make the information and risk management easier and therefore reduce costs leading to an improved competition position.

According to the report of the working group, the proposed amendments would be implemented to ensure neutral competition between banking and insurance groups and groups and companies operating only in either banking, insurance or investment services sectors. The Proposed Act is expected to improve and enable a secure and stable development of the Finnish financial, banking and insurance markets.

Dimitrios Himonas

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