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Provisions of Interest Act to be amended

On December 13 2001 the Finnish government submitted a bill to parliament concerning a number of amendments to be made to the Interest Act. The amendments would, in particular, change the provisions governing penalty interest on overdue payments.

The proposed amendments are partly designed to implement the EU Directive on combating late payment in commercial transactions (2000/35/EC). The intention of the Finnish government is further to simplify the provisions of the Interest Act. According to the bill, only statutory penalty interest could be collected from individuals qualifying as consumers under the Consumer Protection Act. The proposed provisions would become effective retroactively so that all payable penalty interests exceeding the new statutory level would, at the time when the amended provisions become effective, be amended ex lege. According to the provisions of the Directive, the statutory level of penalty interest is the reference rate of the European Central Bank plus 7%. This would change the situation, where the amount of penalty interest is based on the interest payable during the credit term.

The option of adjusting the amount of penalty interest would be expanded. According to the government bill, the adjustment of interest is a delicate and easy way to support the debtor in dealing with his debts, contrary to launching a large-scale payment and loan arrangement. At present an adjustment of the loan terms is possible only in a limited number of situations, such as in the case of apartment or consumer loans. It is further required that the financial difficulties are not based on negligence of the debtor. Under the new provisions, an adjustment would be possible on the basis of the poor financial standing of the debtor, irrespective of the reasons having lead to such financial standing.

The existing Finnish provisions concerning business-to-business agreements already reflect the provisions of the Directive to a great extent. Therefore, no amendments of significance are proposed. A comprehensive regulation of penalty interest is already effective in the Nordic countries. However, it should be noted that, in the future, a seller can demand that penalty interest be paid on overdue payments irrespective of the applicable law and home state of the debtor.

The Finnish government expects that the proposed amendments will particularly affect interest payable on the basis of loans and credits drawn from Finnish credit institutions during the recession of the early/mid-1990s. It is estimated that the proposed amendments would change the terms and amount of penalty interest payable by over 100,000 private individuals. The proposed amendments are expected to become effective as of May 2002.

Helsinki exchange reforms market supervision

The Finnish Ministry of Finance has ratified amendments to the rules of the Helsinki Exchanges and the Finnish Central Securities Depository (FCSD) transferring the disciplinary powers of the chief executive officer of the Helsinki Exchanges and the board of directors of the FCSD to the disciplinary board and its secretary. At the same time, the powers of the disciplinary board are being extended to cover derivatives operations.

According to the revised regulations, the disciplinary board may impose a sanction (a reprimand or a caution) for an infringement. The disciplinary board may further issue a temporary suspension of the rights of a stock exchange member or propose to the board of directors of the Helsinki Exchanges or the FCSD that such rights be cancelled permanently. In connection with a reprimand or a caution, the disciplinary board may levy a disciplinary charge payable by the respective party. The disciplinary charge imposed on an entity must be no less than euro 10,000 ($8,900) and no more than euro 200,000. In case of a private individual, the minimum and maximum amounts are euro 1,000 and euro 10,000.

Those subject to enforcement by the disciplinary board include securities and derivatives trading members, market makers, brokers employed by members and market makers as well as listed companies, clearing parties and account operators. The revised regulations of the Helsinki Exchanges and the FCSD, as well as the new regulations for the disciplinary board, became effective on December 10 2001.

Gunnar Westerlund

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