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Finland

Recent corporate scandals in the US and related discussions concerning the independence and integrity of analysts and their investment research have led to similar discussions in Finland. This article provides a brief overview of the Finnish rules and regulations applicable to investment research.

Few rules in Finland apply specifically to investment research. Instead, there are a number of general code of conduct rules in the Finnish Securities Market Act (SMA). The SMA imposes a requirement to apply good practice in the provision of investment services. Furthermore, securities intermediaries must avoid conflicts of interest and if a conflict arises, treat their clients in accordance with good practice.

These code of conduct rules are clarified in the guidelines issued by the Finnish Financial Supervision Authority (FSA) but they are not applicable to the provision of investment services cross-border into Finland to professional investors. According to the guidelines, good practice includes an investment firm or a credit institution acting honestly, fairly, professionally, skillfully and diligently in the best interests of the client as well as maintaining the integrity of the securities market.

According to the guidelines, research reports may not be incorrect or misleading or published mainly for the purpose of benefiting the relevant investment firm or other entity. An investment firm must also have adequate internal controls for the processing and publication of the information analyzed and avoid practices whereby an analyst would work both on an issue of securities and prepare a research report on the same.

Professional organizations representing analysts and investment firms have themselves issued more detailed rules. The Finnish Association of Securities Dealers (FASD) has issued new rules on analysts and research (effective since October 1 2002), and the Finnish Society of Financial Analysts (FSFA) has issued ethical rules (December 11 2002).

According to the new FASD rules, analysts or their employers cannot trade in particular securities while researching them or on the publication day and the following day. Analysts may not trade against their own recommendation during an agreed period of time, which cannot be less than a week. The new rules also require disclosure of the identity of the individuals and the name of the legal entity involved in preparation of the research report.

The new FSFA rules include requirements of a more general nature, for example a requirement to act objectively and independently, to base analyses on adequate information and to avoid all conflicts of interest. If a member does not follow the rules, the board can issue a written warning or dismiss the member.

The new rules of the FASD and the FSFA are a step towards more detailed regulation on research reports in Finland. The interpretation of the code of conduct rules of the SMA and the FSA's guidelines has relied on subjective criteria, which has made their adoption more difficult.

Dimitrios Himonas

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