Proposed framework for the Finnish National Securities Centre
A bill on the legislative framework for the National Securities Centre was recently published by the Finnish government. Under the proposal, legislation on the book-entry securities system would also be amended.
The Finnish Securities Centre, established in December 1995, will be a centralized clearing place providing, among other things, book-entry securities services. In May 1996 it was agreed that the state's ownership would be cut by increasing the share capital and issuing new shares to the Bank of Finland, Finnish banks and other major players in the money market.
It is planned that the Securities Centre will assume and combine the functions of the Book-Entry Securities Association, the Central Share Register of Finland and the Helsinki Money Market Centre as well as the clearing activities of the Helsinki Stock Exchange. The Securities Centre would also have secondary liability for compensating claims presented to the book entry securities registrars. To ensure the Securities Centre's ability to assume these liabilities, a special compensation fund would be set up.
Under the proposal, the Securities Centre would have to operate a book-entry securities register. Shares and other equity securities could be entered into the register at the issuer's expense. The scope of the book-entry securities system would gradually be expanded to include, in addition to shares quoted on the Helsinki Stock Exchange, other publicly quoted shares, as well as non-equity securities. The Securities Centre will serve the companies in their financing needs by providing a centralized market place with a greater variety of financial instruments available than previously.
Because the Securities Centre is also intended to operate as a clearing house for concluded securities trades, the existing decentralized clearing system will also be subject to legislation. As a result of the proposed amendments, the Securities Centre would also have the power to issue certain regulations on the book-entry securities system. The main objective is to create a safe, cost-efficient and internationally competitive body and thereby to boost foreign investors' confidence in the Finnish securities market. This objective accords with the aim of preparing the Finnish securities market for the third stage of European monetary union.
The new legislation should enter into force on January 1 1997.
Government bill on the BCCI Directive
The Finnish government recently published a bill to implement the BCCI Directive (95/26/EEC) into Finnish legislation. The BCCI Directive aims to reinforce prudential supervision over financial undertakings. Implementation into Finnish law requires amendments to the Credit Institutions Act, the Investment Firms Act, the Investment Funds Act and the Financial Supervision Act.
The first two Acts will be amended by introducing a definition of 'close links'. As provided by the BCCI Directive, close links can be established between two or more legal persons or between a legal person and a natural person, through ownership or control by other means of 20% or more of the voting rights or capital of a financial undertaking or through corresponding control.
Under the proposed amendments, the Ministry of Finance would not grant authorization for taking-up a business of a financial undertaking if the close links would prevent the authorities from effectively supervising the undertaking. The financial undertakings would also have to provide Financial Supervision with the information required for monitoring compliance with the authorization. Therefore, the undertakings would have to report any significant changes in shareholdings or other control.
The bill also proposes that the head offices of the credit institutions and the investment fund management companies that carry on business in Finland would have to be located in Finland. The purpose of this provision is to prevent companies incorporated in one EU member state from carrying on their business in another member state with more lenient regulations on financial undertakings.
Further, the bill proposes to amend the Financial Supervision Act by introducing a duty for persons carrying out statutory audits in financial undertakings to report promptly to the Financial Supervision any serious breaches of the laws, regulations or administrative provisions which lay down the conditions governing the authorization or pursuit of the activities of the financial undertakings. The auditors would also have to report any fact that would lead to a refusal to certify the accounts or to reservations being expressed.
The BCCI Directive would directly affect the duties of the auditors. Under the proposal, the auditors could be personally liable for damages resulting from the failure to report to Financial Supervision the information required.
The proposed amendments enter into force as soon as possible after they are passed by the Finnish parliament.