Marko Hovi

• The Financial Supervisory Authority (FIN-FSA) of Finland oversees the financial and insurance sectors

Entities Supervised by FIN-FSA

• Banks

• Insurance companies

• Pension companies

• Other insurance sector companies

• Investment firms

• Fund management companies

• Helsinki Stock Exchange

• FIN-FSA safeguards stability, confidence and protects customers, investors, and insured benefits in financial markets

• The core business of the FIN-FSA is regulation in addition to supervision

FIN-FSA Funding

• 5% of funding comes from the Bank of Finland
• 95% comes from supervised entities

FIN-FSA Organizational Structure

• Parliamentary Supervisory Council
• Board of the Financial Supervisory Authority
• Director General
• Units: Digitalisation and Analysis, Banking Supervision, Insurance Supervision, Capital Markets Supervision, Legal Unit, Director General's Staff
• The agency employs approximately 240 people

Capital Markets Supervision

• Markets, Investment Services and Products
• Supervision of Infrastructure
• IFRS Enforcement
• Inspections and Systems

Entities supervised by Capital Markets Supervision

• Investment service providers
• Fund management companies
• Alternative investment fund managers
• Investment-based crowdfunding intermediaries
• Securitisation auditors
• Stock Exchange
• Finnish Central Securities Depository (APK)

Capital Markets Supervision Focus

• Investor information on security offers and investments
• Listed company disclosures + IFRS financials
• Securities market trading
• Investigating securities abuse/monitoring audit committees

Banking Supervision Focus

• Credit institutions

Banking Supervision Focus

• Capital adequacy and liquidity of credit institutions sector
• Sound governance
• Risk management and risk-taking
• Authorizations, reporting, application and notification issues
• Participation in regulatory developments impacting credit institutions

Digitalisation and Analysis Focus

• All FIN-FSA supervised entities

Digitalisation and Analysis Focus Areas

• Operating environment analysis
• Financial status of supervised entities
• Macroprudential policy
• Payment systems
• Reporting
• Prevention of money laundering and terrorist financing
• Banking code of conduct and customer protection
• Payment services and currency
• Operational risks
• New digital solutions
• Cybersecurity
• Responsible for the FIN-FSA's information management

Insurance Supervision Focus

• Employee pension institutions
• Life and Non-life Insurance
• Unemployment, Pension and Sickness Funds
• Conduct of Insurance Business

Insurance Supervision Focus Areas and Goals

• Employee pension insurance providers
• Pension funds
• Life and non-life insurance companies
• Unemployment funds
• Employee sickness and benefit funds
• Insurance associations
• Insurance intermediaries
• Other insurance sector actors
• The goals are protection of insured benefits, solvency, and risk management

Legal Unit Tasks

• Administrative sanctions

• FIN-FSA regulations and guidelines

• Maintains insider register and training

• Legal support for management and the rest of the organization

• FIN-FSA is part of common European banking supervision

• FIN-FSA works with European Supervisory Authorities and Nordic supervisory authorities

• Largest banks are directly supervised by the ECB; smaller banks are supervised by national authorities

Single Supervisory Mechanism

• The European Central Bank (ECB) has the main responsibility for common banking supervision

• Different countries' supervisory authorities oversee banks using the same regulations as the ECB under the auspices of the ECB

• Banks

• Non-life, life and reinsurance companies

• Employee pension insurance companies

• Pension funds

• Pension and employee sickness funds and other benefit funds

• Insurance associations

• Unemployment funds

• Other entities active in the insurance sector

• Investment firms

• Alternative investment funds and their managers

• Fund management companies

• Finnish Central Securities Depository (APK)

• Stock Exchange

• Payment institutions

• Virtual currency providers

• Other credit providers

• FIN-FSA supervises insurance intermediaries.

• Regulations are mainly from the EU level

• Compliance is monitored at a national level

• FIN-FSA assesses if activities are on a sound foundation

• FIN-FSA receives information via regular inspections

The Finnish Fund Market in Numbers

• As of 31.12.2023: Finnish UCITS funds hold the largest share of assets under management (AUM) at 70.84% and net assets (NAV) at 75.98% with 415 funds
• There were a total of 99 registered AIFM managers and 36 authorized AIFM managers

Fund Regulations in Europe

• Harmonised Fund Regulation aims to harmonise fund activities across Europe
• Regulations apply to collective portfolio management
• UCITS (Undertakings for Collective Investment in Transferable Securities) Directive was first issued in 1985
• AIFMD is applicable from 2013
• EuSEF, EuVECA and ELTIF Regulations are complementary to the AIFMD directive
• MMF Regulation regulates funds that invest in Money Market Instruments and Funds (UCITS and AIFMD)

UCITS Directive

• The UCITS Directive establishes minimum standards for UCITS managers and funds
• It places a strong focus on investor protection and product regulation
• UCITS funds must be open to daily subscriptions and redemptions
• They can only invest in liquid assets
• Described as open-ended funds
• The UCITS Directive is implemented in to the Act on Common Funds (Sijoitusrahastolaki, SRL, 213/2019)
• Fund managers in Finland must be limited liability companies (Oy)
• The legal form of UCITS funds isn't harmonized but only contractual funds

AIFMD

• The UCITS directive regulated open ended funds investing in transferable securities (e.g. listed instrument)

• Due to the role of unregulated hedge funds in the financial crises in 2007-2008

• The scope of the AIFMD was broader than hedge funds and encompasses all types of collective investing that is not already under the UCITS directive.

• It defines an AIFM as a legal person with a regular business managing one or more AIFs.

• There must be application of all four creiteria for the four criteria of AIF which are Collective Investment undertaking and raising capital from a number of investors, with a view to invest it in accordance with a defined investment policy

• FIN-FSA can issue a decision regarding AIF-activities

• There's a need to apply for authorisation depending on the assets being managed

• Exemption from authorisation in registration

• In total do not exceed a threshold of EUR 100 million including the amount of assets acquired used through leverage means

• EUR 500 million when the portfolios of AlFs consist of AIFs that are unleveraged and have no redemption rights exercisable during a period of 5 years following each initial investment.

• According to AIFMD, AIF funds can only be marketed to professional investors, depending on national regime in every EEA country

• Authorised AIFs marketed in Finland can market to non-professional investors

• Authorized AIFMs can manage and market their AlFs cross border

• Authorised AIFMs are authorised for portfolio management and risk management

• It is possible to outsource, but to other authorised entities and the AIFM must not be a "Letterbox entity"

• Authorisation is granted per strategy; private equity, fund-of funds, real estate, hedge, or other

• Marketing notification is needed to market AIF-funds

• Requirements for registration vary between different member states and aren't harmonised

• No requirement for AIFs to have a depositary and no organisational requirements

• Registered AIFMs may in general only market their AIFs to professional investors with some exceptions

Requirements for Funds Managers

• Regulation regarding the managers and Legal form of the manager (oy) Requirement | Authorised UCITS | Authorised AIFM | Registered AIFM
• ----- | ----------- | ----------- | ----------- Fit&Proper and qualifying holding rules | Yes | Yes | Yes (as of 1.3.2019) Requirement to have a depositary | Yes | Yes | No Possibility to managed a fund cross border | Yes | Yes | No Reporting requirements regarding the financial standing of the manager (FINREP, COREP) | Yes | Yes | No

Funds Managers: Right to Market Funds

• Legal form, Investment objectives and Diversification Rules Requirement | Authorised UCITS | Authorised AIFM | Registered AIFM
• ----- | ----------- | ----------- | ----------- Right to markets funds to non- professional investors |Yes | Yes |Limited possibility to market to a retricted group of non- professional invetors Products specific regulation regarding | Yes| No | No Disclosure requirements regarding the product | Yes | Yes| Yes Right to market funds cross border | Yes |Yes | Can be allowed Reporting obligations of the funds investments (AIFMD, SIRA)|Yes (only SIRA) |Yes | Yes

Sustainable Finance Regulation

• Regulatory framework consists of sustainable finance regulations for financial market companies

• The Sustainable Finance Disclosure Regulation (SFDR) improves transparency for sustainable market investments, prevents greenwashing, and claims of financial market participants.

• ELTIF 2.0 (2024)

• ESMA Guidelines on fund names (ESG), 2024. Funds with sustainability (Group 1) must meet an 80% threshold of investments to meet environmental or social characteristics and exclude investments in Article 12(1)(a) to (g) of CDR (EU) 2020/1818 of environmental or social characteristics

• UCITS Eligible Asset Directive Review

• MiCA-Regulation (2024)

SFDR

• There should be sustainability-related disclosures for a fund's sustainability degree that are fair, clear, not misleading, simple and concise

• Integration of sustainability risks in their investments, Promotion of environmental and/or social, and sustainable investments as its objective

• SFDR disclosure obligations of funds in September 2024

• Fund according to article 6:AUM EUR 86,76 bn (40,17%), 412 funds

• Fund according to article 8: AUM EUR 106,68 bn (49,39%),416 funds

• Fund according to article 9:AUM EUR 18,40 bn (8,52%), 134 funds

• Unknown: AUM EUR 4,15 bn (1,92%), 140 funds

• PRIIP = packaged retail and insurance-based investment products

• The PRIIPs Regulation applies PRIIPs products to retail investors which include banks, insurance companies, management companies, alternative investment fund managers and bond issuers

• Service providers must prepare a Key Information Document (KID) for each product

• The transition period under PRIIPs regulation for UCITS funds ended on 1 January 2023

Upcoming Regulatory Changes

• Changes to the Delegation, Liquidity management tools (LMTs), Loan origination Funds, Depositaries, and AIFMD reporting (level 2)

Main changes regarding AIFMD Review

• Initiated by KPMG carryout and issued in Dec, 2018 by the European Commission, KPMG
• The final regulatory test was published in March, 2024

Supervision in Fund Management

• Ongoing supervision, Reporting
• Annual questionnaire
• Authorisation and registration processes
• Thematic reviews
• On-site inspections
• Fund rules and changes of fund rules approvals (product approval)

FIN - FSA Supervisory Priorities

• New regulation
• International inspections
• Risk-based approach
• Board of the Financial Supervisory Authority Strategy
• ESMA priorities
• FIN-FSA priorities

Key Supervisory Activities in 2023-25

• Stress tests of open-ended AIF-funds in real estate (2023) and sustainability of fast-growing sustainable area (ESMA CSA, 2024)
• SFDR templates will be used to ensure templates show a lack of information, if it is misleading, and PAI indicators are not at appropriate levels
• There will also be on-site inspections of risk management and valuation

Open-Ended Real Estate Funds in Finland

• Since 2022 the real estate market is challenged 27 ORFs in total, Net worth about 8 billion euros, 10 either used gates or suspended redemptions between.2023-25
• The FIN-FSA has preformed thematic reviews regarding liquidity stress since 2019 and valuation on-site inspections

Finding from testing in 2023

• Stress tests lack proper level
• Lack in reporting to the boards and internal processes and policies
• The recommend has issued to ensure 10% cash in in 2023.

According to National Legislation the the following LMTs are available for Open-ended real estate funds

• Redemption fees
• Suspensions of redemptions
• Swing pricing
• Redemption in kind
• Notice period for redemption
• GATES
• Temporary use of loans for redemptions

According to National Legislation the the following Data in AIFMD Reporting

• Based on the requirements in AIFM directive
• Included in the level 2 Regulation like Authorised AIFM managers and their AlFs /
• Registered AIFM managers and their AIFs Third country AIFMs/AIFs marketed in Finland is included
• Monitor market levels for AlFs
• The information to be reported and its timing and frequency depend on the characteristics and assets under management of the AIFs managed by an AIFM
• Reported on an annual, semi-annual or quarterly basis