Banking legislation
Banking in Finland is strictly regulated by laws and official directives. Much of the sector’s legislation is based on European Union regulation, which has been extensively harmonised across the Union area. EU regulation, in turn, is largely based on internationally agreed standards. The banking sector’s general law in Finland is the Act on Credit Institutions. Credit institutions accept repayable funds from the public and offer loans and other financing on their own account. In addition to national law, their activities are also governed by EU regulations and a wide range of subordinate rules issued by the European Commission, the European Central Bank (ECB) and the European Banking Authority (EBA).
Credit institutions
A credit institution operating in a banking union country must be officially licensed to operate by the European Central Bank. The Act on Credit Institutions includes provisions on licence application, licensing requirements, permitted business activities, financial statements and auditing, capital adequacy and liquidity requirements, and the operations of foreign credit institutions and financial institutions in Finland.
Types of credit institutions
There are two types of credit institutions: deposit banks and financing institutions. A deposit bank is authorised to take deposits and other repayable funds from the public. Deposits are repayable funds that are fully or partially covered by deposit protection. Only deposit banks may accept deposits. A deposit bank may be a limited company, a cooperative or a savings bank. Repayable funds other than deposits can be accepted by a credit cooperative, which may also be a limited company, a cooperative or a mortgage society.
There are currently nine domestic credit institutions operating in Finland. Finance companies offer funding for purchases either directly or through retailers. They can also provide consumer credit as overdraft or one-off loans and working capital financing for businesses through factoring. Finance companies are considered credit institutions if they are funded by public deposits. Otherwise, they are classified as financial institutions.
Credit card companies provide credit card services. Credit cards and overdraft facilities are offered through banks, finance companies and credit card companies.
Mortgage banks issue covered bonds and use the proceeds to offer secured loans. These loans are granted against real estate or housing company shares, property mortgages or public guarantees.
Other laws regulating credit institutions
In addition to the Act on Credit Institutions, the activities of credit institutions are governed by special laws tied to the legal form of the institution. These include, for example, the Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company, the Savings Bank Act, the Act on Cooperative Banks and Other Cooperative Credit Institutions, the Act on Mortgage Societies, and the Act on Payment Institutions, which regulates the issuance of electronic money. These laws contain specific provisions applicable to each type of credit institution.
Act on Mortgage Credit Banks
The Act on Mortgage Credit Banks applies to activities where a credit institution obtains capital by issuing secured bonds. This capital is used to grant loans to the public against real estate or housing company shares or real estate mortgages. The granted loans and their collateral are registered as security for the bonds in a bond register maintained by the mortgage credit bank.
Payment Services Act
The transmission of payments by banks is governed by the Payment Services Act, which is based on the EU Payment Services Directive. The act covers bank transfers, direct debits and debit and credit card payments. It also applies to mobile payments in certain clearly-defined cases. The act sets out the provider’s obligation to inform the user of the payment service and defines the rights and obligations related to the use of payment cards and other payment instruments for both the user and the provider. Banks must also comply with directly applicable regulations from the European Parliament and Council, such as the Price Indication Directive and the Transfer of Funds Regulation.
Other laws governing banking activities
Banking is also subject to general business legislation and securities market law, including the Investment Services Act and the Securities Markets Act. With consumer customers, banks must comply with consumer protection legislation. The marketing of bank products is also subject to specific regulations.
Insurance legislation
Insurance is an abstract commitment: it provides cover, but the substance of this cover does not take a concrete shape until a risk event occurs. Insurance products cannot be inspected in a tangible manner before buying, and comparison with competing products is often difficult. Insurance policies are typically long-term, but sometimes it can become necessary to amend a policy during the contract period. Insurance is highly essential for the policyholder’s personal financial security.
Insurance Companies Act
The Insurance Companies Act applies to Finnish mutual and limited liability insurance companies. It regulates matters such as company formation, governance, financial statements, investment activities, solvency, articles of association and supervision.
Insurance Contracts Act
The Insurance Contracts Act is a key piece of legislation in the insurance sector. It governs the rights and obligations of the parties to an insurance contract. Key provisions include the insurer’s duty to disclose information, the policyholder’s and insured’s duty to disclose information, and the consequences of failing to meet these obligations. The act also sets out principles for claims handling and the payment of insurance premiums.
Other insurance legislation
Other laws regulating the insurance sector include the Local Mutual Insurance Associations Act, the Pension Funds Act, the Public Insurance Funds Act, the Act on Insurance Mediation, and the Act on Foreign Insurance Companies. Statutory pension insurance companies are governed by the Act on Earnings-Related Pension Insurance Companies. Separate laws also exist for accident and motor insurance.
Consumer affairs and legislation
Consumer protection legislation came into force in 1978. The Consumer Protection Act regulates, for example, the quantity and quality of products and service information provided by businesses. The marketing provisions of the act have two main objectives:
- To prevent inappropriate marketing practices targeting consumers.
- To ensure businesses provide consumers with more relevant information in their marketing.
The 2005 amendment to the Consumer Protection Act granted consumers the right to cancel a contract made with a bank or insurance company within 14 days, if it was made by phone or through an online service.
Consumer credit
Consumer credit is regulated in Chapter 7 of the Consumer Protection Act. The act requires that a consumer credit agreement must be made in writing and must state key information such as the effective annual interest rate. Consumers have the right to repay the credit before the agreed due date, and the creditor cannot terminate the credit due to minor payment delays.
Marketing information
The Government Decree on the Disclosure of Price Information in Advertisements sets out general regulation on the content of marketing information. The decree came into force in 1999 and was amended in 2013. It requires that the price of a consumer good is clearly and understandably stated in marketing.
Data protection regulation
The General Data Protection Regulation (GDPR, (EU) 2016/679), which went into effect in May 2018, applies to the financial sector and its actors. The law responds to the challenges posed by technological development and globalisation regarding personal data. The GDPR increases the transparency and openness of processing and strengthens the rights of data subjects to monitor the processing of their personal data. Neglecting the GDPR results in even stricter sanctions.
The GDPR applies to all organisations processing personal data, including banks and insurance companies, as they process sensitive personal data. The GDPR involves, among other things, assessment of personal data processing, implementation of data protection principles, a risk-based approach, impact assessment and prior consultation, and the rights of the data subject. The data subject has the right to access their data, the right to rectification, the right to be forgotten, and the right to restrict processing.