Opinion of the European Central Bank of 18 September 2002 at the request of the Finnish Ministry of Finance on a draft proposal concerning a revision of the Act on the Financial Supervision Authority (CON/2002/23)
Date: 2002-09-18
Institutions: European Central Bank
Subjects: Finland, financial stability, financial supervision, institutional activity, national law, supervisory power

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 18 September 2002

at the request of the Finnish Ministry of Finance

on a draft proposal concerning a revision of the Act on the

Financial Supervision Authority

(CON/2002/23)

1.

On  22  July  2002  the  European  Central  Bank  (ECB)  received  a  request  from  the  Finnish

Ministry of Finance for an opinion on a draft government proposal concerning a revision of the

Act on the Financial Supervision Authority and certain other related acts (the ‘proposal’). The

proposal  intends  to  replace  the  existing  Act  on  the  Financial  Supervision  Authority

(Rahoitustarkastuslaki 503/1993) by a new Act and, as a result, make technical amendments to

the other acts. 

The new Act would explicitly state the objective and duty of the Finnish Financial Supervision

Authority (FSA), which are lacking in the existing Act. It would also amend and supplement the

provisions  concerning  the  operating  methods  of  the  FSA  in  order  to  take  into  account

substantial  changes  taking  place  in  financial  markets  and  in  the  supervision  thereof.  In

particular,  the  competence  to  grant  or  withdraw  the  operating  licences  of  some  supervised

entities would be transferred from the Ministry of Finance to the FSA. The proposal would also

widen the existing powers of the FSA to impose sanctions on supervised entities. According to

the proposal, the revised operating methods as well as new powers regarding sanctions would

have to be reflected in the rules concerning decision-making and management of the FSA which

are therefore revised.  

2. 

The  ECB’s  competence  to  deliver  an  opinion  is  based  on  Article 105(4)  of  the  Treaty

establishing  the  European  Community  and  on  the  sixth  indent  of  Article  2(1)  of  Council

Decision  98/415/EC  of  29 June  1998  on  the  consultation  of  the  European  Central  Bank  by

national  authorities  regarding  draft  legislative  provisions1, as  the  proposal contains  provisions

on rules applicable to financial institutions insofar as they materially influence the stability of

financial institutions  and  markets.  In  accordance  with  the  first  sentence  of  Article 17.5  of  the

Rules  of  Procedure  of  the  European  Central  Bank,  the  Governing  Council  of  the  ECB  has

adopted this opinion. 

1 

OJ L 189, 3.7.1998, p. 42.

                                                     
3. 

The objective of the FSA. The definition of the objective of the FSA in the new Act would not

change the existing status of the FSA as an entity operating in connection with Suomen Pankki.

According  to  the  proposal,  the  objective  of  the  FSA  would  be  the  ‘maintenance  of  public

confidence in the operation of financial markets’. The ECB would like to recall in this context

Suomen Pankki’s responsibility concerning contributing to the reliability and efficiency of the

overall financial system in Finland, according to Section 3 of the Act on the Bank of Finland

(Laki Suomen Pankista 214/1998).

The  ECB  welcomes  the  fact  that  the  proposal  contains  for  the  first  time  an  explicitly  stated

objective of the FSA. This would usefully increase transparency and improve market perception

of the functioning of the FSA. However, the ECB would like to note that the exact formulation

of the objective could be very important regarding such perception of how it operates. From this

perspective,  the  ECB  would  like  to  make  two  observations.  First,  the  objective  should

preferably contain a direct reference to the maintenance of financial stability, in addition to the

maintenance of confidence in the financial system. It is important to emphasise the maintenance

of financial stability, since this conveys the idea that the objective is not to ensure the operation

of all individual financial institutions in all eventualities, but the overall stability of the financial

system. This would emphasise the importance of effective market discipline (including possible

failures of entities in these  markets)  and  the  responsibility  of  financial institutions  themselves

for adequate risk management. These considerations reflect internationally approved views on

the  objectives  of  financial  supervisors2.  Second,  the  objective  as  proposed  could  give  the

impression that the FSA is the only authority in Finland contributing to financial stability and

confidence in the financial system. Hence, the proposal could state that the objective of the FSA

is  to  maintain,  for  its  own  part  and  in  cooperation  with  other  relevant  authorities  (including

Suomen Pankki), stability and confidence in the financial system. 

4. 

Licensing powers of the FSA. The proposal would amend and supplement the rules concerning

the  operating  methods  of  the  FSA.  In  particular,  the  proposal  would  grant  the  FSA  the

competence  to  grant  or  withdraw  the  operating  licences  of  credit  institutions,  investment

services  companies  and  pawnbrokers.  Under  the  existing  Act  on  the  Financial  Supervision

Authority  this  competence  belongs  to  the  Ministry  of  Finance.  While  the  transfer  of  such

licensing  powers  to  the  FSA  would  significantly  enhance  its  competence,  a  number  of  other

supervised  entities  operating  in  the  securities  markets  would  continue  to  be  licensed  by  the

Ministry of Finance. It would remain the competent authority to license, inter alia, banking and

deposit guarantee funds, investor compensation funds, the stock exchange, clearing companies

and the central securities depository. 

2 

See especially the ‘Core Principles for Effective Banking Supervision’ issued by the Basel  Committee  on  Banking
Supervision (September 1997). For instance, the principles state that ‘[s]upervision cannot, and should not, provide
an assurance that banks will not fail. In a market economy, failures are part of risk-taking’.

2

                                                     
The  ECB  welcomes  the  proposal  that  licensing  and  supervision  responsibilities  be  combined

and allocated to the FSA. This supports the effective  conduct  of supervision  as  the  control  of

market  entry  and  of  on-going  businesses  are  held  by  the  same  authority,  which  can  also

withdraw  licences  as  an  ultimate  sanction3.  However,  the  ECB  would  like  to  note  that  the

reasons  for  maintaining  the  separation  in  the  licensing  and  supervision  of  some  entities,  as

mentioned  above,  are  not  very  clearly  stated  in  the  proposal.  Apart  from  ensuring  effective

supervision,  having  all  licensing  powers  regarding  different,  but  closely  linked,  securities

market  participants  allocated  to  a  single  authority  could  also  enhance  the  level  playing  field.

When separation exists, cooperation between the licensing authority and the supervisor has to be

assured. 

5. 

Sanctioning powers of the FSA. In order to strengthen the efficiency of supervision by the FSA

and shift its emphasis towards early intervention and more pre-emptive measures, the proposal

would  widen  the  range  of  sanctions  available  to  the  FSA  to  include,  in  addition  to  existing

sanctions,  a  ‘public  reprimand’,  a  ‘public  warning’  and  an  ‘administrative  fine’.  A  public

reprimand would be issued if a supervised entity is in breach of an act, regulation or guideline

applicable to it, for example if a supervised entity does not fulfil its reporting obligations to the

FSA. A public warning would be issued if this conduct is repeated or if a public reprimand was

not  deemed  sufficient.  An  administrative  fine  of  up  to  50  000  EUR  could  under  certain

circumstances be imposed in addition to a public reprimand or warning. 

The ECB very much welcomes the enhanced sanctioning powers of the FSA, as they also form

an integral element of effective supervision4.

6. 

Decision-making  bodies  of  the  FSA.  The  proposal  would  also  revise  the  existing  provisions

concerning decision-making and management of the FSA to ensure that its operation is in line

with  its  new  powers.  The  proposal  includes  an  amendment  to  the  effect  that  the  Director

General  of  the  FSA  would  cease  to  be  a  member  of  its  Board.  The  Director  General  would

attend  Board  meetings  as  a  permanent  expert  advisor  without  any  voting  rights.  The  Director

General  would  be  responsible  for  managing  the  FSA  and  ensuring  that  it  performs  its  duties

efficiently and economically in accordance with its guidelines. The Board of the FSA would set

its aims and orientations, adopt  guidelines, instructions  and interpretations  on  matters that  are

significant in principle. In addition, the powers of the Board would be strengthened in relation

to  the  core  supervisory  activities  of  the  FSA,  including  the  new  powers  contained  in  the

proposal.  The  Board  would,  for  example,  decide  on  granting  licences  and  imposition  of

sanctions.  The  oversight  of  both  the  Director  General  and  the  Board  remains  with  the

Parliamentary Supervisory Council, the role of which would be somewhat strengthened by the

proposal. 

3 
4 

See also Principles 2 and 3 of the Core Principles for Effective Banking Supervision (op. cit.).
See also Principle 22 of the Core Principles for Effective Baking Supervision (op. cit.).

3

                                                     
The ECB supports the more clearly specified and strengthened decision-making structure of the

FSA  as  regards  the  strengthening  of  the  role  of  the  Board  in  steering  its  general  functioning.

However, the ECB would like to note that in light of the enhanced powers of the Board of the

FSA and its revised composition it might be appropriate to insert an explicit provision according

to which the members of the Board of the FSA are required to act in their personal capacity. 

In addition, the ECB would like to note that it should be ensured that the Board has adequate

expertise to carry out its decision-making tasks. In view of this consideration, maintaining the

status of the Director General as a full member of the Board is likely to increase the quality of

the  decision-making  process.  It  could  also  increase  the  acceptance  and  credibility  of  the

decisions in the market place and possibly also the commitment of the FSA to implement the

decisions. 

7. 

The  ECB  confirms  that  it  has  no  objection  to  the  competent  national  authorities  making  this

opinion publicly available at their discretion. 

Done at Frankfurt am Main on 18 September 2002.

The President of the ECB

[signed]

Willem F. DUISENBERG

4