Insufficient Information Summary

In 2001, the International Monetary Fund (IMF) conducted a Financial System Stability Assessment (FSSA) of Finland, including its compliance with the Insurance Supervisory Principles (later renamed Insurance Core Principles, or ICPs) promulgated by the International Association of Insurance Supervisors (IAIS). The IMF concluded that Finland either fully or largely complied with the IAIS Principles. The assessment, however, found areas where improvements were needed, namely stricter separation of regulatory and supervisory powers by shifting the licensing authority from the Ministry of Social Affairs and Health to the Insurance Supervisory Authority (ISA) (Finland's then insurance sector supervisor); implementation of an insurance-based risk analysis model; closer targeting of the allocation of supervisory resources; expansion of the electronic documentation and audit trail system; legislation on mixed bank-insurance conglomerates; and a legal basis for an early intervention mechanism for life insurance companies. Effective January 1, 2009, however, a unified financial regulator, Financial Supervisory Authority (FIN-FSA) was created, and there is little subsequent information publicly available as to the compliance of the new regime with the revised, more stringent ICPs of 2003.

General Overview

According to the 2001 International Monetary Fund (IMF) assessment of Finland's observance of the Insurance Supervisory Principles (superseded by the Insurance Core Principles (ICPs) in 2000 and later revised in 2003), promulgated by the International Association of Insurance Supervisors (IAIS), the regulatory authority for both pensions and insurance prior to 2009 was the Ministry of Social Affairs and Health (MSAH) while the then existing supervisor was the Insurance Supervisory Authority (ISA) created in 1999. Further, the ISA was created under the auspices of the MSAH, but was autonomous. The ISA supervised financial and insurance conglomerates in close cooperation with the then Financial Supervision Authority (FIN-FSA) as well as relevant foreign supervisory authorities. Based on their assessment of the MSAH and the ISA, who were the then existing regulator and supervisor, respectively, for pensions and insurance, the 2001 IMF assessment found that Finland either fully or largely complied with the then IAIS Principles. However, there were areas where improvements were needed. They included: (1) stricter separation of regulatory and supervisory powers by shifting the licensing authority from the MSAH to the ISA; (2) including independent experts on the supervisory board; (3) implementing an insurance-based risk analysis model for consistent and sophisticated risk analysis of this sector; (4) more closely targeting the allocation of supervisory resources; (5) expanding the electronic documentation and audit trail system to enhance supervisory practices; (6) enacting legislation on mixed bank-insurance conglomerates; and (7) providing a legal basis for early intervention mechanism for life companies. The assessment, however, did not assign levels of compliance for each principle, and there is little subsequent information publicly available as to Finland's compliance with the revised ICPs of 2003.

In 2007, the IMF’s Article IV Consultation report affirmed that the Finnish financial system was "sound and well-supervised" (p. 15) and observed that most insurance companies were profitable, with high capital adequacy ratios and continuing growth in profits. Also, the financial system was able to withstand severe shocks. The report also talked about a planned merger of the FIN-FSA and the ISA in 2009 designed to pool the expertise and resources of the former supervisors and bring common supervised cross-sector entities under one umbrella, thereby making supervision more effective. As of January 1, 2009, the ISA and MSAH were succeeded by a new authority called the Financial Supervisory Authority that came about as a result of a merger between the former FIN-FSA and the ISA. The new supervisory authority is also called FIN-FSA, and its supervisory role and objectives are governed by the amended Act on the Financial Supervision Authority No. 878 of 2008, and it ensures “financial stability and the necessary smooth operation of credit, insurance and pension institutions, and other supervised entities. Another aim is to safeguard the interests of the insured and to maintain confidence in the financial markets,” as well as foster compliance with good practice in, and public awareness of, financial markets. The new FIN-FSA is responsible for “most of the supervisory functions undertaken by the former FIN-FSA and the ISA”, which includes banks, insurance and pension companies, other insurance sector entities, investment sector companies, investment firms, fund management companies and the Helsinki Stock Exchange (HSE).

The legal framework for insurance supervision is based on European Union (EU) directives and requirements, such as the first, second, and third life and non-life directives and the directive on supplementary supervision of insurance undertakings in an insurance group. Finland also enacted the Act on the Supervision of Financial and Insurance Conglomerates in 2001 to cover mixed financial conglomerates that had banking as well as insurance arms. This Act came into force in January 2002, and was later amended in 2004. The 1979 Finnish Insurance Companies Act governed life and non-life insurance companies, and an amendment to this act was enacted and the new Finnish Insurance Companies Act was enforced in July 2008. The 1987 Finnish Insurance Associations Act governs non-life insurance associations. The 2005 Act on Insurance Mediation governs insurance brokers. The ISA also introduced a new register for intermediaries in 2005 covering insurance brokers and agents.

According to the 2008 Federation of Finnish Financial Services (FK), as of December 31 2008, Finland had 41 licensed Finnish insurers with 22 of them specializing in non-life business and reinsurance, 12 in life insurance and 7 in statutory employee pension insurance. There were also 22 non-Finnish insurers operating in the sector. Per the 2008 IMF Article IV report, because of steep market decline, the solvency levels for insurance companies dropped significantly in 2008, following the strong growth experienced prior to mid-2007. The report mentions that there is an urgent need to increase monitoring of financial entities that are particularly tied to the insurance sector. According to the 2008 IMF Article IV consultation paper, the insurance sector in Finland has been affected negatively by the global crisis and has become stagnant in certain areas. Finnish authorities expressed concerns regarding “(i) the impact of insurers’ potential problems on related groups; and (ii) possible saturation of the life market” (p.17).

The Principles

IIICP 1 Conditions for effective insurance supervision

According to the 2001 IMF report, Finland's pension and insurance sector then met the general preconditions for effective supervision. Also, the legal infrastructure in Finland was well-developed and stable, as were the actuarial, legal, and accounting professions. The 2001 IMF assessment also found that the Finnish Constitution, coupled with the EU laws and directives, provides the legal framework for a well-functioning financial system in the country. Finland also has a codified legal system and the scope of supervisory authority is circumscribed by constitutional law and its interpretations by the Constitutional Committee of Parliament. However, little subsequent information as to the compliance of Finland's new FIN-FSA with the revised ICPs of 2003 (which superseded the IAIS Supervisory Principles) is publicly available.

IIICP 2 Supervisory objectives

Prior to the new FIN-FSA becoming the sole supervisor of both the financial and insurance sectors, according to the 2001 IMF assessment, the principal objective of supervision by the ISA was "to protect the direct financial interests of the policyholders and pension entitlements" (p. 41). The ISA emphasized supervision of the adequacy of the technical provisions, solvency margin, and investment policy and procedures of supervised entities. It also carried out fit and proper testing in collaboration with the MSAH, and as pertinent, with the FSA. The ISA aimed to safeguard a sound and competitive insurance sector. The new supervisory body, FIN-FSA “aims at ensuring financial stability and the necessary smooth operation of credit, insurance and pension institutions, and other supervised entities, so as to safeguard the interests of the insured and maintain confidence in the financial markets” (p.1), according to the Act on the Financial Supervisory Authority. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 2 Supervisory objectives issued in 2003.

IIICP 3 Supervisory authority

The 2001 IMF assessment found that the ISA had a range of legal instruments for adequate supervision and they were predominantly in line with EU directives and requirements. The IMF recommended that Finland strengthen the supervisory capacity of the ISA by applying "a sophisticated risk analysis model" (p. 42) of supervision. At the time of the 2001 IMF assessment, the MSAH regulated the insurance and pensions sector, while the ISA supervised it. The IMF found that the responsibility and accountability of the ISA were "formally defined" (p. 43). The ultimate accountability of the ISA lay with the Parliament, although the latter applied very limited scrutiny. However, the composition of the ISA’s supervisory board and the frequency of its meetings resulted in vagueness of roles and responsibilities, especially in the event of an emergency or whenever a major decision was required. The IMF, therefore, recommended "a stronger accountability and granting of wider powers" (p. 30) to the ISA. This, per the IMF, could be achieved by transferring the licensing power from the MSAH to the ISA, and by including independent experts on the ISA's Board. Further, the 2001 IMF assessment found that the ISA had a range of legal instruments for adequate supervision and they were predominantly in line with EU directives and requirements. The ISA was also found by the IMF to be well managed, with clear objectives, strategies and priorities and an open internal culture. Resources and supervisory powers were also commensurate with the demands of the Finnish insurance sector.

The new FIN-FSA, per a statement by both the Executive Director for Finland, Jen Henriksson and Advisor to the Executive Director, Janne Hukka, inserted in the 2008 IMF Article IV report, ensures a “more efficient utilization of the best expertise and available resources in an environment of increasingly complex risks and regulation” (p.3). The FIN-FSA website mentions that the FIN-FSA supervises all entities including banks, insurance and pension, and the securities market and while it is independent in its decision making, the FIN-FSA works with the Bank of Finland (BoF) in relation to administrative matters. Per the website, Finland’s Parliamentary Supervisory Council (PSC), supervises the FIN-FSA’s activities, while the supervisory authority’s Board “sets out the objectives for the activities of the supervisor, decides the operational principles and guides and supervises achievement of, and compliance with, these objectives.” There is, however, little information publicly available that directly addresses compliance of the new supervisory regime with ICP 3 Supervisory authority issued in 2003.

IIICP 4 Supervisory process

According to the 2001 IMF assessment, the ISA maintained "an open process for formulating and reporting of insurance and regulatory and supervisory policies" (p. 45). This was attained through active consultation with the market on legislative, regulatory and supervisory proposals, codification and public availability of policies and requirements, and regular reporting to the MSAH to ensure parliamentary scrutiny and public transparency on its supervision and insurance sector developments. The ISA disseminated information pertaining to its supervisory role and scope of its authority through the web, though it was often arcane. The ISA also published comprehensive and detailed statistical data on the insurance sector in Finland. The annual report and other annual publications also provide comprehensive insurance sector information; for example the Federation of Finnish Insurance Companies (which later merged with other bodies to form the Federation of Finnish Financial Services (FK) also publishes an overview of the sector and the laws and supervisory regulations governing it. The senior officials of the ISA regularly explained the ISA's objectives and performance on public fora, though not before parliamentary committees. Legislative protection for policy holders was also in the public domain, although its scope, terms, and limits were not clearly spelled out, leading to vagueness, the IMF noted. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 4 Supervisory process, issued in 2003.

IIICP 5 Supervisory cooperation and information sharing

There is insufficient information publicly available that directly addresses Finland's compliance with ICP 5 Supervisory cooperation and information sharing, issued in 2003. The former ISA website stated that, domestically, the ISA cooperated with the FSA, the Finnish Insurance Ombudsman Bureau and the supervised institutions' cooperation bodies, in the discharge of its duties. At the international level, the ISA cooperated with the insurance supervisors in the European Economic Area, as well as the international cooperation associations of insurance supervisors. It was a member of the CEIOPS and the IAIS. The 2008 annual report mentions that the former FIN-FSA cooperated with the ISA in some domestic supervisory projects. According to sections 3, 52, and 54 of the Act on the Financial Supervisory Authority amended in 2008, the new FIN-FSA is mandated to participate in both national and international cooperation between authorities. The Act further states that in the context of international cooperation with other authorities, the FIN-FSA must participate in work with “the committee of European Banking Supervisors, the Committee of European Securities Regulators, and the Committee of European Insurance and Occupational Pensions Supervisors in developing the supervisory framework and enhancing the smooth operation of financial markets supervision…” (Act on FSA, p. 2). Per the same Act, the FIN-FSA must cooperate with foreign supervisory authorities by submitting all information that will ensure effective supervision and must appropriately cooperate with all non-EU supervisory authorities.

IIICP 6 Licensing

According to the 2001 IMF assessment, "the criteria with regard to licensing are observed" (p. 43), but the segregation of responsibilities was not "optimal" (p. 43). The IMF, therefore, recommended that Finland transfer licensing authority from the MSAH to the ISA, so as to enhance the credibility, autonomy and supervisory capacity of the ISA, especially to act decisively and quickly in crisis situations. As of the time of the assessment, the MSAH granted licenses on the basis of the ISA's statement. However, according to updated information on the MSAH website, the government issues licenses to pension insurance companies managing earnings-related pension insurance, while the new FIN-FSA issues licenses to other insurance companies. There is, however, little information publicly available that directly addresses Finland's compliance with ICP 6 Licensing, issued in 2003.

IIICP 7 Suitability of persons

The 2001 IMF assessment found that the ISA conducted fit and proper testing in collaboration with the MSAH and, as pertinent, with the FSA. There is, however, insufficient information publicly available as to Finland's compliance with ICP 7 Suitability of persons issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 8 Changes in control and portfolio transfers

There is insufficient information publicly available as to Finland's compliance with ICP 8 Changes in control and portfolio transfers issued in 2003.

IIICP 9 Corporate governance

The 2001 IMF assessment stated that "no issues were identified" (p. 43) regarding corporate governance. Section 3 of the 2008 Act on the Financial Supervisory Authority obligates the FIN-FSA to ensure that there are “reliable corporate governance systems in those financial market participants whose financial position it monitors” (p. 2). However, there is little further information publicly available as to Finland's compliance with ICP 9 Corporate governance, issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 10 Internal control

The 2001 IMF assessment stated that "no issues were identified" (p. 43) regarding internal control. There is, however, no further information publicly available as to Finland's compliance with ICP 10 Internal control, issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 11 Market analysis

There is insufficient information publicly available as to Finland's compliance with ICP 11 Market analysis issued in 2003.

IIICP 12 Reporting to supervisors and off-site monitoring

The 2007 FATF report noted that the ISA carried out both on-site and off-site inspections of insurance companies and intermediaries. However, there is insufficient information publicly available as to Finland's compliance with ICP 12 Reporting to supervisors and off-site monitoring issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 13 On-site inspection

The 2007 FATF report noted that the ISA carried out both on-site and off-site inspections of insurance companies and intermediaries. However, there is insufficient information publicly available as to Finland's compliance with ICP 13 On-site inspection issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 14 Preventive and corrective measures

There is insufficient information publicly available as to Finland's compliance with ICP 14 Preventive and corrective measures issued in 2003, especially in the wake of the establishment of the new FIN-FSA. According to the 2001 IMF assessment, the ISA had a range of sanctions in respect of insurance and pension companies and insurance brokers. They included the issuance of warnings, prohibition to carry on an irregular action, requests to remedy irregularities within a timeframe, and conditional fines. A statement from the ISA was also required by the MSAH in granting or revoking the license of an insurance firm. The IMF, however, recommended that Finland provide the powers to restrict or revoke the license of an insurance firm to the ISA, provide legal basis to the early intervention power of the ISA with respect to the solvency of a life insurance company, and develop a sound legal framework to arm the ISA with supervisory tools to monitor and supervise financial conglomerates and the legal entities within them.

IIICP 15 Enforcement or sanctions

According to the 2001 IMF assessment, the ISA had a range of sanctions regarding insurance and pension companies and insurance brokers. They included the issuance of warnings, prohibition to carry on an irregular action, requests to remedy irregularities within a timeframe, and conditional fines. The IMF, however, recommended that Finland provide powers to restrict or revoke the license of an insurance firm to the ISA, provide legal basis to the early intervention power of the ISA with respect to the solvency of a life insurance company, and develop a sound legal framework to arm the ISA with supervisory tools to monitor and supervise financial conglomerates and the legal entities within them. However, there is insufficient information publicly available as to Finland's compliance with ICP 15 Enforcement or sanctions issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 16 Winding-up & exit from the market

There is insufficient information publicly available as to Finland's compliance with ICP 16 Winding-up & exit from the market issued in 2003.

IIICP 17 Group-wide supervision

There is insufficient information publicly available as to Finland's compliance with ICP 17 Group-wide supervision issued in 2003. According to the 2001 IMF assessment, the ISA had a number of legal firewalls in place "to reduce and manage contagion risk within groups" (p. 41). This was achieved by a host of legal measures, whereby insurance companies were restricted to the business of insurance; life and non-life companies were legally separated; pension insurance companies were limited to this activity; and the investment departments of insurance companies were required to be separate arms not managing investments for other entities. The 1999 Personal Data Act also restricts sharing client information between different legal entities within a group. The IMF assessment found that, although in 2001 Finland did not have specific legislation or regulations on mixed insurance-bank conglomerates, such legislation was being introduced later the same year. This legislation, the Act on the Supervision of Financial and Insurance Conglomerates, came into force in January 2002, and was later amended in 2004. The ISA, in 2001, was also entering into a cooperation agreement with the FSA when Aampo became the first Finnish mixed conglomerate, and the regulator had protocols on pan-Scandinavian groups. According to the 2008 FIN-FSA annual report, the former FIN-FSA and the ISA cooperated together and supervised each other’s sectors. This group-wide supervision was to ensure that financial performance was maintained and risks were identified.

IIICP 18 Risk assessment and management

The 2001 IMF assessment recommended that Finland strengthen the supervisory capacity of the ISA by applying "a sophisticated risk analysis model" (p. 42) of supervision. It found that such a model was being developed at that time. According to the assessment, the ISA had a number of legal firewalls in place "to reduce and manage contagion risk within groups" (p. 41). This was achieved by a host of legal measures, whereby insurance companies were restricted to the business of insurance; life and non-life companies were legally separated; pension insurance companies were limited to this activity; and investment departments of insurance companies were required to be separate arms not managing investments for other entities. The 1999 Personal Data Act also restricts sharing client information between different legal entities within a group. Per the 2008 FIN-FSA annual report, the insurance sector went through stress tests that involved cooperation between the then ISA and the former FIN-FSA to assess the risk bearing capacity of the sector. However, there is insufficient information publicly available as to Finland's compliance with ICP 18 Risk assessment and management issued in 2003, especially in the wake of the establishment of the new FIN-FSA.

IIICP 19 Insurance activity

There is insufficient information publicly available as to Finland's compliance with ICP 19 Insurance activity issued in 2003.

IIICP 20 Liabilities

There is insufficient information publicly available as to Finland's compliance with ICP 20 Liabilities issued in 2003.

IIICP 21 Investments

There is insufficient information publicly available as to Finland's compliance with ICP 21 Investments issued in 2003. The 2001 IMF assessment noted that the ISA recognized the importance of "strict and well-qualified supervision on the asset side" (p. 43). As of 2001, the ISA lacked investment specialists to carry out effective supervision of the investment strategy, policies and procedures of supervised institutions. This was due to the ISA's competitive disadvantage in the market for investment specialists, and the ISA was working on this shortcoming through training and recruitment.

IIICP 22 Derivatives and similar commitments

There is insufficient information publicly available as to Finland's compliance with ICP 22 Derivatives and similar commitments issued in 2003. The 2001 IMF assessment noted that the ISA had restricted availability of supervisory expertise to optimally supervise financial derivatives, and had therefore engaged the services of a consulting firm to "develop new regulations and supervisory guidelines for derivatives" (p. 43).

IIICP 23 Capital adequacy and solvency

The 2001 IMF assessment found that the solvency positions of large as well as smaller insurance companies were satisfactory. The 2007 IMF report affirmed that the Finnish financial system was "sound and well-supervised" (p. 15) and observed that most insurance companies were profitable with high capital adequacy ratios and continuing growth in profits. However, a 2008 IMF Article IV consultation report states that the insurance sector has been significantly affected by the global financial crisis, particularly affecting insurance and pension companies. The report further states that “while minimum solvency ratios are met, margins have declined considerably, underscoring the need to step up vigilance over possible contagion to banks in financial conglomerates” (p. 20). The report also raises concerns regarding “the impact of insurers’ potential problems on related groups; and a possible saturation of the life insurance market” (p. 17). However, there is little information publicly available that directly addresses Finland's compliance with ICP 23 Capital adequacy and solvency, issued in 2003.

IIICP 24 Intermediaries

There is insufficient information publicly available as to Finland's compliance with ICP 24 Intermediaries issued in 2003. The then ISA website stated that the ISA "monitor[ed] and check[ed] the operations of insurance intermediaries," analyzed their registration requirements, and maintained a public Register of Insurance Intermediaries entitled to pursue insurance mediation in Finland. The 2007 FATF report noted that the 2005 Act on Insurance Mediation governs insurance brokers. The ISA also introduced a new register for intermediaries in 2005 covering insurance brokers and agents.

IIICP 25 Consumer protection

The 2001 IMF assessment noted that legislative protection for policyholders is in the public domain, although its scope, terms, and limits are not clearly spelled out, leading to vagueness. Nevertheless, there is little information publicly available that directly addresses Finland's compliance with ICP 25 Consumer protection issued in 2003.

IIICP 26 Information, disclosure & transparency towards the market

There is insufficient information publicly available as to Finland's compliance with ICP 26 Information, disclosure and transparency towards the market issued in 2003.

IIICP 27 Fraud

There is insufficient information publicly available as to Finland's compliance with ICP 27 Fraud issued in 2003.

IIICP 28 Anti-money laundering/ Combating the Financing of Terrorism

According to the 2008 IMF Report on the Observance of Standards and Codes (ROSC) relating to the FATF Recommendations for AML/CFT, AML supervision in Finland’s banking and insurance sectors is effective; Finland also has a strong legal system for the fight against money laundering and terrorist financing. The 2008 ROSC notes that while Finland’s preventive system “addresses customer identification and other AML/CFT obligations and applies to a range of financial institutions and most of the designated non-financial businesses and professions (DNFBPs) as defined by the FATF” (p.3), Finland does not have in place customer due diligence (CDD) requirements regarding beneficial ownership or legal arrangements, and there are no provisions regarding politically exposed persons or corresponding banking relationships. The report, however, finds that “record keeping requirements are comprehensive and the suspicious transaction reporting (STR) requirement, while sound, can be strengthened” (p.3).

The 2007 FATF report observed that the insurance sector is generally effectively supervised and noted that the preventive system and other AML/CFT obligations, such as customer identification, due diligence, suspicious transaction reporting, and record keeping, applied to a wide range of financial institutions, including those in the insurance sector. The ISA supervised the AML/CFT compliance of all obliged parties under its supervision, viz., the life insurance companies, insurance brokers, and non-life insurance companies, in accordance with the Act on Preventing and Clearing Money Laundering. However, the report found that supervision in this sector is not risk-based as required by the revised FATF recommendations. Licensing procedures are sound, though fit and proper tests are not clearly spelled out. Ongoing AML/CFT supervision of the supervised entities "is carried out primarily as part of prudential oversight and as part of risk management, internal control and code of conduct supervision" (FATF 2007, p. 7). The guidance and standards issued by the ISA to supervised institutions on their AML/CFT compliance obligation are limited. The FATF report found that the ISA "had a relatively limited range of sanctions available" (p. 8) under the Act on Preventing and Clearing Money Laundering, although the entities supervised by it are subject to administrative penalties as well as criminal sanctions for AML/CFT non-compliance. The ISA was also observed to apply sanctions sparsely. The FATF report advised the ISA to strengthen off-site supervision as well as conduct more active AML/CFT focused onsite supervision and inspections.

As of January 1, 2009, the ISA was succeeded by a new authority called the Financial Supervisory Authority that came about as a result of a merger between the former FIN-FSA and the ISA.

The 2008 FIN-FSA annual report states that in August 2008, Finland passed and implemented a new Anti-Money Laundering Act on the Prevention and Investigation of Money Laundering. The report further states that the Act “enacted the EU’s third Money Laundering Directive in Finland and replaced the Act on Preventing and Clearing Money Laundering, reformed in 2003” (p.53). The new Act is to strengthen procedures to prevent money laundering and financing of terrorism, as well as customer due diligence. Per the 2008 report, “parties subject to the notification obligation may adapt their procedures concerning customer diligence to their operations based on the risks related to money laundering and financing of terrorism” (p.53). Moreover, the Act requires supervised entities to develop their own risk-management procedures by August 1, 2009, and have their risk-management framework related to both customer due diligence and their risk management.

Despite the above description, as of November 2009, there is no information publicly available as to whether supervised entities have developed their own risk-management framework and also as to Finland's compliance with ICP 28 Anti-Money Laundering and Combating the Financing of Terrorism, issued in 2003.