I INTRODUCTION

The Finnish banking sector is characterised by a strong presence of pan-Nordic banking groups in Finland coupled with robust local financial and banking groups as well as specialised institutions. Finland suffered a severe banking crisis between 1991 and 1994 that thoroughly reshaped the banking sector. Partly because of this experience and ensuing structural changes, Finnish banks were able to weather the global financial crises that began in 2008 more resiliently than some of their European peers.

Although the overall economic situation in Finland has been difficult in recent years, the Finnish economy returned to growth in 2016. However, economic growth is expected to remain slow in relation to previous cyclical upswings and the rest of the euro area due to structural problems in the economy and population ageing. The gradual recovery from recession was evidenced by the increase in employment in the private sector and the decline in the number of bankruptcies in 2016, which contributed to a low level of credit losses in Finnish banks. However, the continued low interest environment resulted in a decreased share of interest income in total income generation in banks, highlighting banks’ increasing dependency on other sources of income. The operating profits in the banking sector also decreased in 2016 compared to 2015.

The largest credit institutions in Finland measured by total assets as at 31 December 2016 are OP Financial Group (previously OP Pohjola Group, including 173 cooperative banks) with €133.7 billion, Municipality Finance Plc with €34.1 billion, Danske Bank Plc with €29.0 billion, Aktia Group with €9.5 billion and the Savings Bank Group with €10.4 billion.

Nordea Bank Finland Plc announced in early 2016 that the Nordea group was planning on reforming its legal structure with the intent to change the Finnish, Norwegian and Danish subsidiary banks into branches of its Swedish parent company, Nordea Bank AB (publ). The Nordic subsidiaries of the Nordea group were merged with the Swedish parent company on 2 January 2017. As a part of the reform process, a new mortgage credit institution, Nordea Mortgage Bank Plc, was established in Finland in October 2016 to continue the covered bonds operations of Nordea Bank Finland Plc.

The most significant trends in the financial markets in 2016 included the rise of digitalisation and the introduction of financial technology (FinTech) companies. Consequently, Finnish banks have taken steps to prepare for the digitalisation and new competition in the financial sector by developing new services and service channels as well as cooperating with FinTech companies.2 Furthermore, the Finnish Act on Crowdfunding3 took effect in 2016, establishing coherent ground rules for lending-based and investment-based crowdfunding and facilitating entry into the market. As a result, Finnish banks have participated in crowdfunding activities by establishing their own crowdfunding platforms or cooperating with existing crowdfunding platforms.

II THE REGULATORY REGIME APPLICABLE TO BANKS

The primary law governing credit institutions in Finland is the Act on Credit Institutions (ACI).4 The ACI entered into force in August 2014, replacing the previous act of the same name. One of the main objectives of the reform was to implement via the ACI the CRD IV Directive5 and the Capital Requirements Regulation (CRR)6 into Finnish legislation.

The ACI is generally applicable to all credit institutions. In addition, there are other laws on specific matters that are applicable to banks of particular forms. Deposit banks are categorised as commercial banks (banks in the form of a limited company), cooperative banks or savings banks, each of which are subject to their own specific regulation. As such, the regulatory framework in Finland consists of various laws governing specific forms of banking activities. The most important laws and regulations regarding banking activities in Finland are the following:

  • a the ACI, which governs, inter alia, the establishment and management of credit institutions. The definition of a credit institution comprises deposit banks and credit societies. As a general law applicable to all credit institutions, the ACI lays down the authorisation requirements for credit institutions, defines the business activities permitted for credit institutions and sets out the conduct of business rules for credit institutions. The ACI also contains provisions on capital adequacy and liquidity requirements;
  • b the Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company,7 which regulates the operations of commercial banks. This Act lays down provisions regarding, inter alia, the division, merger, liquidation and bankruptcy of commercial banks. The Companies Act,8 as a generally applicable law, governs the corporate aspects of commercial banks except as otherwise provided for in the Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company or in the ACI;
  • c the Act on Cooperative Banks and Other Credit Institutions in the Form of a Cooperative,9 which regulates the operations of cooperative banks. The Act lays down provisions regarding, inter alia, the division, merger, liquidation and bankruptcy of cooperative banks. The Cooperatives Act,10 as a generally applicable law, governs the corporate aspects of cooperative banks except as otherwise provided for in the Act on Cooperative Banks and Other Credit Institutions in the Form of a Cooperative or in the ACI. There are two cooperative bank groups operating in Finland: OP Financial Group and POP Bank Group. At the end of 2016, OP Financial Group was made up of 173 independent cooperative banks, while POP Bank Group consisted of 26 independent cooperative banks;
  • d the Act on Mortgage Banks11 and the Act on Mortgage Societies12 regulate the operations of mortgage banks and mortgage societies. Mortgage banks and mortgage societies are credit institutions that specialise in the financing of residential and commercial real estate. However, their role is not significant in the Finnish financing sector due to the strong position of deposit banks as providers of financing;
  • e the Savings Bank Act13 governs the operations of savings banks, which have the special purpose of promoting saving. At the end of 2016, there were 23 regional savings banks operating in Finland;
  • f the Deposit Banks Amalgamation Act (Amalgamations Act).14 An amalgamation of deposit banks comprises a cooperative central institution, the companies belonging to the central institution’s consolidation group, the member credit institutions and the companies belonging to the member credit institutions’ consolidation groups, as well as credit institutions, financial institutions and service companies in which the aforementioned institutions jointly hold more than half of the voting rights. Under the Amalgamations Act, a central institution is liable for the debts of its member credit institutions. Furthermore, the member credit institutions are jointly liable for each other’s debts. Pursuant to the Amalgamations Act, the aggregate amount and liquidity of the amalgamation’s own funds are monitored at the amalgamation level on a consolidated basis; and
  • g regulations and guidelines issued by the Finnish Financial Supervisory Authority (FIN-FSA).

As regards banking services provided by non-Finnish banks, the ACI sets out conditions under which non-Finnish credit institutions may provide their services in Finland. Credit institutions from countries belonging to the European Economic Area (EEA) may provide banking services in Finland either by establishing a branch or by providing services on a cross-border basis, provided that a notification is submitted to the FIN-FSA in accordance with the passporting regime available to EEA credit institutions. Credit institutions from non-EEA countries are not able to take advantage of the passporting regime available to EEA credit institutions and consequently, if a credit institution from a non-EEA country intends to provide its services in Finland, this must happen through a branch with prior authorisation from the FIN-FSA. The authorisation procedure for non-EEA credit institutions is comparable to the authorisation procedure applicable to Finnish credit institutions. At present, there are no authorisations for non-EEA credit institutions in force in Finland.

III PRUDENTIAL REGULATION

i Relationship with the prudential regulator

The FIN-FSA is responsible for the supervision of Finland’s financial sector. The objectives of the FIN-FSA’s activities are to enable balanced operations of credit institutions and other supervised entities as well as to foster public confidence in financial market operations. The FIN-FSA is further responsible for, inter alia, promoting compliance with good practice in the financial markets and disseminating general knowledge about the markets. These objectives and duties of the FIN-FSA have been included in the Act on the Financial Supervisory Authority,15 which sets forth a comprehensive list of the FIN-FSA’s duties and also delineates the supervisory powers of the FIN-FSA. While the FIN-FSA operates in connection with the Bank of Finland, it makes independent decisions in its supervisory work. In addition to its supervisory work, the FIN-FSA is the authority that grants authorisations needed by many financial market participants, such as credit institutions, investment firms, fund management companies and insurance companies.

When carrying out its supervisory duties, the FIN-FSA has considerable authority to obtain information from the entities under its supervision, regardless of any rules on confidentiality. Furthermore, the entities supervised by the FIN-FSA are required to regularly file various reports to the FIN-FSA, and the FIN-FSA uses the reported data to monitor the supervised entities’ economic standing and risks, as well as to analyse their profitability, capital adequacy, risks and business volumes.

The FIN-FSA may exercise various supervisory powers, such as imposing a temporary prohibition on a person holding a managerial position in a supervised entity or, in extreme circumstances, cancelling an authorisation granted to a supervised entity. Moreover, the FIN-FSA may impose administrative sanctions, including administrative fines, public warnings and penalty payments. By the entry into force of the new ACI, the sanctioning powers of the FIN-FSA were extended notably. In particular, the maximum amounts of penalty payments were increased significantly so that the maximum amounts of the penalty payments the FIN-FSA may impose for failures to comply with certain requirements of the ACI are now in correspondence with the maximum penalties provided for in the CRD IV Directive.

A significant change took place in the supervisory regime when the new single supervisory mechanism (SSM) commenced its operations in Europe in November 2014. The SSM is a system of financial supervision comprising the ECB and the competent national authorities of the participating EU countries. The legal basis for the SSM is Council Regulation (EU) No. 1024/2013. Within the SSM, the ECB will directly supervise significant credit institutions, and will have an indirect role in the supervision of less significant credit institutions, which continue to be supervised by their national supervisors in close cooperation with the ECB. At the time of writing, three Finnish credit institutions and groups (Danske Bank Plc, Municipality Finance Plc and OP Financial Group) have been classified as significant institutions, and they have been transferred to the direct supervision of the ECB.

The Act on the Financial Supervisory Authority contains specific provisions on supervision of foreign supervised entities and their branches in Finland, and on cooperation with foreign supervisory authorities.

ii Management of banks

The board of directors of a bank shall create a framework for the bank’s internal governance. To fulfil this, and other, of its tasks, the board may opt to create committees or other working groups that are tasked with assisting the board in fulfilling its duties. Day-to-day operations of the bank are the responsibility of the bank’s senior management, consisting of, for example, the managing director and members of the management group. It should be noted that while there is no legal requirement to have a management group, it is recommendable to create such a body to provide assistance to the bank’s managing director in the fulfilment of his or her duties.

In addition to the organisational requirements discussed above, a bank’s management must fulfil certain obligations (as set forth in the ACI and in the FIN-FSA’s regulations and guidelines) to manage the bank professionally and in a way that complies with sound business principles. All banks must maintain an effective risk-management system that seeks to manage and reduce risks to the bank’s liquidity and capital adequacy. The FIN-FSA’s supervision of banks’ corporate governance procedures takes particular note of certain items including, inter alia, the planning and management of a bank’s activities, the establishment of an internal audit function, the organisation of a bank’s activities in general (identification of conflicts of interest, storage of information, effective customer complaint procedures, etc.), as well as whether the bank maintains personnel sufficient for its operations, has created and follows a strategic business plan, and its operations are governed by sound professional and ethical standards.

Each credit institution is required to follow certain rules, pursuant to the ACI, which include a requirement to have a remuneration policy that is in line with the business strategy, objectives, values and long-term interests of the institution. Additionally, remuneration policies must be consistent with and promote sound and effective risk management, and must not encourage risk-taking that exceeds the level of tolerated risk of the institution. The rules of the ACI governing remuneration policies are in line with those of the CRD IV.

iii Regulatory capital and liquidity

Authorisation for a credit institution will be granted if the preconditions set out in the ACI are met. These include, inter alia, that the share capital, cooperative capital or basic capital must be at least €5 million and fully paid at the time of granting a licence, and that the credit institution must meet the capital requirements set out in the ACI.

The implementation of the CRD IV package introduced significant changes to the prudential regulatory regime applicable to Finnish credit institutions, including increased capital requirements, changes in the elements of own funds, as well as changes in the calculation of own fund requirements. The directly applicable CRR entered into force in Finland on 1 January 2014, whereas the requirements of the CRD IV were implemented in Finland through the ACI.

Due to the implementation of the CRD IV package, Finnish regulatory capital and liquidity requirements are determined in accordance with both the CRR and the ACI. Pursuant to the ACI, a credit institution must continuously hold the minimum amount of own funds and consolidated own funds specified in the CRR and Chapter 10 of the ACI. Under the ACI, the definition of own funds corresponds to the definition of own funds as set forth in the CRR.16 When calculating the required level of own funds for a Finnish credit institution, the calculation is carried out in accordance with both the CRR17 and the ACI.

Pursuant to the CRR, credit institutions must have a common equity Tier 1 capital ratio of at least 4.5 per cent, a Tier 1 capital ratio of 6 per cent and a total capital ratio of 8 per cent (each ratio expressed as a percentage of the total risk exposure amount). Furthermore, pursuant to the ACI, an additional capital conservation buffer of 2.5 per cent has been applicable from 1 January 2015 to all credit institutions. The FIN-FSA is also authorised to set a countercyclical buffer of zero to 2.5 per cent based on macroprudential analysis, although it has not imposed such a buffer so far. Both the additional capital conservation buffer and the countercyclical buffer (if imposed in the future) must be satisfied with common equity Tier 1 capital. Finally, there is an additional capital buffer requirement for ‘other systemically important institutions’ (O-SIIs) whose failure or other malfunction would be expected to jeopardise the stability of the national financial system. The O-SII buffer for credit institutions operating in Finland may be set at zero to 2 per cent of the total risk exposure amount and must also be satisfied with common equity Tier 1 capital. At the time of writing, the FIN-FSA has imposed additional capital requirements (O-SII buffers) on three Finnish credit institutions.18

The ACI also contains specific provisions on consolidated supervision of banking groups, including provisions on the calculation of own funds on a consolidated basis, consistent with the CRR and the CRD IV.

The FIN-FSA has issued further national instructions on the calculation of capital requirements and large exposures. These instructions are related to the national application of the CRR and contain, inter alia, the FIN-FSA’s guidelines on the categorisation of various Finnish capital instruments into common equity Tier 1, additional Tier 1 or Tier 2 instruments for the purposes of satisfying the own funds requirements imposed by the CRR and the ACI.

As regards liquidity requirements, Finnish credit institutions must comply with the liquidity requirements set forth in the CRR and as further specified by the Commission Delegated Regulation.19

iv Recovery and resolution

Directive 2014/59/EU, providing for the establishment of a European-wide framework for the recovery and resolution of credit institutions and investment firms (BRRD), entered into force on 2 July 2014. EU Member States were to adopt and publish the implementing regulations to comply with the BRRD by 31 December 2014. In addition, the EU has adopted a directly applicable regulation governing the resolution of the most significant financial institutions in the eurozone (i.e., a regulation establishing a Single Resolution Mechanism Regulation (SRM Regulation)).20

In Finland, the BRRD was implemented mainly through two new acts: the Act on Resolution of Credit Institutions and Investment Firms (Resolution Act)21 and the Act on the Financial Stability Authority.22 The latter regulates the Finnish Financial Stability Authority (Stability Authority), which is the Finnish national resolution authority, and which is responsible for the resolution of credit institutions and investment firms in Finland. Among its key tasks, the Stability Authority draws up resolution plans for institutions, decides whether a failing institution is to be placed under resolution and applies the necessary resolution tools to an institution under resolution. The implementation of the BRRD also involved amendments to dozens of existing acts, most notably to the ACI, and the repeal of the Act on the Temporary Bank Levy and of the Act on the Government Guarantee Fund.

Under the new regime, credit institutions are generally required to draw up recovery plans to secure the continuation of their business in the event of financial distress. These plans must include options for measures to restore the financial viability of the institution and they must be updated annually. The plans must be submitted to the scrutiny of the FIN-FSA.

In the context of the new legislation, the FIN-FSA has been empowered to apply early intervention tools to banks and investment firms. These tools may be used if the FIN-FSA has solid reasons to believe that the institution will fail its licensing conditions, liabilities or obligations under the capital adequacy regulations within the next 12-month period. The early intervention tools include, inter alia, the right of the FIN-FSA to require the bank’s management to implement measures included in the recovery plan, to convene a general meeting of shareholders for the purpose of taking necessary decisions for the recovery, to require the removal of members of the bank’s management, and to require changes to the legal and financial structure of the institution.

Pursuant to the Resolution Act, the Stability Authority shall set up and maintain a resolution plan for each institution. The resolution plan must be ready for execution in the event that the institution needs to be placed in a resolution process.

The Resolution Act vests the Stability Authority with resolution powers and tools as provided in the BRRD. If the Stability Authority considers that an institution is failing or likely to fail, and that there is no reasonable prospect that any private or early intervention measures or write-down of capital instruments would prevent the failure, and further that resolution is necessary in the public interest, the Stability Authority is empowered to declare and initiate a resolution process in respect of the institution.

During such a process, the institution could be subject to the exercise of a number of resolution tools: mandatory write-down of debts or conversion of debts into equity (bail-in), sale of business, bridge institution and asset separation. To continue the operations of the institution, the Stability Authority has the power to decide upon covering the losses of the institution by reducing the value of the institution’s share capital or cancelling its shares.

The SRM Regulation has established a pan-European resolution authority, the Single Resolution Board (SRB). The SRB has been fully operational, with a complete set of resolution powers, since January 2016. The resolution powers of the SRB have replaced the resolution powers of the Stability Authority in respect of the Finnish institutions that are subject to the SRM Regulation.23

As part of the single resolution mechanism, a new Single Resolution Fund (SRF) managed by the SRB commenced operations in January 2016. Finnish credit institutions must pay annual contributions to the SRF. The amount of the contributions shall be determined in accordance with the SRM Regulation.

IV CONDUCT OF BUSINESS

The ACI sets out the conduct of business rules for banks, and lays down provisions on civil and criminal liability for breaching such rules.

As regards the activities banks may engage in, all credit institutions may provide various financing services (such as lending, leasing or factoring) as well as other services covered by their licence, but only deposit banks are entitled to accept deposits from the public. The regulation concerning payment accounts with basic features was amended through the adoption of the Payment Accounts Directive24 (PAD) via the ACI on 1 January 2017. Pursuant to the ACI, customers are always entitled to certain basic banking services as a result of which deposit banks may only refuse to open a payment account with basic features and to offer payment services relating to such payment account for weighty reasons, such as non-compliance by the customer with anti-money laundering obligations. Following the implementation of the PAD, online banking credentials are also considered as part of basic banking services, and banks may no longer refuse to offer online banking credentials to for example, customers with a bad credit history.

With the entry into force of the ACI in 2014, certain new conduct of business obligations were introduced in the legislation. Such obligations include the obligation of banks to comply with good banking practice, the content of which obligation is likely to evolve in the future. Furthermore, a binding maximum loan-to-value (LTV) ratio for housing loans was introduced in the legislation. The binding maximum LTV ratio, as well as the FIN-FSA’s power to tighten this ratio, entered into force on 1 July 2016. In November 2015, the FIN-FSA issued specific guidelines on the calculation of the LTV ratio to harmonise the LTV concept in the market of housing loans for personal customers. Foreign (non-Finnish) credit institutions providing services in Finland must also comply with these guidelines.

The ACI also provides banks’ clients with extensive protection as regards banking secrecy. In practice, banking secrecy rules are generally strictly applied in Finland, although there are certain notable statutory exemptions to the banking secrecy obligations, including the ability to provide information within the same group of companies for certain purposes as well as the right of certain authorities to obtain information.

Due to the enactment of the ACI, the legislation now contains express provisions requiring non-Finnish credit institutions to comply with the conduct of business obligations set forth in the ACI when offering banking services in Finland, irrespective of whether these services are offered through a Finnish branch or on a cross-border basis.

The ACI contains provisions on both civil and criminal liability, although breaches of certain provisions of the ACI are governed by the Finnish Penal Code. Under the ACI, civil liability for damage caused due to wilful misconduct or negligence when performing their duties extends to the founder of a credit institution, the members of its supervisory board and board of directors, as well as the credit institution’s managing director.

V FUNDING

The main source of funding for banks operating in Finland is deposits. The banks fill the funding gap between lending to customers and accepting deposits by issuing bonds mainly to international wholesale capital markets. The market demand for the bond issuances of Finnish banks has remained satisfactory. The market has seen the introduction of CRR-compliant additional Tier 1 and Tier 2 instruments. As part of the new CRR regime, banks need to consider the capital adequacy treatment of each of the instruments. Being cautious about any possible strings attached, the Finnish banks have not resorted to ECB special funding facilities to any significant extent.

VI CONTROL OF BANKS AND TRANSFERS OF BANKING BUSINESS

i Control regime

Prior notification to the FIN-FSA is required when acquiring shares or interests, either directly or indirectly, in a credit institution and thereby establishing a qualifying holding (i.e., at least 10 per cent of the shares or comparable other capital of the credit institution, or at least 10 per cent of the voting rights or other holding entitling the holder to exercise similarly significant influence in the credit institution).

The FIN-FSA must also be similarly notified if the holding in a credit institution is increased so that the proportion of the share or comparable other capital or voting rights held reaches or falls below any of the thresholds of 20, 30 or 50 per cent of the same, or results in the credit institution becoming or ceasing to be a subsidiary of the acquirer. The same notification requirements apply where an acquirer is party to an agreement or other arrangement that, if or when effected, will result in the acquirer’s holding reaching, exceeding or falling below one of the above thresholds.

The names of the owners of holdings referred to above, as well as the sizes of such holdings, must be notified by the credit institution or its financial holding company to the FIN-FSA at least once a year, and any changes in the ownership of such holdings that have come to its notice must immediately be notified by the credit institution or its financial holding company.

The FIN-FSA may, within 60 business days of receipt of the notification, object to the acquisition of the holding if the holding would endanger the business operations of the credit institutions being carried out in accordance with prudent and sound business principles, and the endangerment is grounded on a breach of additional approval criteria.

The FIN-FSA may prohibit the exercise of voting rights in the credit institution by the acquirer for periods of one year at a time where an acquisition violated the acceptance criteria of the FIN-FSA’s opposition or is not duly notified to the FIN-FSA, resulting in, inter alia, the suspension of all the rights related to shares or participations in a credit institution other than the right to profit.

ii Transfers of banking business

The Act on Commercial Banks and Other Credit Institutions in the Form of a Limited Company contains provisions on mergers, demergers and transfers of business of a credit institution operating in the form of a limited liability company. Corresponding transfers of business provisions are also included in the Savings Bank Act and in the Act on Cooperative Banks and Other Credit Institutions in the Form of a Cooperative, which means that savings banks and cooperative banks are also able to transfer business to another credit institution in accordance with the special regime. The provisions require, inter alia, a merger, demerger or transfer plan to be prepared, and public summons to be given to the creditors of the bank, except for its depositors.

Creditors, excluding depositors, are entitled to object to the arrangement usually within a three to four-month period from the date of the public summons. If the prompt completion of the arrangement is considered necessary by the FIN-FSA to safeguard the stable operation of a credit institution, the arrangement can be executed despite any objections by creditors whose position will not be, in the FIN-FSA’s opinion, jeopardised by the arrangement.

Creditors who have objected to the arrangement under any other circumstance must give their consent and receive payment or be granted a security for their claims before the completion of the arrangement. Even though they are not considered creditors, banks’ depositors must be informed of the arrangement. Depositors whose deposit would be excluded from the deposit guarantee in full or in part are entitled to terminate their deposits.

The FIN-FSA must be informed of the arrangement before the public summons is applied for, and also informed in due course of creditors’ potential objections. The FIN-FSA has an individual right to object to the arrangement in the event that the receiving party will not need to apply for a new authorisation and the FIN-FSA considers that the arrangement endangers the fulfilment of the conditions for the bank’s authorisation.

VII THE YEAR IN REVIEW

With regard to the regulation of the Finnish banking sector, there were no significant changes or reforms in 2016. Regulation on the maximum LTV ratio entered into force at the beginning of July 2016 with the aim of restraining growth in household indebtedness. The regulation concerning basic banking services was also amended through the adoption of the PAD. In addition, a working group led by the Ministry of Justice started preparing legislative changes to the Finnish Payment Services Act (PSA)25 to implement the revised Directive (EU) 2015/2366 on payment services in the Internal Market (PSD II). Through the adoption of the PSD II, the scope of application of the PSA will be extended by bringing new types of payment services within the scope of regulation and supervision.

In November 2016, the government submitted a bill for a new act on the prevention of money laundering and terrorist financing to the Parliament to implement the fourth Anti-Money Laundering Directive.26

The operating profits in the banking sector decreased in 2016 compared to 2015. Further, the share of interest income in the total income generation in banks decreased owing to the continued low interest environment. However, impairment losses and credit losses of Finnish banks remained low, and the capital adequacy of the Finnish banking sector continues to be strong.

As regards structural changes in the banking industry, one of the most significant news stories of the year was the announcement by Nordea Bank Finland Plc that the Nordea group is currently working on reforming its legal structure with the intent to change its Finnish, Norwegian and Danish subsidiary banks into branches of its Swedish parent company. The Nordic subsidiaries of the Nordea group were merged with the Swedish parent company on 2 January 2017. As regards Finland, this means that the largest Finnish commercial bank and a significant supervised entity subject to the SSM and the ECB’s direct supervision became a branch of a Swedish bank and subject to the prudential supervision of the Swedish regulator, Finansinspektionen. Consequently, the merger affected the supervisory environment of the FIN-FSA. In addition, the aggregate balance sheet of the Finnish banks decreased significantly, totalling €435 billion in January 2017, which was €111 billion less than in December 2016 and €152 billion less than in November 2016.

VIII OUTLOOK AND CONCLUSIONS

The rise of digitalisation and the introduction of new FinTech entities is reforming the financial sector and increasing competition. A strict regulatory environment has encouraged traditional market participants to save costs through automation, while digitalisation has attracted new entities to enter the financial market. As a result, Finnish banks have taken steps to prepare for new competition by developing new services and service channels as well as cooperating with FinTech companies and crowdfunding platforms. In addition, some banks have expanded their business beyond traditional banking and diversified into, inter alia, the health and welfare business.

Despite a difficult operating environment, the profitability of the Finnish banking sector has remained relatively good. The capital adequacy of the Finnish banking sector is also strong, clearly exceeding the requirements imposed by the CRD IV regime. However, the slow growth of the economy and the current low level of interest rates are placing a strain on Finnish banks. Consequently, banks have continued to reinvent their business models and strived to strengthen their ability to compete by undertaking structural reorganisations. These structural changes are likely to continue.

1 Janne Lauha is a partner and Hannu Huotilainen and Viola Valtanen are associates at Castrén & Snellman Attorneys Ltd.

2 Source: Digitalisation survey conducted by the Finnish Financial Supervisory Authority, published on 11 October 2016.

3 734/2016.

4 610/2014.

5 2013/36/EU.

6 575/2013.

7 1501/2001.

8 624/2006.

9 423/2013.

10 421/2013.

11 688/2010.

12 936/1978.

13 1502/2001.

14 599/2010.

15 878/2008.

16 Article 4(1)(118) of the CRR.

17 Article 92(3) of the CRR.

18 These credit institutions are OP Financial Group, Danske Bank Plc and Municipality Finance Plc.

19 (EU) 2015/61.

20 806/2014.

21 1194/2014.

22 1195/2014.

23 OP Financial Group, Danske Bank Plc and Municipality Finance Plc.

24 2014/92/EU.

25 290/2010.

26 EU 2015/849.