Prerequisites for the provision of investment services
GENERAL
Business activities involving the provision of investment services are subject to the Investment Services Act. Under the Investment Services Act, the provision of investment services is subject to authorisation granted for specifically defined investment services (such as asset management) and ancillary services (such as custody). The FIN-FSA grants authorisations on application to investment firms domiciled in Finland where it can be ascertained, based on accounts obtained, that the applicant meets the requirements for authorisation. The prerequisites are related widely to the organisation of the firm’s activities, code of conduct with the customer as well as financial position.
Persons discharging managerial responsibilities in an investment firm are required to have appropriate expertise and experience as well as familiarity with an extensive set of regulation found here.
APPLICATION PROCESS
Before submission of an application for authorisation
Before submitting an application for authorisation, we request you to send a business plan covering your anticipated activities and indicating the investment services and ancillary services to be provided, the investment activities as well as an organisation chart and a description of the sector-specific experience of the key personnel. The plan is to be submitted to the FIN-FSA’s registry.
Based on the plan, the FIN-FSA will make a preliminary assessment of the planned operation and provide additional guidance on the process of applying for authorisation.
The applicant must be well versed in regulation concerning the provision of investment services and, consult an expert in financial law in preparing the business plan and application for authorisation.
Handling process of the application for authorisation and its schedule
The form for an application for authorisation is available in Finnish and Swedish on the FIN-FSA website. The requirements for the accounts to be appended to an application for authorisation are laid down in the Ministry of Finance Decree (234/2014) and Commission Delegated Regulation (EU) No 2017/1943.
The processing of an application for authorisation begins when the application and its appendices have been submitted to the FIN-FSA’s registry. If the application is deficient, the FIN-FSA will request the applicant to supplement the application and to provide the requisite documents and accounts. Requests for supplementation will lengthen the processing time. Typically, the processing of an application until decision making takes approximately 6 to 8 months. A decision on the authorisation shall, however, be made within 12 months of receipt of the application.
KEY PREREQUISITES FOR AUTHORISATION
Content and scope of authorisation
The authorisation is sought for the provision of investment services or the performance of investment activities as defined in chapter 1, section 15 of the Investment Services Act and ancillary services as referred to in chapter 2, section 3 of the Investment Services Act. The requirements for authorisation and for the accounts to be submitted may partly depend on the investment services and ancillary services for the provision of which authorisation is being sought.
Place of business and personnel resources
The investment firm must have at least one permanent place of business located in Finland. The activities of the firm must be effectively directed by at least two persons meeting the requirements of the law. In practice, the firm needs even more personnel resources in order to comply with all regulatory requirements.
Reliability of the owners of the firm
The granting of authorisation is contingent on the founder and shareholders of the investment firm being reliable. The requirement of reliability concerns shareholders owning at least 10% of the shares in the investment firm or a participation producing at least 10% of the voting rights carried by its shares. Being sentenced for a crime within the five years preceding the assessment constitutes an obstacle to granting an authorisation.
Reliability of the management of the firm
The activities of the investment firm must be effectively directed by at least two persons meeting the requirements of the law. Any member of the management of the investment firm must be a fit and proper person of good repute who is not bankrupt or subject to business prohibition and whose eligibility has not been restricted otherwise. In addition, the members of the management of the investment firm must have such expertise and experience in the business, key risks and management of an investment firm as is necessary with regard to their tasks and the nature, extent and diversity of the activities of the firm. The firm’s board of directors must have at least one member who is independent of the shareholders and the business.
The investment firm must also have personnel independent of its business who can be responsible for the internal control of the firm (the compliance function, risk management function and internal audit). The persons responsible for these functions must also be reliable and of good repute have appropriate expertise and experience for the performance of these duties.
See also fit & proper supervision on the FIN-FSA website.
Initial capital and financial prerequisites
The initial capital of an investment firm is €750,000, €150,000 or €75,000 depending on the investment services and investment activities covered by its authorisation. More detailed provisions on the initial capital are laid down in chapter 6 of the Investment Services Act.
The Investment Firms Regulation sets the minimum prudential capital requirements for investment firms, which must be met by all applicants for authorisation.
Organisation of activities and code of conduct
Chapter 7 of the Investment Services Act includes provisions on the organisation of the activities and chapter 10 includes provisions on the code of conduct to be observed in a client relationship. The activities of the investment firm must be arranged in a reliable manner, taking into account the nature and extent of its business. The investment firm must take appropriate actions to ensure the management of risks related to its operation, the effectiveness of internal control and the continuity of its operation under any circumstances. Applicants for authorisation are required to provide accounts of their internal policies and guidelines describing, among other things, how the following matters have been organised reliably:
- Potential outsourcing of activities
- Product governance procedures
- Management of conflicts of interests
- Insider register
- Categorisation of clients and client contract
- Code of conduct in marketing
- Code of conduct in suitability and/or appropriateness assessment
- Investment firm’s disclosure obligation
- Sustainability-related disclosures
- Inducements
- Best execution of orders
- Handling of orders
- Reporting to customers
- Information retained on business activities and services
- Implementation of record-keeping obligations
- Handling of customer complaints and information on a body issuing recommendations for settlement
Custody of client assets
The investment firm must hold client assets in custody in a reliable manner so that there is no risk of commingling them with the investment firms’ own assets or those of another client.
Information systems, information security and contingency planning
In granting an authorisation, the FIN-FSA will assess whether the applicant’s information systems, information security and procedures, plans and guidelines concerning contingency planning can be considered adequate with a view to the extent of the operation.
Membership of the Investors' Compensation Fund
In order to safeguard investors’ assets and claims on financial instruments, the investment firm must be a member of the Investors’ Compensation Fund. The requirement of membership does not apply to an investment firm which offers investment service consisting solely of the transmission of orders, provision of investment advice or arrangement of multilateral trading, and which does not hold or manage client assets.
Procedures concerning market abuse
The investment firm must have in place effective arrangements, systems and procedures to detect and report suspicious orders and transactions as regulated (market abuse regulation, MAR). More detailed provisions on this obligation are laid down in Commission Delegated Regulation (EU) No 2016/957.
Transaction reporting
In accordance with Article 26 of the MiFIR regulation, complete and accurate details of transactions in financial instruments shall be reported to the competent authority no later than the close of the following working day. The obligation applies to investment service providers which execute transactions in financial instruments and/or receive and transmit orders to other investment service providers for execution. See also Delegated Regulation (2017/590) with regard to regulatory technical standards for the reporting of transactions to competent authorities.
Obligation to know your customer
In accordance with chapter 12, section 3 of the Investment Services Act, the investment firm shall conduct customer due diligence, and also know the customer’s beneficial owner and any person acting on behalf of the customer. Hence, the investment firm shall have in place adequate risk-management procedures whereby they can assess the customer-based risks to their operations. Customer due diligence is governed by the provisions of the Act on Preventing Money Laundering and Terrorist Financing (444/2017).