The International

Capital Markets Review

Law Business Research

Third Edition

Editor

Jeffrey Golden

The International Capital Markets Review

Reproduced with permission from Law Business Research Ltd.

This article was first published in The International Capital Markets Review, 3rd edition(published in November 2013 – editor Jeffrey Golden).

For further information please emailAdam.Sargent@lbresearch.com

The International

Capital Markets Review

Third Edition

EditorJeffrey Golden

Law Business Research Ltd

ThE MERGERs and acquisiTions REviEw

ThE REsTRucTuRinG REviEw

ThE PRivaTE coMPETiTion EnfoRcEMEnT REviEw

ThE disPuTE REsoLuTion REviEw

ThE EMPLoyMEnT Law REviEw

ThE PuBLic coMPETiTion EnfoRcEMEnT REviEw

ThE BankinG REGuLaTion REviEw

ThE inTERnaTionaL aRBiTRaTion REviEw

ThE MERGER conTRoL REviEw

ThE TEchnoLoGy, MEdia and TELEcoMMunicaTions REviEw

ThE inwaRd invEsTMEnT and inTERnaTionaL TaxaTion REviEw

ThE coRPoRaTE GovERnancE REviEw

ThE coRPoRaTE iMMiGRaTion REviEw

ThE inTERnaTionaL invEsTiGaTions REviEw

ThE PRoJEcTs and consTRucTion REviEw

ThE inTERnaTionaL caPiTaL MaRkETs REviEw

ThE REaL EsTaTE Law REviEw

ThE PRivaTE EquiTy REviEw

The Law RevIews

www.TheLawReviews.co.uk

ThE EnERGy REGuLaTion and MaRkETs REviEw

ThE inTELLEcTuaL PRoPERTy REviEw

ThE assET ManaGEMEnT REviEw

ThE PRivaTE wEaLTh and PRivaTE cLiEnT REviEw

ThE MininG Law REviEw

ThE ExEcuTivE REMunERaTion REviEw

ThE anTi-BRiBERy and anTi-coRRuPTion REviEw

ThE caRTELs and LEniEncy REviEw

ThE Tax disPuTEs and LiTiGaTion REviEw

ThE LifE sciEncEs Law REviEw

ThE insuRancE and REinsuRancE Law REviEw

ThE GovERnMEnT PRocuREMEnT REviEw

ThE doMinancE and MonoPoLiEs REviEw

ThE aviaTion Law REviEw

ThE foREiGn invEsTMEnT REGuLaTion REviEw

ThE assET TRacinG and REcovERy REviEw

ThE inTERnaTionaL insoLvEncy REviEw

PuBLishER Gideon Roberton

BusinEss dEvELoPMEnT ManaGERs adam sargent, nick Barette

MaRkETinG ManaGERs katherine Jablonowska, Thomas Lee, James spearing, felicity Bown

PuBLishinG assisTanT Lucy Brewer

MaRkETinG assisTanT chloe Mclauchlan

PRoducTion cooRdinaToR Lydia Gerges

hEad of EdiToRiaL PRoducTion adam Myers

PRoducTion EdiToR Robbie kelly

suBEdiToR caroline Rawson

EdiToR-in-chiEf callum campbell

ManaGinG diREcToR Richard davey

Published in the united kingdom by Law Business Research Ltd, London

87 Lancaster Road, London, w11 1qq, uk© 2013 Law Business Research Ltd

www.TheLawReviews.co.uk no photocopying: copyright licences do not apply.

The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients.

Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. although the information provided is accurate as of october 2013,

be advised that this is a developing area.Enquiries concerning reproduction should be sent to Law Business Research, at the

address above. Enquiries concerning editorial content should be directed to the Publisher – gideon.roberton@lbresearch.com

isBn 978-1-907606-88-5

Printed in Great Britain by Encompass Print solutions, derbyshire

Tel: 0844 2480 112

i

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

afRidi & anGELL LEGaL consuLTanTs

aLLEn & ovERy

aTToRnEys aT Law BoREnius LTd

BBh, advokÁTnÍ kancELÁŘ, v.o.s.

davis PoLk & waRdwELL London LLP

dE PaRdiEu BRocas MaffEi

Ens (EdwaRd naThan sonnEnBERGs)

fEnxun PaRTnERs

Gaikokuho kyodo-JiGyo hoRiTsu JiMusho LinkLaTERs

JuRis coRP

kELLERhaLs aTToRnEys aT Law

kiM & chanG

kinG & wood MaLLEsons

LoyEns & LoEff nv

MakEs & PaRTnERs Law fiRM

MaPLEs and caLdER

Mkono & co advocaTEs

MonasTyRsky, ZyuBa, sTEPanov & PaRTnERs

aCknowLedgeMenTs

Acknowledgements

ii

oPPEnhoff & PaRTnER

Paksoy

PLEsnER

RussELL McvEaGh

sidLEy ausTin LLP

syciP saLaZaR hERnandEZ & GaTMaiTan

uGhi E nunZianTE sTudio LEGaLE

uLhôa canTo, REZEndE E GuERRa advoGados

uRÍa MEnéndEZ aBoGados, sLP

iii

Editor’s Prefaces ..................................................................................................viiJeffrey Golden

Chapter 1 ausTRaLia ...............................................................................1Greg Hammond and Rowan Russell

Chapter 2 BELGiuM ................................................................................20Sylvia Kierszenbaum and Willem Van de Wiele

Chapter 3 BRaZiL ....................................................................................35Marcelo Maria Santos and Denis Morelli

Chapter 4 china .....................................................................................47Xusheng Yang

Chapter 5 cZEch REPuBLic ................................................................61Tomáš Sedláček and Zdeněk Husták

Chapter 6 dEnMaRk ..............................................................................68Emil Deleuran, Henrik Laursen, Jef Nymand Hounsgaard and Catherine Tholstrup

Chapter 7 Eu ovERviEw .......................................................................83Oliver Kessler and Stefanie Zugelder

Chapter 8 finLand ................................................................................95Ari-Pekka Saanio

Chapter 9 fRancE ................................................................................104Antoine Maffei and Olivier Hubert

ConTenTs

iv

Contents

Chapter 10 GERMany ............................................................................129Kai A Schaffelhuber

Chapter 11 hunGaRy ............................................................................140Norbert Hete and Tamás Kubassek

Chapter 12 india ....................................................................................149Sonali Sharma and Veena Sivaramakrishnan

Chapter 13 indonEsia ..........................................................................157Yozua Makes

Chapter 14 iRELand...............................................................................169Nollaig Murphy

Chapter 15 iTaLy .....................................................................................184Marcello Gioscia and Gianluigi Pugliese

Chapter 16 JaPan ....................................................................................197Akihiro Wani and Reiko Omachi

Chapter 17 koREa ...................................................................................210Bo Yong Ahn, Hyun Soo Doh and Wooyoung Cho

Chapter 18 LuxEMBouRG ....................................................................223Frank Mausen and Henri Wagner

Chapter 19 nEThERLands ..................................................................243Mariëtte van ’t Westeinde and Martijn Schoonewille

Chapter 20 nEw ZEaLand ...................................................................257Deemple Budhia and John-Paul Rice

Chapter 21 PhiLiPPinEs ........................................................................271Maria Teresa D Mercado-Ferrer, Ronald P De Vera and Carlos Manuel S Prado

v

Contents

Chapter 22 Poland �������������������������������������������������������������������������������284Piotr Lesiński

Chapter 23 Russia �����������������������������������������������������������������������������������293Vladimir Khrenov

Chapter 24 south afRica �������������������������������������������������������������������309Clinton van Loggerenberg and Stephen von Schirnding

Chapter 25 sPain �������������������������������������������������������������������������������������321David García-Ochoa Mayor and Daniel Pedro Valcarce Fernández

Chapter 26 switzeRland �������������������������������������������������������������������333Thomas Bähler and Anna-Antonina Gottret

Chapter 27 tanzania ����������������������������������������������������������������������������344Kamanga W Kapinga and Anayaty Tahir

Chapter 28 tuRkey ��������������������������������������������������������������������������������351Ömer Çollak and Ökkeş Şahan

Chapter 29 united aRab emiRates �������������������������������������������������363Gregory J Mayew

Chapter 30 united kingdom �����������������������������������������������������������373Will Pearce, Jonathan Cooklin, Richard Small, Dan Hirschovits and Dominic Foulkes

Chapter 31 united states �����������������������������������������������������������������391Bart Capeci

Appendix 1 about the authoRs �����������������������������������������������������407

Appendix 2 contRibuting law fiRms’ contact details ���425

vii

Editor’s PrEfacE totHE tHird EditioN

As I write the preface to this third edition of The International Capital Markets Review, my morning newspaper reports that one of the major global banks, having shrunk its workforce by more than 40,000 employees over the past two years, will now embark on a hiring spree to add at least 3,000 additional compliance officers.

It would be nice if the creation of these new jobs evidenced new confidence that capital markets activity is on the rise in a way that will justify more hands on deck. In other words, capital markets lawyers will have something to celebrate if this bolstering of the ranks was thought necessary to ensure that requisite regulatory approvals and transactional paperwork would be in place for a projected expansion in deal flow.

And, indeed, my morning newspaper also reports a  new transaction of some significance, namely, Twitter’s filing for a  multi-billion dollar international public offering, accompanied by a tweet, of course – but with a true sign-of-the-times disclosure: ‘This Tweet does not constitute an offer of any securities for sale’!

Yes, confirmation of an uptick in deal flow – especially ‘big deals’ flow – would be nice. In the preface to the last edition of this work, I speculated that there were ‘signs that any ‘big freeze’ on post-crisis capital markets transactional work may be thawing’. All the better if the current newspaper reports provide continued and further support for that inference. After all, when our first edition appeared a little over two years ago, the newspapers were saying terrible things about the capital markets.

What is more likely, however, is that this increased staffing aims to cope with regulatory complexity that will now impact the financial markets regardless of any growth and perhaps may even have been designed to slow down the business being done there. That complexity, but also just the scale of recently promulgated new regulation and the practitioner’s resulting challenge in ‘keeping up’ have all encouraged this new third edition. The 8,843 pages of Dodd-Frank rule-making that I reported in my preface to the last edition have now grown to more than 14,000 pages at this time of writing – and approximately 60 per cent of the job remains unfinished. Other key jurisdictions have been catching up. Plus the rules are purposive and aim to change the way things have been done. If compliance and even ethics in the capital markets were ever instinctual, rather than matters to be taught and studied, that is probably a thing of the past.

Editor’s Preface to the Third Edition

viii

The thickness of this volume has grown as well because of the increased number of pages and coverage in it. Nine new contributors (Finland, Indonesia, Italy, the Netherlands, the Philippines, Spain, Switzerland, Tanzania and the UAE) and an overview of EU Directives have been added. Banks are lending less to corporates, which in turn are having to issue more to meet liquidity needs. Moreover, with the low interest rate environment of quantitative easing, central banks are encouraging risk-taking rather than hoarding. For investors, risk-free assets have become very expensive. So we see a growing willingness to get off the traditional highway in search of yield. Investment banks are, as a result, often taking their clients (and their clients’ regular outside counsel) to difficult, or at least less well-known, geographies.

Having a  pool of country experts and jurisdictional surveys that facilitate comparative law analysis can be very helpful in this instance. That is exactly what this volume aims to provide: a ‘virtual’ legal network and global road map to help the reader navigate varying, and increasingly difficult, terrain to arrive at right places.

There has been much relevant change in the legal landscape surveyed in the pages that follow. However, what has not changed is our criteria for authors. The invitation to contribute continues to go to ‘first in class’ capital market specialists from leading law firms. I shall be glad if, as a result, the biographical notes and contact details of the contributing firms prove a useful resource as well.

The International Capital Markets Review is not a novel. Impressed I might be, but I would certainly also be surprised by anyone picking up and reading this volume from cover to cover. What I expect instead, and what is certainly the publisher’s intention, is that this work will prove a valuable resource on your shelf. And I hope that you will have plenty of opportunities to take it off the shelf and lots of excuses to draw on the comparative jurisdictional wisdom it offers.

Let me again express my sincere gratitude to our authors for their commitment to the task and their contributions. It remains a privilege to serve as their editor and a source of great pride to keep their company in the pages of this book.

Jeffrey GoldenP.R.I.M.E. Finance FoundationThe HagueOctober 2013

ix

Editor’s PrEfacE totHE sEcoNd EditioN

It was my thought that we should also include in this second edition of The International Capital Markets Review my preface to the first edition. Written less than a year ago, it captures relevant background and sets out the rationale for this volume in the series. The contemporary importance of the global capital marketplace (and indeed you must again admire its resilience), the staggering volume of trading and the complexity of the products offered in it, and the increased scrutiny being given to such activity by the courts all continue. And, of course, so does the role of the individual – the difference that an informed practitioner can make in the mix, and the risk that follows from not staying up to date.

However, I was delighted, following the interest generated by our first edition, by the publisher’s decision to bring out a second edition so quickly and to expand it. There were several reasons for this. The picture on the regulatory front is much clearer for practitioners than it was a year ago – but no less daunting. According to one recent commentary, in the United States alone, rule-making under the Dodd-Frank report has seen 848 pages of statutory text (which we had before us when the first edition appeared) expand to 8,843 pages of regulation, with only 30 per cent of the required regulation thus far achieved. Incomplete though the picture may look, the timing seems right to take a gulp of what we have got rather than wait for what may be a very long time and perhaps then only to choke on what may be more than any one person can swallow in one go! Regulatory debate and reform in Europe and affecting other key financial centres has been similarly dramatic. Moreover, these are no longer matters of interest to local law practitioners only. Indeed, the extraterritorial reach of the new financial rules in the United States has risen to a global level of attention and has been the stuff of newspaper headlines at the time of writing.

There are also signs that any ‘big freeze’ on post-crisis capital markets transactional work may be thawing. In the debt markets, the search for yield continues. Equities are seen as a potential form of protection in the face of growing concerns about inflation. Participants are coming off the sidelines. Parties can be found to be taking risks. They are not oblivious to risk. They are taking risks grudgingly. But they are taking them. And derivatives (also covered in this volume) are seen as a relevant tool for managing that risk.

x

Editor’s Preface to the Second Edition

Most importantly, it is a big world, and international capital markets work hugs a  bigger chunk of it than do most practice areas. By expanding our coverage in this second edition to include six new jurisdictions, we also, by virtue of three of them, complete our coverage of the important BRIC countries with the addition of reporting from Brazil, Russia and China. Three other important pieces to the international capital markets puzzle – Belgium, the Czech Republic and New Zealand – also fall into place.

The picture now on offer in these pages is therefore more complete. None of the 24 jurisdictions now surveyed has a monopoly on market innovation, the risks associated with it or the attempts to regulate it. In light of this, international practitioners benefit from this access to a  comparative view of relevant law and practice. Providing that benefit – offering sophisticated business-focused analysis of key legal issues in the most significant jurisdictions – remains the inspiration for this volume.

As part of the wider regulatory debate, there have been calls to curtail risk-taking and even innovation itself. This wishful thinking seems to miss the point that, if they are not human rights, risk-taking and innovation are hardwired into human nature. More logical would be to keep up, think laterally from the collective experience of others, learn from the attention given to key issues by the courts (and from our mistakes) and ‘cherry-pick’ best practices wherever these can be identified and demonstrated to be effective.

Once again, I want to thank sincerely and congratulate our authors. They have been selected to contribute to this work based on their professional standing and peer approvals. Their willingness to share with us the benefits of their knowledge and experience is a true professional courtesy. Of course, it is an honour and a privilege to continue to serve as their editor in compiling this edition.

Jeffrey GoldenLondon School of Economics and Political ScienceLondonNovember 2012

xi

Editor’s PrEfacE totHE first EditioN

Since the recent financial markets crisis (or crises, depending on your point of view), international capital markets (ICM) law and practice are no longer the esoteric topics that arguably they once were.

It used to be that there was no greater ‘show-stopper’ to a cocktail party or dinner conversation than to announce oneself to be an ICM lawyer. Nowadays, however, it is not unusual for such conversations to focus – at the initiation of others and in an animated way – on matters such as derivatives or sovereign debt. Indeed, even taxi drivers seem to have a strong view on the way the global capital markets function (or at least on the compensation of investment bankers). ICM lawyers, as a  result, can stand tall in more social settings. Their views are thought to be particularly relevant, and so we should not be surprised if they are suddenly seen as the centre of attention – ‘holding court’, so to speak. This edition is designed to help ICM lawyers speak authoritatively on such occasions.

In part, the interest in what ICM lawyers have to say stems from the fact that the amounts represented by current ICM activities are staggering. The volume of outstanding over-the-counter derivatives contracts alone was last reported by the Bank for International Settlements (BIS) as exceeding $700 trillion. Add to this the fact that the BIS reported combined notional outstandings of more than $180 trillion for derivative financial instruments (futures and options) traded on organised exchanges. Crisis or crises notwithstanding, ICM transactions continue apace: one has to admire the resilience. At the time of writing, it is reported that the ‘IPO machine is set to roar back into life’, with 11 flotations due in the United States in the space of a single week. As Gandhi said: ‘Capital in some form or another will always be needed.’

The current interest in the subject also stems from the fact that our newspapers are full of the stuff too. No longer confined to the back pages of pink-sheet issues, stories from the ICM vie for our attention on the front pages of our most widely read editions. Much attention of late has been given to regulation, and much of the coverage in the pages of this book will also report on relevant regulation and regulatory developments; but regulation is merely ‘preventive medicine’. To continue the analogy, the courts are our ‘hospitals’. Accordingly, we have also asked our contributors to comment on any lessons to be learned from the courts in their home jurisdictions. Have the judges got it right? Judges who understand finance can, by fleshing out laws and regulations and applying them to

xii

Editor’s Preface to the First Edition

facts perhaps unforeseen, help in the battle to mitigate systemic risk. Judges who do not understand finance – given the increase in financial regulation, the amounts involved, and the considerable reliance on standard contracts and terms (and the need therefore for a uniform reading of these) – may themselves be a source of systemic risk.

ICM lawyers are receiving greater attention because there is no denying that many capital market products that are being offered are complex, and some would argue that the trend is towards increasing complexity. These changing financing practices, combined with technological, regulatory and political changes, account for the considerable challenge that the ICM lawyer faces.

ICM activity by definition shows little respect for national or jurisdictional boundaries. The complete ICM lawyer needs familiarity with comparative law and practice. It would not be surprising if many ICM practitioners felt a measure of insecurity given the pace of change; things are complex and the rules of the game are changing fast – and the transactions can be highly technical. This volume aims to assuage that concern by gathering in one place the insights of leading practitioners on relevant capital market developments in the jurisdictions in which they practise.

The book’s scope on capital markets takes in debt and equity, derivatives, high-yield products, structured finance, repackaging and securitisation. There is a particular focus on international capital markets, with coverage of topics of particular relevance to those carrying out cross-border transactions and practising in global financial markets.

Of course, ICM transactions, technical though they may be, do not take place in a  purely mechanical fashion – a  human element is involved: someone makes the decision to structure and market the product and someone makes the decision to invest. The thought leadership and experience of individuals makes a difference; this is why we selected the leading practitioners from the jurisdictions surveyed in this volume and gave them this platform to share their insights. The collective experience and reputation of our authors is the hallmark of this work.

The International Capital Markets Review is a  guide to current practice in the international capital markets in the most significant jurisdictions worldwide, and it attempts to put relevant law and practice into context. It is designed to help practitioners navigate the complexities of foreign or transnational capital markets matters. With all the pressure – both professional and social – to be up to date and knowledgeable about context and to get things right, we think that there is a space to be filled for an analytical review of the key issues faced by ICM lawyers in each of the important capital market jurisdictions, capturing recent developments but putting them in the context of the jurisdiction’s legal and regulatory structure and selecting the most important matters for comment. This volume, to which leading capital markets practitioners around the world have made valuable contributions, seeks to fill that space.

We hope that lawyers in private practice, in-house counsel and academics will all find it helpful, and I would be remiss if I did not sincerely thank our talented group of authors for their dedicated efforts and excellent work in compiling this edition.

Jeffrey GoldenLondon School of Economics and Political ScienceLondonNovember 2011

95

Chapter 8

Finland

Ari-Pekka Saanio1

I INTRODUCTION

Finland has a civil law system that closely resembles the legal frameworks of the other Nordic countries – Sweden, Norway, Denmark and Iceland. In particular, the Finnish legal system has been greatly influenced by Swedish law, reflecting the fact that Finland was under Swedish rule from the 12th to the 19th century. Naturally within the past decades, European cooperation and integration have greatly affected Finnish legislation. Finland became a member of the European Union in 1995, and in 2002 it replaced its cash currency, the Finnish markka, with the euro. EU membership did not require any major legal reform or overhaul in Finland, and the application and implementation of EU laws and regulations was realised smoothly over several years as part of the normal legislative process.

i Regulation in Finland

In recent years, the financial crisis and the changes that followed in the EU’s financial markets legislation have had an impact on Finnish legislation. As a  consequence, a working group to propose changes to the Finnish securities market legislation was set up in February 2009. Its main objectives were to improve the clarity and comprehensibility of securities markets legislation, and, inter alia, boost its competitiveness. In February 2011, the working group presented its proposal in the form of a government bill. The parliament passed the proposed acts in December 2012 and they entered into force at the beginning of 2013. The main structural change was the division of the previous Securities Markets Act into six separate acts, which improved the intelligibility and clarity of the financial markets legislation.

1 Ari-Pekka Saanio is a partner at Attorneys at Law Borenius Ltd.

Finland

96

The main regulation in the capital markets in Finland is the new Securities Markets Act (746/2012) (SMA). The SMA is divided into several chapters based on each regulated topic (e.g., prospectus, takeover bids and market abuse). The main difference in the SMA compared with the EU regulation relates to prospectus rules. The SMA requires a prospectus, a ‘national prospectus’, for offerings of between €1.5 million and €5 million. Hence, the administrative burden for non-listed companies is only slightly reduced. However, one should bear in mind that a  large number of Finnish listed companies fall under the EU Prospectus Directive’s definition of small and medium-sized enterprises or companies with reduced market capitalisation, and thus can choose to prepare a prospectus using a proportionate disclosure regime.

In addition to the SMA, the financial market regulation includes acts on investment services and investment funds as well as clearing and settlement, trading on financial instruments, etc. Almost all of these acts, as well as the SMA, contain decrees whereby the power to impose more detailed rules is given either to the Ministry of Finance or the Finnish Financial Supervisory Authority (FIN-FSA). The Ministry of Finance has issued regulations on, for example, prospectuses and takeover documents, and the FIN-FSA regulations and guidelines on, for example, offering and listing of securities and disclosure obligations.

The FIN-FSA is the supervision authority for Finland’s financial and insurance sectors. The entities supervised by the FIN-FSA include banks, insurance and pension companies, as well as other companies operating in the insurance sector, investment firms, fund management companies and the Helsinki Stock Exchange. In addition, the FIN-FSA supervises and scrutinises Finnish listed companies’ disclosure obligations, prospectus issues, takeover bids as well as market abuse situations. The FIN-FSA operates in connection with the Bank of Finland but is independent in its decision-making.

ii Structure of the courts in Finland

The Finnish court system consists of three types of courts: general courts of law, administrative courts and special courts. Civil, criminal and petitionary matters are processed in the general courts of law, which include local district courts as the first instance, courts of appeal as the second instance and the Supreme Court as the final instance. Decisions of the district courts can be appealed in the courts of appeal if leave for continued hearing is granted. The decisions of courts of appeal can again be appealed in the Supreme Court, provided that a leave to appeal is granted (only approximately 9 per cent of appeals are granted leave).

The Supreme Court decides appeals on decisions of land courts (special institutions within district courts that decide on land usage issues) as well as certain decisions of the Insurance Court and the Market Court. The Supreme Court provides judicial precedents and decides on annulment of final decisions of lower courts as well as restoration of appeal periods after their expiration.

Administrative courts include the administrative courts as the first instance and the Supreme Administrative Court as the last instance. Matters of administrative law, such as the activities of the authorities and the administrative procedure, are processed in these courts. There are also four special courts in which specific types of issues are

Finland

97

processed: the Market Court, the Labour Court, the Insurance Court and the High Court of Impeachment.

First, the Market Court decides on issues concerning securities market law, antitrust and marketing law, public procurement and unfair competition. Depending on whether the case at hand is administrative or a civil matter, the decisions of the Market Court can be appealed in the Supreme Administrative Court or the Supreme Court. Second, the Labour Court handles legal disputes arising out of collective agreements or collective civil servants’ agreements, usually between trade unions. Third, the Insurance Court deals with social security matters, such as pension, unemployment benefit, wage security, housing allowance, financial aid for students and disability benefits. Finally, the High Court of Impeachment decides on charges brought against, for example, members of the government. However, it has only convened four times in Finland’s history.

The Finnish court procedure is centralised, ensuring that the judgment is based on facts presented to the court immediately before deciding the issue. There is also a  preparatory session held before the actual trial. Furthermore, the court process is governed by certain other key principles. Under the principle of oral hearings, which mainly applies to civil and criminal matters, hearings are held with parties present at court, witness examinations are oral and no written statements are allowed in the hearings. According to the principle of immediacy, all statements and evidence are presented to the same court and judges that ultimately decide the matter. In the event that any of the judges change, the main hearing must be held again. The principle of transparency, concerning the right to receive information from courts, is observed in the publication of trial information, documents and notices. However, it is possible for trial documents or proceedings to be declared confidential if necessary to guarantee a  fair trial or, for example, to protect privacy, national safety, business secrets or victims of crime. Finally, under the principle of contradiction (audiatur et altera pars), the parties of a trial must have the opportunity to present their case in court, including presenting their claims, answering questions presented by the opposing party, and commenting on documents and evidence as well as examining the witnesses.

iii FIN-FSA supervisory powers

In addition to the court procedures, the FIN-FSA has as an important role in the supervision of the Finnish financial markets and issuing administrative sanctions. Provisions on the FIN-FSA’s supervisory powers are for the most part laid down in the Act on the Financial Supervisory Authority (878/2008) (the FSA Act). In the FSA Act, the most important supervisory powers for the securities markets concern the right to obtain and inspect information, which includes, inter alia, the right to obtain information from the board of directors of a listed company notwithstanding confidentiality provisions.

In addition to the powers stipulated in the FSA Act, the SMA includes two special supervisory powers. In accordance with Chapter 17 of the SMA, the FIN-FSA has the power to postpone offers, to prohibit the continuation or repetition of marketing, and to impose a conditional a fine, the purpose of which is to reinforce the above-mentioned measures. The postponement of an offer refers to a  situation where the FIN-FSA has reasonable grounds to suspect that an offering to the public violates the SMA or provisions issued under it.

Finland

98

The FIN-FSA may prohibit the continuation or repetition of a  procedure in a situation where the actions relating to the offering, marketing and trade or exchange of securities and other financial instruments or to the duty to disclose are in violation of the SMA. If evident harm has been caused to investors, the FIN-FSA may order the entity on which it has imposed the prohibition to amend or remedy its actions.

Under the previous SMA, in a  situation where the statutory information had not been provided in connection with the marketing of the offering, the FIN-FSA, for instance, prohibited the continuation of the marketing and required that the statutory information and the option to cancel previous commitments be provided to the investors. Additionally, the FIN-FSA has previously imposed a  conditional fine to reinforce its decisions regarding prohibition and rectification.

Provisions on the FIN-FSA’s powers to impose administrative sanctions are issued in Chapter 4 of the FSA Act. According to the FSA Act, administrative sanctions include an administrative fine, public warning and penalty payment. A public warning may be issued if an entity operating on the financial markets intentionally or through negligence violates provisions other than those for which an administrative fine or penalty payment may be imposed. Chapter 15 of the SMA includes a list of those provisions on the basis of which the FIN-FSA shall impose an administrative fine or a  penalty payment on market actors for a failure to comply with or violation against the provisions of the SMA.

An administrative fine is imposed for a failure to comply with or violation of the following provisions of the SMA: (1) failure to provide marketing materials, (2) failure to notify of transactions on own shares, (3) violation of disclosure requirements, (4) failure to perform the obligation to disclose holdings or to publish the target company’s disclosure notification, or (5) failure to maintain available statutory information. In practice, failure means a delay in the performance of the above-mentioned obligations. The administrative fine payable by a legal person is €5,000 to €100,000 and by a natural person €500 to €10,000. The FIN-FSA has published a table of administrative fines that functions as a guide on the amount of payments.

According to the SMA, a  penalty payment is imposed for violation of the prohibition on providing untrue or misleading information or for breach of the obligation to maintain sufficient information available equally for all parties. In addition, a  penalty payment is imposed for breaching provisions regarding the publication of certain prospectuses and other information, public takeover bids and the obligation to launch a bid, and the company-specific insider register and market abuse. The condition for imposing a penalty payment is that the matter, assessed as a whole, does not warrant more severe action.

The amount of the penalty payment is based on the comprehensive assessment. When assessing the amount of the penalty, the type, extent and duration of the actions and the financial situation of the entity being fined must be taken into consideration. The maximum amount of the payment shall be 10 per cent of the legal person’s turnover in the financial year preceding the imposition of the penalty payment but not more than €10 million. If the financial statement has not been completed at the time of the imposition of the penalty payment, the payment shall be based on the turnover stated in the previous year’s financial statement.

If a  legal person has only recently begun business operations and no financial statements are available, the turnover may be estimated on the basis of another account.

Finland

99

The maximum penalty payment payable by a natural person shall be 10 per cent of the natural person’s income as per the latest tax assessment but not more than €100,000.

The FIN-FSA imposes penalty payments not exceeding €1 million, otherwise the penalty is imposed by the Finnish Market Court based on a proposal by the FIN-FSA. The administrative fines and penalty payments imposed are payable to the State.

During recent years, FIN-FSA administrative sanctions have been far more commonly used than criminal ones. For example, in 2012, FIN-FSA imposed three public admonitions (no longer possible), three public warnings and 14 administrative fines as well as making five requests for police investigations. The new SMA has increased the monetary value of penalty payments that FIN-FSA can impose.

II THE YEAR IN REVIEW

i Developments affecting debt and equity offerings

One of the recent trends in the Finnish financial markets is the increased value of corporate bond issuances. In 2012 the number of corporate bond transactions was 37, including the first domestic high-yield bond and first domestic secured bond. Traditionally the main non-equity financing in Finland consists of bank loans, although in 2012 there was a peak in the bond market when, in addition to new issuances, a number of previous bank loans were transferred to bonds. Although there was a clear increase in 2012 in the bond market, the traditional non-equity financing by bank loans was, and is, by amount the largest source of funding.

Another recent key development in the bond market is that the major bond investors are no longer banks, whereas until 2007 one-third of corporate bonds lay in the banks’ own portfolios. Furthermore, there has also been a  change in issuers. Previously issuers were mainly investment grade companies, whereas recently covered bonds and bonds guaranteed by the operational group company have seen the light. One of the common features in Finnish bond markets is the absence of agent or trustee representation of investors; investors are represented through creditors’ meetings, which can be compared to the general meetings of shareholders. Despite the growth in corporate bond issues, the Finnish state and municipalities continue to account for the majority of the emission value: during the first two quarters of 2013, overall bond issues were €9,035 million, with the Finnish state and municipalities accounting for over €6,500 million of this amount according to the statistics of the Bank of Finland, the Finnish central bank.

Generally, financing conditions still display signs of the European-wide financial uncertainty. While the Finnish banking and financing sector survived the crisis relatively well, curbs on bank lending and tightened financing conditions limited the amount of funding available to companies and transactions. Funding was offered mainly to ‘core’ clients (i.e., large and established companies), which limited the funding available for smaller and medium-sized enterprises.

Because of economic conditions, equity offerings have also been quite rare in recent years. For example, in 2012, only three new companies were listed on the Helsinki Stock Exchange, while during 2013, the stock exchange experienced a  demerger of a  listed company, with the carved-out entity listed on the exchange. Overall, equity

Finland

100

markets in Finland enjoyed a nervous and mild upswing during the end of 2012 and the start of 2013, from the low in the beginning of 2012.

Steps have been taken to reinvigorate the markets by means of, for example, tax incentives. However, there is some controversy over whether the challenges relate more to over-regulation than to taxation, thereby complicating efforts made to revitalise the equity markets.

ii Developments affecting derivatives, securitisations and other structured products

During 2012 and 2013, possibly in conjunction with the cautiously recovering equity markets, the range of different types of equity investments and equity market-linked products also increased. For example, the Finnish securities lending market revived from its relative stillness at the start of the millennium with investment alternatives even for retail investors.

Real estate and housing funds have also been a  high-level trend in Finland lately, whereby retail investors invest in funds organised as partnerships for Finnish tax purposes. These partnerships subsequently acquire property and real estate, which they then lend out. Effectively, such structures pool investments from various retail investors into a  single fund. The rationale of these structures is both to provide diversification and to decrease the amount of initial capital required for investments in real estate and housing funds. The first of these real estate equity funds was established in 2006 for institutional investors and the following year for retail investors; however, in 2012 and 2013, several new funds, including one set up by a Finnish bank, were established.

In Finland, netting is regulated mainly by two acts: the Act on Certain Provisions in Securities and Foreign Exchange Trading and Settlement System (1084/1999), concerning, for example, netting of payments within the settlement system; and the Financial Collateral Act (11/2004), regulating the use of collateral rights (e.g., when securities are used as collateral and the party providing the collateral is an institution, such as a bank, as stipulated in the Act). Netting clauses in Finnish contracts are generally fairly standardised and compactly formulated. Most legal concerns relate to cross-border transactions, where the enforceability of a  contractual netting clause may remain an unresolved issue. Secondly, clearer guidance on the applicability of the Regulation (EC) No. 1346/2000 of 29 May 2000 on insolvency proceedings has been called for, in questions relating to netting, among legal and other market professionals.

iii Cases and dispute settlement

In the past decade the Finnish securities markets were characterised by several high-profile, alleged, white-collar securities fraud investigations and criminal procedures. The most prominent of these cases are in the process of being decided by appellate courts with final legal force. Prior to this recent tide of cases we had very few legal precedents. In that sense the Finnish market is now more developed, although most of these cases were extremely contentious with very case-specific details and facts. In these cases the lower courts often found the defendants guilty, but almost equally as often these decisions were completely reversed at the appellate levels. These reversals notwithstanding, there now exists some precedent guidance on insider trading issues as well as on prospectus

Finland

101

and disclosure liability. Following the latest legislative amendments, the FIN-FSA now has even wider investigative and punitive powers, but it still remains to be seen how the authority will apply these.

iv Relevant tax and insolvency law

Recent changes in the Finnish tax regime mirror the increasing competition for tax revenues and the economic downturn. The concern over losing tax revenues has driven Finland to safeguard its tax base more diligently. For example, to dampen tax planning by Finnish companies financed by intra-group loans from their foreign group companies, the government has introduced new legislation restricting deductibility of interest expenses. However, Finland decided not to join EU Member States planning to introduce the European Union financial transaction tax.

The government has imposed a new temporary tax on Finnish banks to gather funds in case of future crashes in the financial market. The bank tax is being levied on Finnish deposit banks and their foreign subsidiaries for the period 2013–2015, with risk-weighted assets held by the banks being taxed at the rate of 0.125 per cent. The introduction of this bank tax is considered to have increased the cost of debt capital. Typically, the conditions of Finnish corporate loans allow banks to pass on public charges and fees directly to the borrowers. As a result of this, some Finnish banks have, in effect, included bank tax as a  separate item on their invoices. All in all, the introduction of Finnish bank tax has been considered problematic because of the hasty implementation schedule and potential infringements of EU law.

Current Finnish legislation allows wide deductibility of interest expenses, which can be restricted only by applying the transfer pricing regulation or the general provision for tax avoidance. With effect from the beginning of 2014, the deductibility of interest expenses arising from related party loans will be restricted. The limitations will restrict the deductibility of the net interest expense (the amount of all interest expenses exceeding all interest income) to 30 per cent of the company’s fiscal EBITDA. The limitations are subject to certain safe haven clauses, and interest payments for third-party loans will not be affected. However, third party loans may be deemed as intra-group loans in situations such as back-to-back arrangements or when a  related party has secured a  third-party loan with collateral. The interest limitation rules have to be considered when arranging financing structures of Finnish entities.

To conclude Finland’s central government spending cuts for the period 2014–2017, the government decided to cut the corporate tax rate from 24.5 per cent to 20 per cent as of the beginning of 2014. This means a significant change in the level of Finnish corporate taxation. After the drop, the Finnish corporate tax rate will clearly be below the EU and European average rates. The lower corporate tax rate is intended to boost Finland’s international competitiveness and to revive the stagnant economy. However, to compensate for the fall in corporate tax revenues, the lowering of the tax rate will be paired with extensions to the corporate tax base and cuts to subsidies.

Furthermore, the Finnish government is introducing a  reform to dividend taxation of private individuals as of 2014. As a result, taxation of dividends received from listed companies will tighten slightly, but the overall tax burden on dividend income will remain practically unchanged considering the lowered corporate tax rate. Taxation of

Finland

102

dividends from unlisted companies is also to be amended, but, overall, the tax treatment of dividends distributed by unlisted companies still remains significantly more favourable than the tax treatment of dividends from listed companies. Therefore, the reform entails no incentives to new Finnish IPOs, even though the considerable differences in the tax treatment of dividends has evidently influenced companies’ willingness to go public in recent years.

Recently, the Finnish Supreme Administrative Court (SAC) released certain capital markets related tax decisions, which have concerned, for example, taxation of listed warrants (KHO:2013:117), taxation of CSA agreements (KHO:2012:112) and tax treatment of prospectus fees in corporate restructurings (KHO:2013:68).

v Role of exchanges, central counterparties (CCPs) and rating agencies

NASDAQ OMX Helsinki (Helsinki Exchange) is the main trading place in Finland for stocks, bonds and derivative instruments. Helsinki Exchange is a part of NASDAQ OMX Group, which operates in several markets including other Nordic countries. Although the Nordic exchanges are legally separate entities, they are generally referred to as ‘NASDAQ OMX Nordic’.

Helsinki Exchange has one official list, the Main Market, which is divided into three segments, Large Cap, Medium Cap and Small Cap, based on the market capitalisation of the companies. Other lists on the Helsinki Exchange are the Pre List, where shares can be listed (e.g., if they are planned to be listed on the Main Market later), and the Other Securities list, which includes equity rights. Additionally, the Helsinki Exchange maintains the First North Finland market for smaller companies unwilling to be listed on the Main Market. First North is a multilateral trading facility and thus does not have the legal status of an EU-regulated market and is subject to lighter regulation than the Main Market.

Since 1990, the trading of securities in Finland has been conducted through electronic trading systems, which replaced the daily call auction practice. At the beginning of 2011, the Nordic exchanges switched to the Inet system, which is supposed to be more efficient and faster than their previous trading system. During 2009, central counterparty clearing began at the Helsinki Exchange and the tick sizes became smaller.

Since the introduction of CCP clearing, trades in shares belonging to Helsinki Large and Mid Cap, as well as exchange-traded funds (ETFs), have been CCP cleared. Trades in shares belonging to Small Cap, Pre List and Other Securities were gross settled. NASDAQ OMX Helsinki extended the CCP clearing to shares that were previously gross settled to be included in the central counterparty clearing serviced by the European Multilateral Clearing Facility (EMCF) in June 2012. Currently, EMCF is the only central counterparty accepted in the Helsinki Stock Exchange.

III OUTLOOK AND CONCLUSIONS

The Finnish securities law framework is fully integrated with the mandatory EU laws. A major pending, and controversial, amendment relates to beneficial ownership of listed securities. Currently only foreign shareholders have the right to hold shares under a nominee holder. The government has proposed an amendment whereby this

Finland

103

right would also be granted to all domestic shareholders. Certain left-wing parties and politicians, and also the tax authority, have strongly lobbied against the amendment and the fate of this bill is currently open. The advocates of the bill have cited projected savings in overall transaction and settlement costs, and the fact that nominee holding has been widely adopted and accepted internationally.

Most recently, public discourse has been concerned with the diminishing appeal of the NASDAQ OMX Helsinki exchange as a listing platform. Many more companies have gone private by way of a  takeover than there have been new listings and IPOs. Specifically, the private equity sector consistently favours secondary buyouts or trade sales as an exit option over IPOs. The government and other interested parties have set up numerous working groups to propose various reforms in the tax, general securities markets and listing regimes to increase the attractiveness of the regulated market as well as private sector and consumer interest in listed securities as a savings and investment alternative, but so far little has been done in this respect.

Following the adoption of the new securities market laws, as explained above, the Helsinki Takeover Code is currently also under review. The former Panel on Takeovers and Mergers hosted by the Central Chamber of Commerce of Finland was abolished under the new SMA. The Finnish Securities Markets Association, which has also issued the Finnish Corporate Governance Code, has emerged as the new governing body, drafting improving and maintaining recommendations to support good markets practice. It has drafted a renewed and slightly amended Takeover Code, which was submitted for comments earlier this year. However, to date the 2006 Takeover Code is still applicable to takeovers and public tender offers, and no major overhaul of it is expected.

407

Appendix 1

about the authors

ARI-PEKKA SAANIOAttorneys at Law Borenius LtdAri-Pekka advises on mergers and acquisitions, private equity and capital markets issues with a particular focus on cross-border transactions. He is a Fulbright fellow and holds a master of laws degree from New York University School of Law in addition to his law degree from the University of Helsinki.

He participated in the foreign lawyer programme of the respected New York law firm Sullivan & Cromwell LLP. Ari-Pekka is also admitted in New York and is a member of the American Bar Association and the Association of the Bar of the City of New York.

Ari-Pekka has been a partner at Borenius since 2001.

ATTORNEYS AT LAW BORENIUS LTDYrjönkatu 13 A00120 HelsinkiFinlandTel: +358 9 615 333Fax: +358 9 615 33 499ari-pekka.saanio@borenius.comwww.borenius.com