FINLAND Trends and Developments Contributed by: Maria Lehtimäki, Waselius
Drivers Behind Legislative Development Securitisation has never been subject to specific domestic legislation in Finland, which has been both a blessing and a curse for the develop - ment of the market. The lack of a clear legisla - tive framework for securitisation is perhaps one of the main reasons why prudentially supervised issuers like credit institutions have had a difficult time tapping the market. At the same time, that lack of legislation has produced a flexibility that has enabled non-bank lenders and corporates to come up with innovative deal structures. Initially, there were both pull and push factors for credit institutions to enter the market – banks were both curious on their own accord and driv - en by external circumstances to explore secu - ritisation as a tool for capital management. In Finland, the 1980s were a time of monetary and economic liberation, culminating in a wild – so- called casino economy – era. Lending and bor - rowing from domestic and international sources had been deregulated and the domestic curren - cy was maintained at an artificially strong level. Domestic banks’ balance sheets were becoming bloated, and the prudential regulator was begin - ning to take issue. Following the introduction of Basel I in 1988, domestic banks were forced to look at ways to manage capital adequacy. Many plans to launch residential mortgage-backed securitisations (RMBS) were promptly put in place, some of them progressing all the way to agreed form. However, since there was no clear legislation in place, every single one of these plans was ultimately abandoned due to structur - ing difficulties or escalating disagreement with the authorities – the financial supervisory author - ity, but also the tax authority. At the turn of the 1990s, as the housing bubble burst, the market fell into a depression worse than that of the 1930s. Securitisation was not
to blame, nor was it blamed. On the contrary, the government saw securitisation as a potential tool to help the economy recover. Consequently, the Ministry of Environment’s Housing Department set up a task force that issued a discussion paper on the need to update domestic legislation to enable and facilitate securitisation transactions. The outcome of that discussion paper was the conclusion that that there were in fact no obstacles to securitisa - tion in the legislative framework (as it existed at the time) and therefore, there was no need for any legislative change. However, the discus - sion paper did call for the financial supervisory authority to set out guidance to make securiti - sation clearer and easier. The guidelines were issued a few years later. Updates to the Basel framework resulted in additional guidance on the capital requirements in connection with securiti - sations in 2006. These guidelines remained the primary source of guidance until the introduction of the EU Securitisation Regulation and its entry into force in 2018. EU Securitisation Regulation After the global financial crisis, regulators and pundits both in Europe and across the world spoke out about reining in the detrimental effects of unchecked securitisation activity. In the EU this discourse ultimately resulted in the EU Securiti - sation Regulation. In Finland, securitisation was never a dirty word, as outcomes for investors were generally quite positive during and after the crisis. Nonetheless, the outcome of these global developments was that there was now a firm legislative framework for many aspects of securitisation that became directly applica - ble law in Finland. Through the introduction of the EU Securitisation Regulation, securitisation turned from something a little complicated and
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