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Nordic Implementation of EU
Financial Rules Position of Employees
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Nordic Implementation of EU Financial Rules
Position of the Employees
Report
JUDr. Alexandra Horváthová, LL.M., S.J.D.
Nordic Council of Ministers
Nordic Financial Unions
Copenhagen Business School
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Copyright © 2017
This publication is available in pdf form on Nordic Financial Unions and Copenhagen Business School
website under a Creative Commons license. Creative Commons public licenses provide a standard set of
terms and conditions. For more details, please see the terms and conditions for the CC BY‐NC license.
We would like to thank the Nordic Council of Ministers and the Nordic Financial Unions for their financial
support and contribution to the development of the report. A further thank you is addressed to Nordic law
firms, without whom the review of the national legislation would not be possible, namely Kromman
Reumert (Denmark), Gernandt & Danielsson (Sweden), Krogerus Attorneys (Finland), Advokatfirmaet
Tommessen (Norway) and Logos (Iceland). Moreover, the author would like to thank Professor Wolf‐Georg
Ringe and Professor Lars Christian Ohnemus for their academic contributions and valuable comments and
suggestions to the report. Yet, all possible errors or omissions remain the author’s alone.
This report also represents a part of the Nordic Finance and the Good Society project.
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Table of Contents
EXECUTIVE SUMMARY ............................................................................................................................ 5
1. INTRODUCTION ................................................................................................................................... 6
1.1. Scope of the Report: .................................................................................................................................... 7
1.2. Rationales for the Report .......................................................................................................................... 10
1.3. Methodology ............................................................................................................................................. 11
2. EU QUEST FOR HARMONISATION OF FINANCIAL REGULATION .................................................... 12
2.1. Financial Services Action Plan and Lamfalussy Process ............................................................................... 12
2.2. Regulating Corporate Governance ............................................................................................................. 14
2.2.1. International level .............................................................................................................................................. 16
2.2.2. The 2008 de Larosière Report ............................................................................................................................ 17
2.2.3. Green Paper 2010 ............................................................................................................................................... 17
2.3. Economic and Legal Consideration of the Change: Position of Employees ................................................... 18
2.4. European Deposit Insurance Scheme in the Nordic Countries ..................................................................... 19
3. SPECIFICS OF THE NORDIC CORPORATE GOVERNANCE .................................................................... 23
3.1. A Brief Insight into the Development ......................................................................................................... 24
3.2. Position of Employees ............................................................................................................................... 25
4. NORDIC IMPLEMENTATION OF THE EU FINANCIAL RULES: CHECKS AND BALANCES ....................... 28
4.1. Role of the Board of Directors .................................................................................................................... 29
4.1.1. Representation of Employees: Composition and Diversity ........................................................................ 30
4.1.2. Remuneration and Short‐termism .............................................................................................................. 33
4.2. Employees ................................................................................................................................................. 35
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4.2.1. Consultation with Employees ..................................................................................................................... 36
4.2.2. Collective Bargaining................................................................................................................................... 37
4.2.3. Competence and Training ........................................................................................................................... 38
4.2.4. Whistleblower protection ........................................................................................................................... 41
5. CONCLUSIONS AND RECOMMENDATIONS ................................................................................... 46
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Executive Summary
ThisreportwascommissionedbytheNordicCouncilofMinisterstoexaminethepositionof employees in the Nordic financial sector in the light of the EU’s financial legislation.FollowingtheoutbreakoftheFinancialCrisis,theEUputforwardanunprecedentedseriesof reforms to restore financial stability andpublic confidence in theEU financial system.Thisseriesofreformsintheareaoffinancialmarketregulationhavehadaprofoundimpacton theNordic financial industry, financial intermediaries, corporations, and employees.Hence,aneedforareviewandanalysisofthepossiblechangeofthepositionofemployeesinthe lightof therecentchangeshasbeenrecognised.Anadditionalpartof thereport isformedbyananalysisontheEUdepositinsurancescheme.Methods of analysis include qualitative research methods of relevant EU financialregulations, directives, recommendations and national legal acts and rules togetherwithexisting quantitative research. The description and translation of the national legislativeprovisions was prepared by Kromann Reumert (Denmark), Gernandt & Danielsson(Sweden),KrogerusAttorneys(Finland),AdvokatfirmaetTommessen(Norway)andLogos(Iceland).
The report finds that the transposition of the EU Directives has been relativelyhomogeneousinallNordicjurisdictions.TherearecertaindiscrepanciesbetweentheEEAand EUMember States. Nevertheless, the EEAMember States are also in the process ofimplementingthechangesintroducedbytheEUfinanciallegislation.ThisreportuncoversareaswithinwhichtheEUhasnotadoptedacoordinatedapproachandthusleavesroomforregulationregardingthelevelofemployeeprotectionfortheMemberStates.ItisthusimportanttoundertakefurtherstepstowardsacoherentframeworkintheNordics.Finally,thereareseveralrecommendations inregardtotheemployeeconsultationandcollectivebargaining as well as whistleblower protection. Ultimately, some of the EU regulatoryframeworkhasnotbeenyet implementedandthereforetheeffectof theEUregulationisonlytobeseenintheupcomingyears.
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1. Introduction
OneofthefundamentalobjectivesoftheEuropeanUnion(EU)istooperateasingleinternalmarket,
comprising the key elements of free movement for goods, services, people and capital.1 Financial
services form a significant part of that internal market. A properly integrated financial services
market is one where capital can be freely raised in any place (Art. (3(3) TEU), can move freely
throughouttheentirearea,andwhichoffersfreecompetition.Thefreemovementofcapitalincludes
thepossibilityofmovingcapitalfromoneplacetoanotherwithoutanykindofrestrictionorbarrier;it
impliestheopportunityforinvestingcapitalanywhereinvestorspreferwithintheinternalmarket.In
addition, the investment services shall generally be available everywhere and investors shall be
entitledtochooseapreferredserviceprovider,irrespectiveoftheirresidenceorcitizenship.
Following the global Financial Crisis in 2007 and 2008, the EU put forward a series of reforms to
restore financial stability, public confidence in the financial systemand enhance theEU’s corporate
competitiveness. In addition to the global financial instability at the time, politicians, scholars and
other commentators around the world have cautioned against an overreliance on the financial
services,andarguedforstrongerregulatorystandards.Inlightofthebroadlyperceivedmisbehaviour
ofthefinancialindustryanditsleaders,manyEUpolicymakersbecameconcernedandthusdecidedto
improvethelegalframeworkwithinwhichthefinancialinstitutionsoperate.
Accordingly, forseveralyears followingtheCrisis,vastamountsofnewEU legislationcovered large
groundstoimposemorestringentregulationforthefinancialservicesindustry.Ittookseveralyears
untilthegeneraldirectionofEUactivitychangedcourseagain:inSeptember2015,theEUCommission
proposedanactionplanonCapitalMarketUnion (CMU).2Thisprojectcomprisesapackageofkey
measurestoachieveatruesinglemarketforcapitalinEurope.TheCMUrepresentsoneofthecurrent
initiativesoftheEuropeanCommission,whichisakeypillaroftheInvestmentPlan.3Theaimofthis
planistounlockfundingforcapitalmarketsandfindnewwaysforinvestorsandthecorporatesector.
TheCommissionexpects,bytheendof2017,tohavefinalisedandimplementedthefirstphaseofCMU
measures.
1Until1986,theEUofficialtreatiesandmaterialsreferredtotheterm“commonmarket”.2 For a political assessment, seeWolf‐Georg Ringe, ‘Capital Markets Union for Europe: a commitment to theSingleMarketof28’(2015)9Law&FinancialMarketsReview5.3 ‘Action Plan on Building a Capital Markets Union’, Communication from the Commission to the EuropeanParliament,theCouncil,theEuropeanEconomicandSocialCommitteeandtheCommitteeoftheRegions,COM(2015) 468 final from September 30, 2015. Available online at: < http://eur‐lex.europa.eu/legal‐content/EN/TXT/?uri=CELEX%3A52015DC0468>.
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The ultimate aim of the Commission is to achieve and operate a healthy and well‐functioning
financialsystemwithsafe,stableandresilientfinancialinstitutionsthatarecarefullyandresponsibly
regulated,managedandsupervised.Onlyundertheseconditionscanthe financialsystemeffectively
contributetogrowthandbenefitEUcitizens,companiesandsociety.
1.1. Scope of the Report:
Thisreportanalysesthepositionoftheemployeesofthefinancialintermediariesinthelightof
theEURegulationsandDirectives inNordiccountries.TheentiretyofEUactivity in theareaof
financial market regulation has a profound impact on the Nordic financial industry, financial
intermediaries,corporations,andemployees.WhentheEUadoptsnewrules,dependingonthelegal
form inwhich they have been adopted, theymay be directly applicable,without a need for further
transposition.Alternatively,theywillbetransposedintonationallaw,or,thirdly,theymightrepresent
non‐bindingrecommendationsforNordicfinancialinstitutions,includingbanks,insurancecompanies,
investmentcompaniesandpensionfunds.Theregulationoffinancialservicesshouldcontributetoan
environment that protects consumers, promotesmarket integrity and supports investment, growth
andjobs.FollowingtheoutbreakoftheFinancialCrisis,theEUputforwardanunprecedentedseriesof
reformstorestorefinancialstabilityandpublicconfidenceinthefinancialsystem,including:
newrulestostrengthenfinancialsupervision
newtoolsforbankrecoveryandresolution
moreeffectivedepositprotection
animprovedregulatoryframeworkforbanks,insurance,securitiesmarketsandothersectors
Lawshavealsobeenadoptedtotackleexcessivevolatilityinfinancialmarkets,includingnewruleson
hedgefunds,shortselling,creditratingagenciesandderivatives.Overall,thesereformsaimtobuilda
more stable and resilient financial system.At the same time, it is important tomonitor the reforms
introduced after the Crisis, in order to determine whether they are delivering as intended and to
assesswhetherthenewruleshaveanyunintendedconsequences. It isacontinuousprocessof fine‐
tuningthefinancialservices’regulatoryframeworkwiththeadoptionoftargetedfollow‐upactions.
Theaimofthisreportistounderstandthescopeandtheextenttowhichthesereformshaveaffected
theposition of employees in theNordic financial sector. Further research is, however, necessary to
assesstheeffectoftheregulatoryframeworkonotherstakeholders.
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This report analyses five Nordic jurisdictions, including countries that are Member States of the
EuropeanUnionaswellasthoseofEuropeanEconomicArea(EEA).Thefivejurisdictionsare:
Finland
Iceland
Denmark
Norway
Sweden
This report covers EU financial market regulation and the corresponding national regulation that
eitheradoptsortransposestheEUrules.Itconsiderstheharmonisedrulesthatgovernthecorporate
governanceof threegroupsof financial intermediaries: (i)banks, (ii) insurancecompanies,and (iii)
investment firms and regulate the position of employees. It does not, accordingly, address specific
rulesoutsideofthescopedescribedabove.
TheanalysedEUlegislationcomprises:
BRRD4
CapitalRequirementsRegulation(CRR)5
4 Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing aframework for the recovery and resolution of credit institutions and investment firms and amending CouncilDirective 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC,2011/35/EU,2012/30/EUand2013/36/EU,andRegulations(EU)No1039/2010and(EU)No648/2012,oftheEuropeanParliamentandoftheCouncil.5Regulation(EU)no.575/2013oftheEuropeanParliamentandoftheCouncilof June26,2013onprudentialrequirementsforcreditinstitutionsandinvestmentfirmsandamendingRegulation(EU)no648/2012.
TheaimofthisreportistoaddressandanalysethepositionofemployeesintheNordicfinancialsectorinthelightoftherecentEUfinanciallegislation.
The report firstly showswhether theEU financialdirectivesand regulations regardingbanks,insurancecompaniesandinvestmentfirmsweretransplantedbyNordiccountriesandsecondly,byfocusingonthoseprovisionsaffectingtheemployees.
Given that the ultimate focus of this report is the standing of employees, this reportassesseswhethertheEU’sfinanciallegislationwhenimplementedintheNordiccountrieshasrespectedthepositionofcollectiveagreementsandtherightsofemployeesandtradeunions,asacceptedintheNordicregion.Furthermore,thisreportaimstoassesshowthepositionofemployeeshaschangedwithinthegreatercorporategovernanceoffinancialintermediaries and in relation to their role as levers for consumer protection. Thefinancialintermediariesanalysedinthisreportarei)banks,ii)insurancecompaniesandiii)investmentcompanies.
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CapitalRequirementsDirective(CRDIV)6
SingleResolutionMechanism(SRM)7
UCITSV8
MiFIDII9
MiFIR10
MAR11
InsuranceDistributionDirective(IDD)12
Together with the above Directives and Regulations, the relevant national lawwill be analysed. In
addition to these financial acts, ithas tobeemphasised that there is a clear indicationof anewEU
rulebook,throughwhichtheEUseekstoimposeitsregulatorypoliciesinternationallybylinkingthird‐
country access to the singlemarket tomandatory ‘equivalence’ requirements that, in fact, demand
third‐countryregulationandsupervisiontomirrorEUrequirements.13NorwayandIcelandarepartof
the European Economic Area (EEA), the purpose ofwhich is to extend the EU’s internalmarket to
include the countries in the European Free Trade Area (EFTA). Hence, many EU regulations and
directives in theareaof financial services, except theeconomicandmonetaryunion (EMU),will be
6Directive2013/36/EUoftheEuropeanParliamentandoftheCouncilofJune26,2013onaccesstotheactivityof credit institutions and the prudential supervision of credit institutions and investment firms, amendingDirective2002/87/ECandrepealingDirectives2006/48/ECand2006/49/EC.7 Regulation (EU) No 806/2014 of the European Parliament and of the Council of July 15, 2014 establishinguniformrulesandauniformprocedurefortheresolutionofcreditinstitutionsandcertaininvestmentfirmsintheframeworkofaSingleResolutionMechanismandaSingleResolutionFundandamendingRegulation(EU)No1093/2010.8 Directive 2014/91/EU of the European Parliament and of the Council of July 23, 2014 amending Directive2009/65/EConthecoordinationoflaws,regulationsandadministrativeprovisionsrelatingtoundertakingsforcollective investment intransferablesecurities(UCITS)asregardsdepositary functions,remunerationpoliciesandsanctions.9Directive2014/65/EUoftheEuropeanParliamentandoftheCouncilofMay15,2014onmarketsinfinancialinstrumentsandamendingDirective2002/92/ECandDirective2011/65/EU.10Regulation(EU)No600/2014oftheEuropeanParliamentandoftheCouncilofMay15,2014onmarketsinfinancialinstrumentsandamendingRegulation(EU)No648/2012.11 Regulation (EU)No 596/2014 of the EuropeanParliament and of the Council of April 16, 2014 onmarketabuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of theCouncilandCommissionDirectives2003/124/EC,2003/125/ECand2004/72/EC.12 Directive 2002/92/EC of the European Parliament and of the Council of December 9, 2002 on insurancemediation.Eventhoughanewdirectivehasbeenadopted–Directive(EU)2016/97oftheEuropeanParliamentand of the Council of January 20, 2016 on insurance distribution; this directive is only to be transposed byFebruary23,2018.Therefore,thisdirectiveisoutsideofthescopeofthisreport.13 This is the case for rating agencies, alternative investment funds, and agencies tradingwith derivatives. Inaddition, the2014MiFID II/MiFIR regime imposes a new equivalence regime on theprovisionof investmentservicesbythirdcountryinvestmentfirmsintheEU.
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relevant and also applicable toNorway and Iceland.14 Furthermore, it is important to note that the
SingleResolutionMechanism(SRM)hasaffectedonlyoneoftheNordiccountries,Finland.
1.2. Rationales for the Report
ThefirstobjectiveoftheprojectistomapandanalysethewaysinwhichkeyareasoftheEU’sfinancial
legislation have been implemented in the Nordic countries that include both EU and EEAMember
States.Ithasbeenofaconcernofcertainstakeholdersthattheirpositionmighthavechangeddueto
the EU’s legislation. This report aims to address one particular stakeholder group – employees.
Accordingly,ourinquirysecondlyassesseswhether,andtowhatextent,theEUregulatoryframework
hasaffectedthepositionofemployeesintheNordiccountries.Therightsoftheemployeesandtrade
unionsintheNordiccountriesareessentialfortheircorporategovernancesystem.Itisthepurposeof
this report to assess whether these continue to be respected and protected by the regulation
governingfinancialintermediaries.
BymappingrecentEUfinanciallegislationanditsimpactonemployees,theideaistogainknowledge
regardingthreespecificaspects:
a) Potentialdifferences inemployeeprotectionbetweentheNordiccountries–differences that
wouldunderminetheideaofalevelplayingfield.
b) ThewaysinwhichthespiritandintentionoftheEUlegislatorshavebeentransferredintothe
nationalrules.
c) What thepotential consequences of thenew ruleswill beonboth the burdenof theNordic
financeemployeesandforthecoreaspectsoftheNordiclabourmarketmodelinthefinancial
sectors.
TherearetwofurtheraspectsoftheEU’snewfinancelegislationthathaveanimpactonemployees:
consumerprotectionrulesandcorporategovernance.Whenassessingtheconsumerprotectionrules
fromanemployeeperspective, thekeyareasaresalesandadvice, incentives,remuneration,andthe
righttotrainingforemployees.
There is also a need to analyse the implementation of the new rules on documentation and
information for frontofficestaffworkingwithconsumeradviceonbanksand insurancecompanies.
14AgreementontheEuropeanEconomicArea,OJ.No.L.1,2.1.1994asamendedbytheAgreementbetweentheEuropeanUnion,Iceland,LiechtensteinandNorwayonanEEAFinancialMechanism2014‐2012(OJL141,28.5.2016)andtheEEAAnnexIXandXIX.
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Therulesondocumentationofcustomermeetingsandadvicearetofostercustomerprotectionand,
providedthattheyfulfiltheirintention,can,assuch,bebeneficialforbothcustomersandemployees.
Lastly, this report aims to contribute to the debate regarding the future direction of the Nordic
financialsector,andwhether,andhow,itcancreatelastingvalueforconsumersandthewidersociety
withfinanceemployeesplayingacentralandtrustworthyrole.
1.3. Methodology
The report aims to provide a comparative legal analysis that applies diverse qualitative research
methods.Thequalitativeresearchhasprimarilybeenconductedbyfollowingdoctrinalresearchand
analysis combined with policy research. Doctrinal legal methodology provides an analysis and
comparisonofrelevantEUfinancialregulations,directives,recommendationsandnational legalacts
andrulesthataretransplantingandimplementingtheEUregulatoryframeworkonanational level.
The sources that are used for this report are primarily drawn fromEUDirectives andRegulations,
CommissionStaffWorkingDocumentsandCommissionCommunications(sec.1.1.).
Onthenationallevel,thereportisbasedonaregulatorymatrixpreparedbyKromannReumert.This
matrix provides the review of the transposed relevant EU directives as per January 7, 2017 for
Denmark,Sweden,FinlandandNorwayandasperApril18,2017forIceland.Furthermore,thisreport
buildsonexecutiveordersandprocedureswhichwereadoptedbynationallegislativebodiesaswell
asonnationalcorporategovernancecodesanddoctrinalliterature.Whereappropriate,referencesto
nationalpracticeareincluded.Furthermore,thisreportdrawsontheanalysesandstudiesthathave
beenperformedbyotherrecognisedorganisationsattheinternationallevel(OECD,BaselCommittee,
etc.)aswellasattheEuropean(EU,CEBS)andnationallevels.
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2. EU Quest for Harmonisation of Financial Regulation
As stipulated in the introduction, oneof the fundamental objectivesof theEU is to formaproperly
integratedfinancialservicesmarket,wherecapitalcanmovefreelythroughtheentireareaandcan
be freely raised, invested and spent in any place through any financial intermediaries. The free
movementofcapitalincludesthepossibilityofmovingcapitalfromoneplacetoanotherwithoutany
kind of restriction or barrier; it also implies the possibility of investing capital anywhere investors
desire within the internal market. In addition, the investment services shall be generally available
everywhereandinvestorsshallbeentitledtochoosetheserviceprovidertheydesire,irrespectiveof
theirresidenceorcitizenship.
TheEUhasimplementedseveralformsandmethodsonhowtoreachthesingleinternalmarketsince
itsfoundationin1957.However,itsformationhadbeenlongpostponed.OnlytheSingleEuropeanAct
clearlysetthedateforestablishingthesingleinternalmarketbytheendof1992.15Nonetheless,this
plan ultimately proved overly ambitious, and the EU has continued to struggle with finalising the
internalmarket–if iscaneverbeachieved.16Chiefly,theEUhasbeenusingtwoprimaryregulatory
tools:
positive,and
negativeintegration.17
2.1. Financial Services Action Plan and Lamfalussy Process
In 1999, the European Commission adopted the Financial Services Action Plan (FSAP), a policy
programme aiming to complete the single financial market after the introduction of the Euro and
establishment ofmonetary union.18 The FSAP was a plan for adopting all necessary legislative
15SectionII,Art.13oftheSingleEuropeanActO.J.ECNo.L.169/1(SingleEuropeanAct).16MarioMonti, in his report on the relaunch of the singlemarket, clearly stated that “achieving a deep andefficientsinglemarketisakeyfactordeterminingtheEU’soverallmacroeconomicperformance.”SeeReportbyMarioMontitothePresidentoftheEuropeanCommission:‘ANewStrategyfortheSingleMarket’(June9,2010)9. See also the Single Market Act I and II, available online at: <http://ec.europa.eu/internal_market/smact/index_en.htm>.17 See Giandomenico Majone, Positive and Negative Integration, in Dilemmas of European Integration: TheAmbiguitiesandPitfallsofIntegrationbyStealth(OxfordUniversityPress,2005).18EuropeanCommission,FinancialServices:ImplementingtheFrameworkforFinancialMarkets:ActionPlan(COM(1999)232).
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measurestosupportasingle,integratedfinancialmarketbytheyear2005.TheFSAPconsistedofaset
offorty‐twomeasuresdesignedtocreateasinglemarketinfinancialservices.19
ItisunquestionablethattheFSAPcontributedtowardstheintegrationofsecuritiesmarketintheEU.20
AmajorityoftheFSAPmeasurestooktheformofdirectives,whichrequiredtranspositionintothe
nationallawofeachMemberState.Someofthedirectivesreplacedearlierones,whichwereregarded
asbeingoutdated,somewerealreadyundernegotiationwhentheFSAPwasadopted,andtheothers
revisedearlierproposals.ConcerningthegeneraleffectoftheFSAP,theextensiveEUharmonisation
eliminatedMemberStateself‐regulation,21affecting,inparticular,certaincountrieswhoseregulation
wasself‐regulatoryinnature,mainlyinconnectionwiththeenforcementagencies.
AlongsidetheFSAP,the“CommitteeofWiseMenontheRegulationofEuropeanSecuritiesMarkets”,
chairedbyBaronAlexandreLamfalussywasappointed, inorder toassess thestateof integrationof
theEuropeansecuritiesmarket(LamfalussyCommittee).22ThedifferencebetweentheFSAPandthe
LamfalussyCommitteewasthattheFSAPsetoutaroadmaponsubstantiveharmonisation,whilethe
Lamfalussy Committee assessed the legislative process in the EU and proposed a new law‐making
process–the“Lamfalussyprocess”.InFebruary2001,theLamfalussyCommitteesubmittedtheirfinal
report (theLamfalussyReport).23TheLamfalussyReportpointed to the inabilityof theEU toadopt
quicklyandeffectivelyallnecessarymeasures.24
Theoutcomeof theLamfalussyReportwasanewand reformedarchitecture of legislativeprocess
with four layers. It divided legislation into two groups: on the one hand the “high‐level framework
provisions,” and on the other the more detailed “implementing measures”.25 Ultimately, the
19FSAPisfar‐reachingandincludeslegislativemeasurescoveringsecuritiesofferings,taxation,ofcross‐borderoccupationalpensions,preventionoffraud.Aftertheadoptionoftheproposeddirectivesandregulation,theEUCommissionpublishedareportontheeconomicevaluationoftheFSAPinallofthreesectors:banking,securitiesand insurance. The report is available online at: <http://ec.europa.eu/internal_market/finances/docs/actionplan/index/090707_economic_impact_en.pdf >/lastvisited June17,2017.Therehadbeenalsoother reports and inquirescarriedout, e.g. theempiricalFinancialIntegrationMonitor, first published in 2003, which tracked progress towards financial integration under theFSAP.20 SeeDan Prentice& Arad Reisbeg, Corporate Finance Law in the UK and EU 398 (OxfordUniversity Press,2011)andNiamhMoloney,‘FinancialMarketRegulationinthePost‐FinancialServicesActionPlanEra’,55INT’L&COMP.L.Q.982,982‐983(2006).21SeeJean‐PierreCasey&KarelLannoo,TheMiFIDRevolution,200(CambridgeUniversityPress,2009).22TheCouncil (in itsEconomicandFinanceMinistersFormation (ECONFIN)appointed the committee in July2000. The establishment of this Committee to look at radical opinions for the development of the singlesecuritiesmarketwas thebrainchild of Laurent Fabius, the Frenchminister of finance, ‘ARagbagofReform’,ECONOMIST93,March3,2001.23FinalReportoftheCommitteeofWiseMenontheRegulationofEuropeanSecuritiesMarket,availableonlineat:<http://ec.europa.eu/internal_market/securities/docs/lamfalussy/wisemen/final‐report‐wise‐men_en.pdf>.24Id,at17‐18.25AtLevel1, the“high‐level frameworkprovisions”areadopted(informofdirectivesorregulations).Level2should adopt detailed technical “implementing measures”, which are adopted under accelerated delegated
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LamfalussyReportwasofficiallyendorsedbyMarch2001bytheStockholmEuropeanCouncil.Atthe
time, it also received a favourable reception from the financial industry participants aswell as the
regulatoryorganisations,yetwasnotinapositiontopreventthe2008FinancialCrisis.
Afterthe2008FinancialCrisis,theinternationalreformagendahasbeendrivenbytheG20agenda,as
initially agreed in the 2008 Washington Action Plan. The plan was the adoption of a range of
regulatoryandsupervisorystandardsbroadlydirectedtowardsprudentialregulationandthesupport
of global financial stability and monitors progress. The international standard setter for financial
markets, IOSCO, has produced new standards. Besides the prudential regulatory framework, the
Council suggested that the balanced development of the EU financial system required regulatory
reform and greater financial integration.26 One of the regulatory reforms aimed at improving the
corporategovernancestandardsofthefinancialintermediaries.
2.2. Regulating Corporate Governance
Corporate governance is ‘the system by which companies are directed and controlled’.27 This
definitionwasacceptedanddevelopedbytheCadburyReportintheUnitedKingdomin1992forthe
sake of company and code reform. A more economic and widely referred definition states that
corporate governance ‘deals with the ways in which suppliers of finance to corporations assure
themselves of getting a return on their investment.’28 In 1997, the Organisation for Economic
CooperationandDevelopment(OECD)issuedasetofcorporategovernancestandardsandguidelines
toassistgovernmentsintheireffortstoregulatetheirnationalcorporategovernance.However,since
then,globalfinancialsystemshaveundergonemarkedstructuralchangesasaresultofvariousforces
including deregulation, technological innovation, financial scandals or market collapses. Nowadays,
the definition would be broader and, in addition to companies, it would include banks, insurance
companies, investment firmsandother financial institutions,whilehavingregard to the interestsof
other stakeholders, such as employees, creditors, the general public and the government.29 It soon
legislative procedure by the European Commission. At Level 3, the implementation process by nationalauthoritieswouldtakeplace,whileLevel4representstheenforcementbytheEuropeanCommissiontogetherwiththeMemberStates.26Commission,EuropeanFinancialStabilityandIntegrationReport2010(2011)(SEC(2011)89)(2010EFSIR)5.27 Adrian Cadbury, ‘Report of the Committee on the Financial Aspects of Corporate Governance’ (London,December1992).28AndreiShleifer&RobertW.Vishny,‘ASurveyofCorporateGovernance’,52JournalofFinance737(1997)at737.29 Klaus J. Hopt and Gottfried Wohlmannstetter (eds), Handbuch Corporate Governance von Banken p. 28 ff(Vahlen,C.H.Beck,2011).
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becameclearthatcorporategovernanceoffinancialinstitutionsdifferentiatesfromthenon‐financial
one. This has been also re‐emphasised by the recent Financial Crisis. In the case of financial
institutions,impropercorporategovernancecanleadtoeconomy‐wideramifications.However,ithas
primarilybeenaftertheFinancialCrisisthatthefocusoncorporategovernanceofbanks,ofpension
fundsandotherfinancialintermediariesgainedmomentum.
Oneofthefirstinstitutionstocodifyminimumrequirementsforbankgovernanceundertheheading
‘corporategovernance’wastheBaselCommitteeonBankingSupervisionattheBankforInternational
Settlements(BIS) in1999.30AftertheFinancialCrisis,anewwaveofdiversereports,guidelinesand
research on corporate governance of banks emerged, including the new version of the Basel
recommendations,theOECDreportof2009on‘CorporateGovernanceandtheFinancialCrisis’,31the
Walker Review on corporate governance in UK banks of 2009,32 and the European Commission’s
GreenPaper on corporate governance in financial institutions and remuneration policies in 2010.33
Additionally,theOECDalsoissued‘GuidelinesonInsurerGovernance’in2011.34Inadditiontothese,
therewerealsoseveralnationalreports.35
One of themost important contributions is the report of the Basel Committee from 2010,36 which
substantially changed thepreviousBasel report from2006. It contains 14principles (instead of 8),
which should serve as a guidance for banking practices, whereas 4 address the board practices, 1
senior management, 4 focus on risk management and internal control 2 address compensation, 2
concern bank structure and 1 disclosure and transparency. The guidelines were directed to assist
supervisors in thepromotionofsoundcorporategovernancepractices,with thebelief that ‘through
sound corporate governance bank supervisors can have a collaborative working relationship with
bankmanagement,ratherthananadversarialone.’Ultimately,theBaselrecommendationshavebeen
30 Basel Committee on Banking Supervision, Enhancing Corporate Governance for Banking Organizations,September 1999. Most recent version was adopted in October 2014, available online at: <http://www.bis.org/publ/bcbs294.pdf>.31OECD, ‘CorporateGovernanceand theFinancialCrisis:KeyFindingsandMainMessages’ (Paris, June2009)[hereinafter‘2009OECDFindingsandMessages’].32Walker Review, A review of corporate governance in UK banks and other financial industry entities, Finalrecommendations,November26,2009.33 European Commission, Green Paper on Corporate governance in financial institutions and remunerationpolicies,June2,2010,COM(2010)284final.InadditiontotheGreenPaper,seealsoCommissionStaffWorkingDocument, Corporate Governance in Financial Institutions: Lessons to be drawn from the current FinancialCrisis,bestpractices,AccompanyingdocumenttotheGreenPaper,June2,2010SEC(2010)669.34OECDGuidelinesonInsurerGovernance,2011.35Countries likeUK,GermanyorSwitzerlandhaveadoptedthese.FortheUK,seeFinancialReportingCouncil,TheUKcorporateGovernanceCode,June2010.36BaselCommitteeonBankingSupervision,Principlesforenhancingcorporategovernance,October2010.
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also acceptedby theEUas the leading study.37Thesewill be furtherdescribed and analysed in the
followingsections.
2.2.1. International level
On the international level, the 2014 Basel Committee Guidelines and the 2009 OECD Findings and
Messages,togetherwiththeOECDPrincipleshaveattractedthegreatestinterest.38TheOECDFindings
andMessagesprovideanoutcomeof an in‐depthanalysis into thereasonsbehind the failureof the
majorfinancialinstitutions.Thestudystipulatesthatthegreatestfailureofcorporategovernancelay
inweaknesses in remuneration, riskmanagement, board practices and the exercise of shareholder
rights.39 Accordingly, it called for a review of the OECD Principles. The OECD Principles, originally
developedin1999,followingtheOECDFindingsandMessages,wereupdatedinSeptember2015.The
Principlesrepresentconciseandunderstandableprinciplesofcorporategovernanceforfinancialand
non‐financial companies which are publically traded. The principles are presented in six different
chapters: a)Ensuring thebasis for aneffective corporategovernance framework;b)The rightsand
equitable treatment of shareholders and key ownership functions; c) Institutional investors, stock
marketsandotherintermediaries;d)Theroleofstakeholders;e)Disclosureandtransparency,andf)
The responsibilities of the board. Each chapter introduces a single principle,which is subsequently
supportedbysub‐principlesandcommentarythataimstohelpunderstandtherationaleandaimof
theprinciples.
In October 2014, the Basel Committee on Banking Supervision of the Bank for International
Settlements issued its consultativeGuidelines [on] Corporate governance principles for banks(the
2014BaselCommitteeGuidelines).The2014Guidelinesrevisetheformer2010versionforenhancing
corporate governance, inwhich the Committee reflected on the 2008 Financial Crisis, in particular
with regard to risk governance practices and supervisory oversight at banks. The 2014 Basel
Committee Guidelines incorporated corporate governance developments in the financial services
industrysincethe2010,includingtheFinancialStabilityBoard’s2013seriesofpeerreviewsandthe
resultingpeerreviewrecommendations.Themainrelevanceofthe2014BaselCommitteeGuidelines
lies in the fact that they were developed to guide the actions of the boards of directors, senior
management and risk, compliance, and internal control functional heads of financial institutions.
Central banks and/or banking supervisors of nearly thirty of the world’s largest economies are
37 Klaus J. Hopt, ‘Corporate Governance of Banks after the Financial Crisis’, in Financial Regulation andSupervision340(EddyWymeerschetal.eds,OUP,2012).38 OECD, G20/OECD Principles of Corporate Governance, 2015, available online at: <http://www.oecd‐ilibrary.org/docserver/download/2615021e.pdf?expires=1506347532&id=id&accname=guest&checksum=4ABE353AB62B89D032547A71E988CD2E>.39See2009OECDFindingsandMessages,at7‐10.
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members of the Committee, and the 2014 Principles are expected to affect the conduct by banking
authoritiesinbothmemberandnon‐memberjurisdictions,and,consequently,alsotheEU’sadherence
tothem.
2.2.2. The 2008 de Larosière Report
Asanotherconsequenceofthe2008FinancialCrisis,thePresidentoftheEuropeanCommission,José
ManuelBarroso,requestedJaquesdeLarosière(aformergovernoroftheBankofFranceanddirector
of IMF) to set up a High Level Group on Supervision formed by eight internationally recognised
independentspecialists.TheGrouppublishedinFebruary2009areportfocusingonthecausesand
policy and regulatory repairs of the Financial Crisis.40 In this report, corporate governance was
highlightedasoneofthemostimportantfailureswhichcausedtheCrisis.41Thereportstatesthat
failures in risk assessment and risk management were aggravated by the fact that the checks and
balancesof corporate governance failed.Manyboardmembers and seniormanagementof financial
intermediariesdidnotunderstand thecomplexproductsor theaggregateexposuredue to thepoor
qualityofmanagementandshareholders,inadequateremunerationandincentiveschemes.
Furthermore, the remuneration and incentive schemes within financial institutions contributed to
excessiverisk‐takingbyrewardingtheshort‐termexpansionoftheriskytradesratherthanthelong‐
termprofitableinvestments.42Insuchanenvironment,thefinancialintermediaries,employeesaswell
as shareholders, become accustomed to ever‐increasing revenues and returns, triggering herd
behaviour. Ultimately, among the recommendations of the report was the re‐assessment of the
remunerationpoliciesandprinciplesforbothemployeesandboardmembers.
2.2.3. Green Paper 201043
After theLarosièreReport, theCommissionpublished aspecificreporton thestateofcorporate
governance in the financial sector ‐ Green Paper 2010. This Green Paper should be read in
conjunctionwiththeCommissionStaffWorkingPaper.44EventhoughtheGreenPaper2010includes
initstitleallfinancialinstitutions,itsprimaryfocusisbanksandlifeinsurancecompanies.TheGreen
Paper 2010, similar to the Larosière Report, highlighted the inability of boards and senior
management of financial institutions to understand highly complex financial products and their
40TheHigh‐LevelGrouponFinancialSupervisionintheEU,ChairedbyJacquesdeLarosière,Brussels,February25,2009,availableonlineat:<http://ec.europa.eu/internal_market/finances/docs/de_larosiere_report_en.pdf>.41Ibid,at29.42Ibid,at10.43Commission,GreenPaper:Corporategovernanceinfinancialinstitutionsandremunerationpolicies,Brussels,June2,2010,COM(2010)284final[hereinafteras‘GreenPaper2010’].44CommissionStaffWorkingDocument, ‘CorporateGovernance inFinancial Institutions:Lessons tobedrawnfromthecurrentfinancialcrisis,bestpractices’,Brussels,June2,2010.
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unawarenessof theaggregateexposureandentailedrisk.Furthermore,amongother findingsof the
GreenPaper2010,itstipulatedthelimitationsoftheindependency,expertiseandtimecommitmentof
non‐executive board members. The risk management function was also weak and lacking in
independence and the remuneration structures were effectively inadequate as they supported the
excessiverisk‐takingandshort‐termism.45TheGreenPaper2010ultimatelysuggestskeyfindingsand
bestpracticesinregardtoboard,riskmanagement,shareholders,supervisorsandexternalauditors.
2.3. Economic and Legal Consideration of the Change: Position of Employees
It has been argued that the financial intermediaries’ regulation should focus on the protection of
systemic stability, the prevention of individual institution’s collapse, and strengthening themarket
discipline.46Theconceptofmarketdisciplineisthemostrelevantforthisreport,butandithasbeen
lacking a precise definition.47 If broadly defined and in deducing from literature covering banks’
market discipline, market discipline encompasses the discipline imposed by shareholders and the
market for corporate control on bank (or any other financial intermediary) management and
disciplineimposedbysubordinatedshort‐termcreditors,othercreditors,customersandemployees.48
All these are assumed to have the ability and incentives to monitor bank (financial intermediary)
behaviour.49Allthisclearlytranslatesintotheheightenedcorporategovernancetrendaftertheglobal
FinancialCrisis,whichdirectlyreflectsupontheissuesofboardrepresentation,remunerationpolicies,
competence,andconflictsof interest,aswellasriskmanagement.Of these factors,manyhavebeen
directly mentioned and considered in the recent EU regulation. Nevertheless, one component
continuestobemissing–thegreaterconsiderationsfortheemployeesoffinancialintermediariesand
theultimateimpactofregulationonthem.
TheEUCommissionStaffWorkingDocument(WD2014),analysedtheFinancialCrisisandsuggested
thereformof financial institutions.50TheCommission’saimwastoemphasisetheareasthatneeded
greater regulatory attention. In the WD 2014, a line between the costs to financial intermediaries
(“private”) versus wider “societal” costs was drawn, where the two might not necessarily be
45GreenPaper2010,at3.46RossCranston,PrinciplesofBankingLaw(OUP,Oxford2002,2nded.).SeealsoCharlesGoodhartetal.,FinancialRegulation:Why,HowandWhereNow?,(Routledge,London,1998).47DavidT.Llewellyn,‘Insidethe“BlackBox”ofMarketDiscipline’(2005)25EconomicAffairs41.48DavidT.LlewellynandDavidG.Mayes,‘WhatisMarketDiscipline?’inGeorgeG.Kaufman,MarketDisciplineinBanking:TheoryandEvidence(Elsevier,2003),186‐189.49EmiliosAvgouleas,‘TheGlobalFinancialCrisisandtheDisclosureParadigminEuropeanFinancialRegulation:TheCaseforReform’459.50 Commission StaffWorking Document: Economic Review of Financial Regulation Agenda, Brussels May 15,2014,COM(2014)279final.
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interconnected.51Thisstatementbyitself isquestionable.Nonetheless,theimportantfindingforthis
reportwastheCommission’sconclusionthat,whenregarding the impactof financialregulation, the
employees were considered to belong to the “private” side of the equation together with the
shareholders,whereas,ontheothersideofequation,allotherstakeholders,i.e.customers,creditors,
taxpayersetc.,weretobefound.Thereis,naturally,arationaleforwhytheCommissionperceivesthe
two groups to be structured in thisway. However, it is important tomaintain that employees also
belongthewidersocietyandwhether,consideringtheimpactofregulatoryreformsor,generally,the
structureofthereforms,theemployeesbelongtobothsidesofequation.Later,alsostipulatedbythe
reportbytheEBABankingStakeholderGroup,itwasimportanttostressthatthegreatestproportion
ofemployeesinthefinancialsectordonotreceiveexcessivelylargebonusesorotherformsofvariable
remunerationwhichgiverisetosystemicissues.52Thisindicatestheneedfordistinguishingbetween
employees and management of financial institutions when assessing the regulatory burden to the
financial industryanddevelopingtheframework.It isoftenoverlookedthat,alsoincaseof financial
intermediaries,employeesbelongtothemorevulnerablegroupofstakeholders.
2.4. European Deposit Insurance Scheme in the Nordic Countries53
European Deposit Insurance Scheme (EDIS) is the third pillar of the banking union after a single
supervisory mechanism (SSM) and a single resolution mechanism (SRM). Logically, it seems
reasonable to have an EU deposit insurance system to protect depositors since the banks are
supervised in daily operations and managed in resolution process if there is a default situation.
Conceptually,itisjustanecessaryprocessofestablishingabankingunion.
Originally, thebankingunion gradually emergeddue to the consequencesof thedependenceof the
bankingsystemandsovereigndepthcrisisinsomeEUcountriesduringthefinancialcrisisinEurope.
UndertheSSM,theECBdirectlysupervisesthelargestbanks,whilethenationalsupervisorscontinue
to monitor the remaining banks. The SRM applies to banks covered by thesingle supervisory
mechanism.So,bothSSRandSRMappliestobig,oftenmultinationalbanks,whichisconsistentwith
theinitiativesofthebankingunion.
“TheEDISproposal builds on the systemof nationaldeposit guarantee schemes (DGS)regulated by
Directive 2014/49/EU. This system already ensures that all deposits up to€100000are protected
51Ibid,at.192‐195.52 EBA Banking Stakeholder Group, ‘Proportionality in Bank Regulation: A Report by the EBA BankingStakeholderGroup’,June30,2014,at40.53ThissectionisauthoredbyThereseStrandandCarenYinxiaNielsen.
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throughnationalDGSallovertheEU.EDISwouldapplytodepositsbelow€100000ofallbanksinthe
bankingunion.“54
Then,itappearsthattheEDIScoversallbanks,whichisdifferentfromtheSSMandSRM,anditaimsto
provideamoreuniformdegreeofdepositinsuranceintheeuroarea.Sinceallnationsaredifferent,a
uniform deposit insurance for all banks could naturally result in risk‐taking and moral hazard of
nations with weaker banking systems. So, it’s crucial to design EDIS in way that minimizes moral
hazard,andensuresECBactsasthelastresortafterthenationalcentralbanks.Butthefinalstageof
theEDISisfullinsuranceinsteadofre‐insurance.AlthoughcontributionsbybankstoEDISwouldbe
risk‐based, it cannot prevent banks from excessive risk‐taking locally, at a Nordic level or
internationally.
DuetotheuniformEDIS,banksareencouragedtosetupbranchesabroadinsteadofsubsidiaries.This
would indeed help to break the link of banks and sovereigns, but also loose the supervision and
monitoringofbanksbylocally.
EDISmighttriggerdifferencesinhowtohandlediverseloanlevels,non‐performingloansrisksetcon
the national level. Conceptually, the risks are unequal from the start, while the current proposal
appearmoretargetedatavisiononhowitshouldbe(somewhat)equalattheend.Itisshouldalsobe
investigatedmoresystematicallywhataretheultimateconsequencesofsuchaproposal,ifbankingis
becomingmorecrossboarderinsidetheEurozonecountries
ThemodificationsoftheproposalthatEDIScanbeusedonlyafternationalprotectionmeasureshas
been exercised tomaximum extend aim to handle this. But could trigger a system towards aweak
compromise. Itdoesn’tsolvethefactthatdifferentcountrieshavedifferentprerequisites/protection
systemsfromstarteither,whichwasthemaincritic(fromGermanyamongothers).
The following sections are describing mainly from an economic and legal perspective what is the
currentstatusofEDISintheNordiccountries.
Sweden
Swedenisnotapartof theBankingunionandis thusnotcoveredbytheECproposal.TheSwedish
government decided last summer tomake a new investigation of whether Sweden should join the
bankingunion,likelytriggeredbyNordea’smovetoFinland.Inthepastthepositionwas“Swedenwas
not interested in joiningEDIS even if it remainedopen for the otherEUnoneEuromember states.
54 Available online at: <https://ec.europa.eu/info/business‐economy‐euro/banking‐and‐finance/banking‐union/european‐deposit‐insurance‐scheme_en#overview>.
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However, the governments want to have the possibility to join later if they so wish. The national
guaranteeschemes(2014/49/EC)willremainthebasisforalltheEUmemberstates.
SwedenpositionisthatEDISneedstobeatrustworthyconstructionandahealthyincentivestructure
todecrease themoralhazardof a joint risk‐sharingsystemas thatmayresult inhigher risk‐taking.
Sweden will put this position forward in any coming negotiations. In parallel, other measures are
takentoincreasefinancialstabilitywhichareconsideredasimportant.
TherewouldbenodirectimplicationsofEDISonSwedishlegislationatthemomentunlessSweden,as
mentioned,woulddecidetojointheeuro.
Finland
FinlandistheonlyNordiccountrythat ispartoftheBankingUnion,meaningitwouldultimatelybe
obligatoryforFinlandtojoinEDIS.TheproposalwouldasresulthaveimpactonFinnishlegislationas
wellasitsinstitutions,especially“Verketförfinansiellstabilitet”whichcurrentlyoverseesthenational
deposit guarantee scheme. However, its tasks won’t decrease as it would still be in charge of the
practicalitiesofthesysteminFinlandandremainasthecontacttodepositorsandcreditinstitutions.
Finlandhasstressedthat therisk levelsamongthememberstatesof theBankingUniondiffera lot,
resulting in that theprobabilityofactualuseof the fundalsodifferamongthestates.Thecostsand
benefitswithEDIScanthereforebearguedasnotbeingequalwithintheBankingUnion.
FinlandhasaveryconcentratedbanksectorandstrongconnectionstotheotherNordiccountries.The
balancesheetsofthethreelargestbanksinFinlandcorrespondtothe80%oftheentireFinnishbank
sector.Eventhoughthenationalguaranteescheme inFinland isconsideredaswell funded itwould
todayonlymanagepay‐outsincaseswithsmallbanks,notitthereareproblemswithseveralbanksor
bigbanks.Finlandwouldtherefore,undertherightcircumstances,supportajointdepositguarantee
schemeasitcouldminimizerisksforthestateinthefuture.
Finland supports a system that breaks the dependence between bank and state. However, Finland
means that if a transition toa jointdeposit system is tobemade, ithas tobeonequalgrounds for
transition.ItisnotinFinland’sinteresttojoinEDISuntilriskreducingmeasureshavebeentakenin
the Banking Union and questions the tight time plan for implementing EDIS. Many issues are still
consideredtobeunclearanditimportantthatthenationalguaranteeschemes(DGSD)functioninall
theMemberStatesbeforeenteringEDIS.
Fromdepositors’perspective,asanexampletheFinnishdepositinsuranceschemewillthentakeover
responsibilityofNordeaafterthemovefromSwedentoFinland.
Denmark
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DenmarkisnotapartoftheBankingUnionandwouldthereforenotbecoveredbyEDIS.TheDanish
governmenthoweverstressesthatitwantstobecoveredbyalltheelementsoftheBankingUnionif
Denmark would join in the future. It is considered important that all EU MS are a part of the
developmentofEDISandthattheycanjoinaswell if theywishandfulfil thecriteriaoftheBanking
Union.ThatallEUMSimplementBRRDandtheDGSDcorrectlyisemphasisedassomethingnottobe
forgottenwhenstartingtheworkonEDIS.Denmarksupportsandfindsitcentraltohaveriskbased
paymentsofthecreditinstitutionstotheguaranteescheme.
NodirectconsequencesofEDISareexpectedaslongasDenmarkdoesnotjointheBankingUnion.If
DenmarkenterstheBankingUnionandthusEDISitisimportantforthegovernmenttoensurethatthe
Danish deposit guarantee schememay continue to cover deposits and investors that are currently
covered,includingfullcoverageofpensionplans.
Iceland
Currently,IcelandisalsonotapartoftheBankingUnionandwouldthereforenotbecoveredbyEDIS.
Theofficialpositionisn’tknowatthemoment, andespeciallyifIcelandwillatlaterstagechangeits
position and thereby de‐facto become covered by all or parts the elements of the Banking Union,
includingEDIS.
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3. Specifics of the Nordic Corporate Governance
Focusingontheemployees,theNordiccountrieshave,inrecentyears,attractedsubstantialattention.
TheNordic countries have been perceived aswelfare stateswith large governments, strong labour
unions, balanced income redistribution, and high taxes.55 Even though in recent years the Nordic
model has attracted attention, limited attention has been paid to theNordic Corporate Governance
model. Nonetheless, all this changed after the Financial Crisis and in the EU’s endeavour formore
stable, transparentandfairmarkets,astheattentionhasbeenshiftedtowardstheNordicCorporate
Governancemodel,which,initscore,maintainstheinterestsofmultiplestakeholders.56Followingthe
Crisis, one of the discussions surrounded the perceived “short‐termism” of financial institutions as
wellasoflargemultinationalcorporations.Ithasbeenarguedthatcorporategovernancemodelsare
failing due to inadequate monitoring and the representation of diverse stakeholders.57 As a
consequence, regulatory and scholarly attention has focused on “better” corporate governance
solutions,includingthoseappliedintheNordiccountries.58
InthecorporategovernancemodelsoftheNordiccountries,corporateownershipremainssomewhat
concentrated,whiletheprivatebenefitsofcontrolarereportedlyrelativelylow.Ithasbeensuggested
that thereare several reasons for the relative equilibriumwithin the corporategovernancemodels,
including high level tax compliance, the non‐pecuniary nature of control benefits, the higher
monitoring of controlling shareholders, as well as the fact that, in Nordic countries, the applied
corporategovernancemodelsarearesultoftheinteractionbetweenpoliticalandmarketstructures.
In other words, the corporate governance regulation reflects the interests of dominant corporate
constituencies.59 Nonetheless, in addition to the corporate constituencies, in Nordic countries, the
importantrole isplayedbytripartism.60Socialdialoguetogetherwithtripartismondifferent levels
representsanimportantpartoftheindustrialrelationssystemintheNordiccountries.
TherearenumerousreasonsfortheinclusionofemployeesintothegreaterdiscussionsintheNordic
countries and their corporate governance. Firstly, corporate governance and the structure of
corporate ownership are closely related. Secondly, both represent a result of specific historical,
55 SteenThomsen, ‘TheNordicCorporateGovernanceModel’,ManagementandOrganizationalReview,12 (1)(2016),189‐204.56See,inparticular,PerLekvall(ed.),TheNordicCorporateGovernanceModel(2014).57LynnDallas,‘ShortTerminism,theFinancialCrisisandCorporateGovernance’,37J.CORP.L.264(2011).58DescribedinSteenThomsen,‘TheNordicCorporateGovernanceModel’,12MNG.&ORG.REV.189(2016).59JohnArmour,HenryHansmann&ReinerKraakman,AgencyProblemsandLegalStrategies,inTheAnatomyOfCorporateLaw,AComparativeAndFunctionalApproach35(Kraakmanet.al,2017).60MartingIversenandLarsThue,CreatingNordicCapitalism:TheBusinessHistoryofaCompetitivePeriphery,inCreatingNordicCapitalism1‐19(SusannaFellman,etal.,eds.,2008).
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political,economicandindustrialdevelopment.61Thisreportdoesnotaimtoelaborateindetailonthe
variousfactorsthathaveinfluencedthecorporategovernanceinNordiccountries.62Nevertheless,itis
the belief of the author of this report that it is necessary to provide the readerwith the necessary
understandingof theenvironment inwhichtheNordicCorporateGovernancehasemanated,as it is
beyonddoubtthatlegalnotionsonlyreflectandreacttotheenvironment’srealities.
3.1. A Brief Insight into the Development
In this section, the key political and economic factors together with corporate realities will be
described, in order for the reader to envision the rationales for the Nordic Corporate Governance
model.TheNordicregionhasbeenknownforitsconcentratedownership,whichremainsrelatively
high,onaveragefrom23.5‐44.8%forthetopfiveshareholderstogether.63Alongsidetheconcentrated
ownership,thecontrolenhancingmechanismshavebeenpresentinordertosupportthecontrolof
incumbentshareholders.64Thesemechanismsincludetoolssuchasmultipleshareclasses,votingcaps,
pyramidownershipstructures,orsmallboards.Inaddition,thelargeshareholders,who,accordingto
Eklund, hold, on average,more than 20% of the capital and close to 30% of the voting rights, are
supported by employees and labour unions.65 In order for these large shareholders to retain their
control,theyareinneedofsupportfromlabourunionsandemployees.
Historically,itwastheindustrialstructuresofthefirstdecadesofthe20thcenturythathavemodelled
thecorporateownershipandcontrol.InSweden,theindustrywasrepresentedbylargecorporations
involvedinmachineryandintherefinementofrawmaterials.66Largefamilycorporationsdominated
themarket. AsHögfeldt has described, labour unions have cooperatedwith large shareholders and
supportedtheminreturnforjobsecurity.67Theprevalenceofconcentratedownershiphasbeenbased
on a political bargain between capital and labour resulting in a corporatist society with private
61 See, in general, Randal K.Morck ed.,AHistory ofCorporateGovernancearound theWorld:FamilyBusinessGroupstoProfessionalManagers(NationalBureausofEconomicResearch,UniversityofChicagoPress,2007).62 For this purpose see in general Klaus R. Ilmonen, ‘A Political Narrative in Nordic Corporate Governance:Shareholders,StakeholdersandChangeofControl,EuropeanCompanyandFinancialLawReview,12(4),(2015).63JohanE.Eklund,‘CorporateGovernanceandInvestmentsinScandinavia–OwnershipConcentrationandDual‐classEquityStructure(CESISElectronicWorkingpaperseries,2007)9.64 Klaus R. Ilmonen, ‘A Political Narrative in Nordic Corporate Governance: Shareholders, Stakeholders andChangeofControl,EuropeanCompanyandFinancialLawReview,12(4),(2015)495.65JohanE.Eklund,‘CorporateGovernanceandInvestmentsinScandinavia–OwnershipConcentrationandDual‐classEquityStructure(CESISElectronicWorkingpaperseries,2007)28.66HansSjörgen,WelfareCapitalism:TheSwedishEconomy,1850–2005,inCreatingNordicCapitalism22,22‐30(SusannaFellman,etal,eds.,2008).67 Peter Högfeldt, The History and Politics of Corporate Ownership in Sweden, in A History of CorporateGovernancearoundtheWorld:FamilyBusinessGroupstoProfessionalManagers(RandallK.Morcked.,2005)538‐549.
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concentratedownershipandstronglabourunionsandstrongemployeeprotection.68Moreover,from
theperspectiveofcapitalmarketconstruction,Högfeldtarguesthatthesocialdemocratshavepursued
policiesthatsupportedbankownershipofequity,whileprovidingtaxadvantagestoretainedearnings
andborrowingoverequity.69Concentratedownershipandcontrolenhancingmechanismshavealso
beencharacteristicforFinland,duetoSweden’sinfluenceaswellaspoliticalinstabilitiesduringthe
20th century. In Finland, the position of employees has beenweakened by the FinishCivilWar and
later by internal conflicts with the labourmovement.70 Nevertheless, protecting employees was an
importantfactorthathasgreatlysupportedpoliticalstability.71Later,thespecificissuefortheFinnish
business environment has been the lack of financing. Until the 1980s, large shareholders in listed
companiesweretypicallyFinnishfinancialinstitutionsandthegovernment,andlaterpensionfunds.72
According toAndresenandThue, thedevelopment inDenmarkandNorway in the20th centuryhas
includedsimilarphenomenaasinSwedenandFinland,whereas,notoriously,forDenmark,itwasthe
significance of the agricultural industry and, for Norway, the geographical factors which have
influencedthedevelopmentofalocallydrivenself‐relianteconomicstructure.73
3.2. Position of Employees
Whenassessingthepositionofemployeesthroughthelensofthegeneralcorporategovernanceinthe
Nordic countries, the claim ofHöpnermightwell prove true. He stipulates that the ‘countrieswith
organised labour market institutions tend to have a high degree of organisation of corporate
governance,andviceversa’.74TheuniondensityacrosstheNordiccountriesreaches70%.Itishighest
inIceland,atover80%75inFinlanditreaches74%,thirdisSweden,at70%,fourthDenmark,at67%,
68Ibid.69Id.at560.70SusannaFellman,‘GrowthandInvestment:FinnishCapitalism,1850‐2005,159inCreatingNordicCapitalism1‐19(SusannaFellman,etal.,eds.,2008).71Ibid.72 Klaus R. Ilmonen, ‘A Political Narrative in Nordic Corporate Governance: Shareholders, Stakeholders andChangeofControl,EuropeanCompanyandFinancialLawReview,12(4),(2015)499.73Martin JensIversenandSteenAndersen, ‘Co‐operativeLiberalism:Denmarkfrom1857to2007, inCreatingNordic Capitalism (Fellman et al., 2008) at 265; Lars Thue, ‘Norway: A Resource‐based and DemocraticCapitalism’,inCreatingNordicCapitalism(Fellmanetal.(2008)at394.74 Höpner, Martin, ‘What Connects Industrial Relations and Corporate Governance? Explaining InstitutionalComplementarity,Socio‐EconomicReview(3)(2005)334.75 Data on Iceland were collected from the Icelandic Confederation of Labour, available online at: <http://www.asi.is/engpol>.
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and,lowestintheNordics,isNorway,at52%.76Overall,thesenumbersindicatethatthelabourunions
areparticularlypowerfulandholdastrongpositioninthecorporategovernancestructure.
In the Nordic countries, the following tools are present in corporate governance for employee
protection. First isemployeerepresentation as a long‐establishedpracticeon theboardsofmany
Nordic banks, which represents a German approach. The precise regulation varies between the
countries, yet is closely connected to thepresenceof strongunions.77 Employees of companies of a
certainsize(aboveaspecificnumberofemployees),haveastatutoryrighttoelectacertainnumberof
directors (employee directors) to the board. Where employee board representation is practised,
usuallyonethirdoftheboardofdirectorsconsistsofemployees.However,theboardrepresentationis
arightoftheemployees,notanobligation.Thus,accordingtotheLekvallReport,inmorethanhalfof
thelistedcompaniesinDenmarkandSweden,theemployeeshavechosennottoexercisethisrightin
exchange for other benefits, e.g. in the form of special co‐determination procedures and/or
information‐sharing committees. The employee representation is not only present in the Nordic
countries,butalsoinGermany,Austria,FranceandotherEUMemberStates.However,employeesin
Nordic countries are not providedwithmore than one third of the board seats,whereas, in larger
German companies, the number of employees on the boardsmay rise to up to a half of the board,
whichmightrepresentimpedimentsforboards’efficiency.Theemployeerepresentationoncompany
boards ismost presumably the best direct expression of social democracy in the Nordic corporate
governancemodels.78
Othertoolsappliedincorporategovernanceinordertoprotectemployeesincludetherighttoforma
union, the subsequent ability of collective bargaining, and workplace representation in diverse
committees,includingahealthandsafetyrepresentation.Furthermore,employeeshavealsobenefited
from economic rights, such as financial participation. All of these are also present in one form or
another in the Nordic countries. Ultimately, due to the established corporate practices and the
strength of labour unions, employees in the Nordic countries have enjoyed high levels of job
protection,includinghigherlevelsofemployeecompensation,socialprogrammes,andunemployment
benefits.
76 Data provided by the European Trade Union Institute, available online at: https://www.worker‐participation.eu/National‐Industrial‐Relations/Across‐Europe/Trade‐Unions2#_ftn1.77 SteenThomsen, ‘TheNordicCorporateGovernanceModel’,ManagementandOrganizationalReview,12 (1)(2016),194.78Ibid,at.200.
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4. Nordic Implementation of the EU Financial Rules: Checks and Balances
The corporate governance system is represented by a complex set of written and unwritten rules,
normsandpractices.Inthissectionthereportwillfirstdescribetheimportanceoftheindividualtools
orthepracticeandsubsequently,focusontheexistingEUregulatoryframeworkanditstransposition
or implementation in the Nordic countries. The EU regulatory framework will be explained and
subsequently followed by a discourse on the Nordic transposition. Unless there are discrepancies
amongtheformandcontentinwhichtheNordicjurisdictionshavetransposedtherelevantEUrules,
thereportwillrefertojointlyNordictranspositionorpractice.Incaseanyofthejurisdictionsdidnot
transposetheEUruleortransposeditinadifferentwayortherearecertainspecificitiesrelevantfor
thisreport,thisreportwillindicateitaccordingly.Whereapplicable,theexistingself‐regulation,which
hasalong‐standingtraditioninmanyaspectsofsocietallifeintheNordiccountries,willbepresented.
Moreover, due to the investigation into three sectors in the financial industry: (i) banking, (ii)
insuranceand(iii)investment,thetextwithineachsubsectionemphasisestherelevantsector.
InregardtothedifferencesbetweentheMemberStatesoftheEUandEEA,pleaseseeAnnex1,which
showsthetranspositionstatusofallfivejurisdictions.CRDIVhasbeentransposedbyalljurisdictions,
whereasMiFID II has not yet been incorporated into the EEA agreement, thus it has not yet been
transposed by Norway,79 or by Iceland. The current status ofMiFID II in Norway is that the act is
markedasEEA‐relevantbytheEUandunderscrutiny for incorporation into theEEAAgreementby
Iceland, Liechtenstein and Norway. The draft proposal is currently being discussed in Norway. In
Iceland,acommitteeundertheauspicesoftheMinistryofFinanceandEconomicAffairspublisheda
reportonMiFIDIIandMiFIRinJune2016.However,adraftproposalregardingtheimplementationof
MiFIDIIintoIcelandiclawhasnotyetbeenpublished.Moreover,bythetimethisreportwasfinalised,
FinlandhadalsonotyettransposedMiFIDIIintoitsnationallawandSwedenhasonlypartiallydone
so.80TheIDDissupposedtobetransposedbyFebruary23,2018andnoneofthejurisdictionshaveyet
transposedthedirectiveorhaveadoptedanyrelevantlegislativemeasures.
79SeethepressreleaseoftheNorwegianFinancialSupervisoryAuthority(Finanstilsynet)onNovember3,2017,availableonlineat:<https://www.finanstilsynet.no/en/news‐archive/press‐releases/2017/implementation‐of‐mifid‐ii‐and‐mifir‐in‐norway‐‐temporary‐regulations/>.80SeeAnnex1.
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4.1. Role of the Board of Directors81
It hasbeenbroadly recognised that theprimary responsibility for good corporate governance rests
with the boards of directors and seniormanagement of financial institutions.82 The Financial Crisis
uncoveredthatboardsofdirectorsinfinancialinstitutions,ingeneral,didnotfulfiltheirkeyroleas
principal risk assessors and decision makers, often lacking the control, knowledge and ability to
properlyassessrisks,bothproduct‐andinstitution‐related.TheEuropeanlegislativemeasuresaimed
toaddresstheseissuesand,inamorecohesive,manner,stipulate:i)structureandfunctioningofthe
board, including the duties and liabilities of boardmembers, and ii) riskmanagement function and
internalcontrolsystem.Atthesametime,invariouslegislativeacts,thecharacterandcompositionof
financialinstitutions’boardsisexpressed.Ingeneral,aboardofdirectorshasvariousfunctions,but,in
theory,theyfallintothreebasiccategories:(i)management,(ii)oversight,and(iii)service.Lookingat
the Nordic boards, in general they are relatively small and the roles of chair and CEO are always
separated.Theboardsmaintaina strict separationofdutiesand responsibilitiesbetween theboard
andtheCEO.Nordicboardsare independentbodiesthatarestrictlysubordinateandaccountable to
thegeneralmeeting.
Beforestartingtoanalysespecificprovisionsgoverningtheboardofdirectors, it isonlyCRDIV,IDD
andMiFIDIIthataddresstheissuesstatedabove.However,ithasnotbenotedthatCRDIVandMiFID
II acknowledge different governance structures across Member States (Preambles, Art. 55 and the
existing diversity among the board composition and the division of powers and tasks (CRD IV,
Preamble, Recital 56; MiFID II, Preamble, Recital 53). Consequently, this leaves the structure,
functionandpowerdivisionfortheMemberStatestoregulateanddoesnotanyhowdirectthe
MemberStatestowardsanyoftheexistingboardmodels.Nevertheless, theMemberStatesshall
identifythebodiesormembersofthemanagementbodyresponsibleinaccordancewithitsnational
law for themanagerial and supervisory functions (CRD IV, Art. 3(2)). Furthermore, CRD IV clearly
emphasisestheresponsibilityofaboardandmanagement ingeneral foroverallstrategyof the firm
anditsriskprofile.InthelightofCRDIVandMiFIDII,MemberStatesshouldintroduceprinciplesand
standardstoensureeffectiveoversightbythemanagementbody,promoteasoundriskcultureatall
levels(Preambles,Recital54).MiFIDIIclearlystipulatesthetaskofaboardintheArt.9,includingthe
organisationof the firm,policyas toservices, remunerationpolicyaswellas the implementationof
81IDDII,CRDIVandMiFIDIIrefertoa‘managementbody’,whichmeans“aninstitution’sbodyorbodieswhichareappointedinaccordancewithnationallaw,whichareempoweredtosettheinstitution’sstrategy,objectivesandoverall direction, andwhichoversee andmonitormanagementdecision‐making, and include thepersonswhoeffectivelydirectthebusinessoftheinstitution.”82KernAlexander&RahulDhumale, ‘EnhancingCorporateGovernance for Financial Institutions:TheRole ofInternationalStandards’,ERSCCentreforBusinessResearch,UniversityofCambridge,WorkingPaperNo.196.
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strategic objectives of the firm. According to Art. 88(2) MiFID II, a nomination committee shall
periodically, and at least annually, assess the structure, size, composition, performance, skills and
experienceofindividualmembersofthemanagementbodyandmakerecommendations.
4.1.1. Representation of Employees: Composition and Diversity
CRD IV and MiFID II leave it up to the Member States which legal construct of their financial
intermediaries they decide to follow. However, CRD IV calls for non‐executivemembers in the
management board who would constructively challenge the strategy of the institution and thus
contribute to institution’s development, scrutinising theperformance ofmanagement and achieving
agreedobjectives(Preamble,Rec.57).Diversityshouldbealsoundertakenbyfinancialinstitutionsin
ordertoavoidgroupthinking(CRDIVPreamble,Rec.60).Thenominationcommitteeshall,inregard
to diversity, prepare a policy how to increase the number of the underrepresented gender in the
managementboard(Art.88CRDIV).
CRD IV in Recital 60 addresses the diversity issue of the board and stipulates that employee
representatives could add a key perspective and genuine knowledge of the internal workings of
institutionsthatwouldultimatelyenhancetheinstitution’sdiversity.ThisisalsostatedintheRecital
53MiFIDII’sPreamble.However,exceptArt.91(13)CRDIV,providingspecificprovisiononboards’
corporate governance, states that Art. 91 shall be without any prejudice to provisions on the
representationofemployeesinthemanagementbody,asprovidedforbynationallaw.Inotherwords,
CRDIVorMiFIDIIdonotrequireboardstoappointanemployeerepresentative,aslongasMember
States’nationallawsdonotstipulatesuchobligation.
In the Nordic countries, employee‐appointed directors to the boards of large corporations,
irrespectiveofsector,hasbeenawidespreadpracticeforyears.Theemployeesofcompaniesabovea
certainnumberofemployeesinDenmark,NorwayandSwedenhaveastatutoryrighttoelectacertain
number of directors to the board. In Denmark and Sweden, board representation is a right of the
employees, but not an obligation and, according to accumulated data, in more than half of these
companies, employees have chosen not to use this right.83Nevertheless,when looking at boards of
83SeeTheNordicCorporateGovernanceModel,perLekvalled,at78.
Thestructure,functionandpowerdivisionoftheboardofdirectorsareleftfortheMemberStates
to regulate.Nogovernancemodelsaresuggestedby theEU financial legislation.Nevertheless, in
the light of CRD IV and MiFID II, Member States should introduce principles and standards to
ensureeffectiveoversightbythemanagementbodyandpromoteasoundriskcultureatalllevels.
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financial institutions, the employee representative is a standard. Employee representation in
governingbodiescontributestosoundandeffectivecorporategovernance,asitisinthebestinterests
oftheemployeesfortheinstitutiontoachievesustainableandlong‐termperformance.
PursuanttoSection79aoftheDanishFinancialBusinessAct,84theboardofdirectorsofalistedora
largerfinancialundertakingandfinancialholdingcompanyshallsettargetfiguresforthepercentage
of an underrepresented gender in the board of directors, and prepare a policy to increase the
percentage of the underrepresented gender in the other management levels of the undertaking.
Furthermore,theDanishRecommendationsonCorporateGovernancebytheCommitteeonCorporate
Governance state that the board of directors should ensure diversity in the board, including age,
internationalexperienceandgender.Whiletheguidelinesrepresentsoft law,theynonethelessshow
thebestpracticewithincorporategovernanceinDenmark.
The Swedish legislator has introduced employees’ representation into the management board
throughtheFinansinspektionen’sRegulationandGeneralGuidelines.However,thisshouldnotaffect
therightofemployeeorganisationstoappointemployeerepresentatives inaccordancewithPrivate
SectorEmployees(BoardRepresentation)Act(1987:1245).85
InFinland,pursuanttoSection2(2)oftheFinnishCreditInstitutionsAct,86theboardofdirectorsofa
credit institution shall approve a policy to promote diversity in the composition of the board of
directorsaswellassetatargetregardingtherepresentationofbothgendersintheboardofdirectors
and prepare an action plan in order to meet and maintain such a target. In addition, as regards
companieslistedonNasdaqHelsinki,theFinnishRecommendationsonCorporateGovernancebythe
FinnishSecuritiesMarketAssociationcontainsoft lawrecommendationsprovidingthattheboardof
directors should ensure the diversity of the members of the board of directors in terms of age,
experienceandgender. It isemphasisedthattheboardofdirectorsshouldincludemembersofboth
genders. In practice, the directors’ appointment by employees is based on agreement between the
employeesandthecompany.However,isveryrarelyusedinpractice.87
84ConsolidatedActno.174ofJanuary31,2017.85 (Sw. lagen (1987:1245) om styrelserepresentation för de privatanställda) (Government Bill 2013/14:228 p.176).86ActonCreditInstitutionsno.610ofAugust8,2014.Laki luottolaitostoiminnasta,610/2014,August8,2014(AA171101).87SeeTheNordicCorporateGovernanceModel,perLekvalled,at78.
AllNordic jurisdictionshaveprovisions inplacegoverningthecompositionanddiversityof their
boardsofdirectors.However,weshouldalsoaskwhatweunderstandbydiversityitself.
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The Norwegian legislator has transposed the Art. 91 on employee representation in the board
throughSection8of theActonFinancialUndertakings,88whichrequires that theboardofdirectors
shallbediverseinitscomposition.This‘diverse’natureoftheboardis,however,notfurtherqualified.
Nevertheless, Norwegian regulatory stipulation is specific in regard of procedure. In undertakings
withatleast15employees,amajorityoftheemployeesmayrequestthatoneboardmemberandone
observerareappointedbytheemployees.AccordingtoSection8‐4(5),infinancialundertakingswith
atleast50employeesthatdonothavea"foretaksforsamling"(particularmanagementbodyknownto
Norwegianfinancialundertakingswithmorethan200employees),amajorityoftheemployeesmay
request that at least twoof the boardmembers atminimum, and a third of the boardmembers, at
maximum,areappointedbytheemployees.Iftheundertakingisapartofafinancialgroup,thenthe
totalnumberofemployeesofthegroupshallbecountedforthepurposeofthiscriterion.Incaseofa
financial intermediaryofmorethan200employees,theboard, inagreementwiththemajorityof its
employees or trade unions that represent two thirds of the employees, may decide to establish a
"foretaksforsamling". Two thirds of the members of the "foretaksforsamling" are elected by the
shareholders’meeting.Theremainingthirdofthemembersofthe"foretaksforsamling"areelectedby
theemployees.The"foretaksforsamlings"principalauthority istoappointtheboardmembersof the
undertaking,andtosupervisethemanagementoftheundertaking.
PartofArt.91ofCRDIVhasbeenimplementedintotheIcelandicFinancialUndertakingsAct.89The
preparatoryworkstotheIcelandicFinancialUndertakingsActdirectlymentionArt.91(1)CRDIV.Art.
52(4)oftheFinancialUndertakingActisbasedonArt.91(1)and(7)oftheCRDIV,stipulatingthatthe
boardshallinwholeenjoysufficientknowledge,skillsandexperiencetounderstandtheactivityofa
financialundertakingandtherisks.Similar toFinland, the IcelandicrecommendationsonCorporate
Governance by Iceland Chamber of Commerce, Nasdaq Iceland and the Organization on Economy,
containsoftlawrecommendationsprovidingthattheboardofdirectorsshouldensurethediversityof
themembersoftheboardofdirectorsintermsofage,experienceandgender.
Similar toCRD IV,MiFID II inRecital53of thePreamblealso stipulates that theboardstructure is
importanttocorporategovernance,asitaffectsthenatureandextentofdirectors’powers,influence,
andresponsibilitiesandmayalsoaffect theabilityofboards tohold theirmanagersaccountable for
theirdecisions.Diversityshouldalsobeaddressed in firms’ recruitmentpolicymoregenerally.This
approachofgreaterdiversificationofaboardshouldavoidgroupthinkingandfacilitateindependent
opinions and critical challenge, andmanagement bodies should therefore be sufficiently diverse as
88TheActonFinancialUndertakingsandFinancialGroups,whichhasbeenineffectsinceJanuary1,2016(Lovomfinansforetakogfinanskonsern).89ActonFinancialUndertakingsno.161ofDecember20,2002.
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regardsage,gender,geographicprovenanceandeducationalandprofessionalbackgroundtopresenta
varietyofviewsandexperiences.Art.45laysdownspecificrequirementsfortheboard,includingthe
goodreputation,sufficientknowledge,skillsandexperiencetoperformitsduties.SimilartoCRDIV,
thenominationcommitteeshouldbe inplace inorderto identifyandrecommendpropercandidates
fortheboardaswellasannuallyreflectuponthecompositionandperformanceoftheboard.
InDenmark, Art. 45 ofMiFID II has been transposed intoDanish law through the CapitalMarkets
Act,90andwhichrequirestheboardofdirectorsof themarketoperatortoensurediversity(without
gold‐plating).TheCapitalMarketsActdoesnotimposeadirectdiversityrequirementinrespecttothe
managementbodyinadatareportingserviceprovider.InSection64,itstipulatesthattheboardofa
regulated market operator shall establish a diversity policy in the board that promotes sufficient
diversityinqualificationsandcompetenciesamongmembers.
InSweden,MiFID IIhasbeen transposedonlypartially.The full transpositionshall takeplace from
January3,2018.91FinlandhasnotyettransposedMiFIDIIintoitsnationallaw.However,inthelight
ofPrimeMinisterJuhaSipilä'sGovernmentProgramme,thegovernmentaimstoavoidgold‐platingin
thefutureimplementationofEUlegislation.Inparticular,theProgrammestatesthatFinlandwillseek
less but better and lighter regulation on the EU level andwill not introduce such gold‐plating that
wouldbedetrimentaltoFinland'scompetitivenessinthenationalimplementationofEUlegislation.
4.1.2. Remuneration and Short‐termism
Regarding credit institutions, CRD IV in recitals 62‐69 of the Preamble stipulates the necessity of
discouraging those remuneration policies that supportexcessive risk‐taking behaviour and thus
undermine sound and effective risk management. A board should periodically review the
remunerationpolicies in place. This policy is further detailed in Art. 92 and 94 of CRD IV, laying
downmore specific provisions on the remuneration policies and risk aversion as well as variable
elementsofremuneration.AccordingtoArt.94CRDIV,theindividual’svariableremunerationisbased
onacombinationoftheassessmentoftheindividual,theirbusinessunitaswellastheoverallresults90ConsolidatedActno.650ofJune8,2017.91ActonNewRulesonFinancialInstrumentMarkets(MiFIDIIandMiFIR)2016/17:162ofMarch30,2017.
Theprovisions of CRD IV in regard to board composition are present in allNordic jurisdictions.
However, in regard to the transpositionofMiFID II, onlyDenmarkhas fully transposedMiFID II
andhasreferred to the “employeerepresentation” inmanagementbodiesasawayofenhancing
diversity.
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ofaninstitution.Furthermore,thevariablecomponentshallnotexceed100%ofthefixedcomponent
ofthetotalremunerationforeachindividual,whereastheMemberStatesmaysetalowerpercentage.
Although the IDD also covers the remuneration considerations, it does not require remuneration
committeesandemployeerepresentativestherein.
TheCRDIVinArt.95,inconnectionwithboard’sduties,stipulatesthatfinancialinstitutionsthatare
significantintermsoftheirsize,internalorganisationandthenature,thescopeandthecomplexityof
their activities establish aremunerationcommittee. The remuneration committee shall bepart of
the board, while not performing an executive function. As long as the national law provides for
employee representatives in the board, there should be also an employee representative in the
remunerationcommittee.Financialinstitutionsshoulddisclosetheirremunerationpoliciesonline.
Denmark has transposed the rules governing the remuneration committee in the Danish Financial
BusinessAct,inSection77c.Denmarkobligesonlythesignificantfinancialinstitutionstoestablish
aremunerationcommittee.92AccordingtothisSection,aslongasthereisemployeerepresentationin
afinancialundertaking,afinancialholdingcompanyoraninsuranceholdingcompany,atleastoneof
the employee representatives has to be a member of the remuneration committee. In addition,
Sweden has transposed theobligationas to the establishmentof a remuneration committeeby the
Finansinspektionen’s Regulations and General Guidelines.93 Chapter 3 Section 3 of FFFS 2011:1
stipulates that themembers of the remuneration committee shall bemembers of themanagement
body, while not being the employees of the financial institution. This does not apply to employee
representatives appointed in accordance with the Private Sector Employees Act (Board
Representation).94However,Swedishlawdoesnotincludeanexpressrequirementthatanemployee
representative shall be amember of the remuneration committee, it only stipulates that employee
representatives are not barred from the remuneration committee despite being employed in the
company.Consequently,itcouldbearguedthatSwedendidnotfullytransposetheArt.95(2)CRDIV
intoitsnationallaw.
In Norway, the Financial Undertaking Regulation Section 15‐3 stipulates that a remuneration
committeeshall,95whentheundertakingisrequiredtoestablisharemunerationcommittee,includeat
92PursuanttoArt.77c‐(1),financialundertakings,financialholdingcompaniesandinsuranceholdingcompaniestheholdingsofwhichhavebeenadmitted to tradingonaregulatedmarket,orwhich, in the twomostrecentfinancialyearsatthebalancesheetdate,have,onaverage,employed1,000ormorefull‐timeemployees,shallsetuparemunerationcommittee.93(FFFS2011:1),Finansinspektionensföreskrifteromersättningssystemikreditinstitut,värdepappersbolagochfondbolagmedtillståndfördiskretionärportföljförvaltning”,2011‐03‐01(AA171101).94PrivateSectorEmployeesActno.1245of1987.95TheActonFinancialUndertakingsandFinancialGroups,whichhasbeenineffectsinceJanuary1,2016(Lovomfinansforetakogfinanskonsern).
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leastoneemployeerepresentative.Inourview,thisrequirementdoesnotgold‐plateArt.95(2)CRD
IV.TherulesofCRDIVonremunerationcommitteeshavebeentransposedintoFinnishlawbywayof
Chapter8,Section5oftheFinnishCreditInstitutionsAct.96PursuanttoSection5(2),ifthemembersof
the board of directors include a person or persons representing the employees, at least one such
employee representative shall be appointed to the remuneration committee. Therefore, the Finish
transposition fully follows the dictum of CRD IV. In regard to significant financial institutions and
consolidated groups or consortium of deposit banks, the Finnish Credit Institutions Act requires a
remunerationcommitteeattheparentcompanylevel.97
Finally,Iceland intendedtoimplementtherulesofCRDIVonremunerationpoliciesinChapter7of
the Icelandic Financial Undertaking Act in 2015. However, the Icelandic Government decided to
postponetheimplementationonrulesthatconcernremunerationpolicies.Tothebestoftheauthor’s
knowledge,nofurtherdraftregardingtheimplementationofremunerationpoliciesintoIcelandiclaw
has been published. Therefore, the implementation of CRD IV’s provisions on remuneration
committeesremainsopen.
4.2. Employees
Employees not only represent one of the key stakeholders in the corporate governance theory, but
also the foundation for achieving the goals of any financial institution. Since 1989, the Community
Charter of the Fundamental Social Rights ofWorkers has emphasised the desirability of promoting
employeeparticipationthroughproperinformationandconsultationprocedures.Currently,thereare
numerous Directives in place that govern the right of workers to be informed and consulted at a
national level on a number of important issues relating to institution’s economic performance,
financial soundness and future development. In this section, the analysis will focus on how the
financial regulatory framework embraces these rights of employees andwhich tools are offered to
facilitatethis.
96 Act on Credit Institutions 8.8.2014/610 (Laki luottolaitostoiminnasta, 610/2014, August 8, 2014 (AA171101)).97Ibid.
Remuneration policy determinations are stipulated by CRD IV,MiFID II and IDD.However, only
CRDIVrequirestheestablishmentofaremunerationcommitteethatshouldincludeoneormore
employee representatives, if employee representation in amanagement body is provided for by
nationallaw.AlloftheNordicstates,exceptIceland,followtheprovisionsoftheCRDIV.
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4.2.1. Consultation with Employees
This section analyses the existing provisions of the EU financial regulation that provides the
employeeswith the right tobe informed. Irrespectiveof the sector, thegeneralnational labour law
provides employees and workers in the EU with the right to information, consultation and
participation.98ThefocusofthefollowingsectionwillbeonBRRDandSRD,giventhatitisonlythese
twodirectivesthatspeakoftheinstitution’sobligationtoconsultitsemployees.
According to the Recital 35 BRRD, recovery and resolution plans should include procedures for
informingandconsultingemployeerepresentatives.Whereapplicable,collectiveagreements,orother
arrangementsprovided forbysocialpartners,aswellasnationalandEU lawonthe involvementof
tradeunionsandworkers’ representatives in company restructuringprocesses, shouldbe complied
with in this regard.Thisprovisionhasbeen furtherbuilt inArt. 34(5)BRRD,which stipulates that,
whenapplyingtheresolutiontoolsandexercisingtheresolutionpowers,resolutionauthoritiesshall
informandconsultemployeerepresentativeswhereappropriate.Similarly,Recital48oftheSRD
stipulates that resolution plans should include procedures for informing and consulting employee
representatives throughout the resolution processeswhere appropriate. However, the SRD has not
directly affected the Nordic countries in the EU and has neither been incorporated into the EEA
agreement.
InDenmark, Art. 34(5)BRRDhas not beendirectly implemented inDanish law.Most likely this is
becausethedirectivehasadirecteffectonauthorities,and,accordingly,nospecificDanishregulation
is necessary. Neither, for that matter, has Sweden directly implemented the Article. However, in
Chapter12Section8oftheSwedishResolutionAct99itisregulatedthat,whentheSwedishResolution
Authority(whichistheNationalDebtOffice,(Riksgäldskontoret)takesaresolutionactionthatdirectly
affects employees, the authority should inform and consult with the employee representatives.
Furthermore,inthepreparatoryworksinconnectionwiththeimplementationofBRRD,theSwedish
legislator highlighted that there is no reason to implement the specific provisions governing the
98Thishasbeenestablishedbyseveraldirectives thatprovide theworkerswith the right tobe informedandconsultedonthoseissuesthatwouldaffecttheiremployment.AmongtheseareCouncilDirective75/129/EECofFebruary 17, 1975 on collective redundancies, Council directive 2001/23/EC of March 12, 2001 on thesafeguardingofemployees’rightsintheeventoftransfersofundertakings,businessesorpartsofundertakingsof businesses and Directive 2002/14/EC of the European Parliament and of the Council of March 11, 2002establishingageneral framework for informingandconsultingemployees in theEuropeanCommunity,whichlaysdownminimumproceduralstandardsprotectingtherightoftheemployeestobeinformedandconsultedontheeconomicandemploymentsituationaffectingtheirworkplace.99Lag(2015:1016)omresolution,2015‐10‐16(AA171101).
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relationshipwithemployees,as theResolutionAuthority isobligedtoenforcecollectiveagreements
sincetheemployerisstillboundbycollectiveagreements.100
Art.34(5)BRRDhasnotbeendirectlyimplementedinFinnishlaw,againduetothedirecteffectofthe
directive.However,Section3oftheFinnishMinistryofFinanceRegulation101no.1284/2014includes
aprovisionaccordingtowhichresolutionplansshouldincludeareportontheimpactoftheresolution
plan on the employees, the estimated costs relating thereof and an outline of the procedures for
consultation with the employees during the resolution process (which procedures shall take into
accountthearrangementsrelatingtobysocialpartners).
In regard to Iceland, BRRD has not yet been transported into Icelandic legislation. The Icelandic
governmenthasnotpublishedadraftproposalfortheimplementationofBRRD,but,accordingtothe
MinistryofFinanceandEconomicAffairs,theaimistoimplementBRRDintoIcelandLawduring2017.
ThesameisapplicabletoNorway,whereBRRDhasnotyetbeenimplementedintoNorwegianlaw.
4.2.2. Collective Bargaining
CollectivebargainingisasarightguaranteedtothetradeunionsinallNordicjurisdictions.Thebasis
ofcollectivebargaining is thattradeunionsandemployers’organisationshavetherighttoagreeon
sharedconcernsbetweenthemselves,withoutinterferencefromtheEUornationalgovernments.Itis
argued that the unions are themost suitable body to decide on numerous issues, includingwages,
continuing training and other core labourmarket conditions.Moreover, collective bargaining often
representsthenecessaryfoundationforenhancementofanyotheremployees’rights.
The recent EU legislative acts have emphasised the position of the collective bargaining in the
structure. Namely, CRD IV inRecital 69, aside from emphasising that remuneration represents a
fundamental right, as guaranteed by Art. 153(5) TFEU, stipulates that the concluded collective
100GovernmentBill2015/16:5p.481.101FinnishMinistryofFinanceRegulationno.1284/2014.
Only BRRD and SRD include provisions that require financial institutions to consult their
employees.Art.34(5)BRRDstipulatesthatwhenapplyingtheresolutiontoolsandexercisingthe
resolutionpowers,resolutionauthoritiesshallinformandconsultemployeerepresentativeswhere
appropriate. Similarly, Recital 48 of the SRD stipulates that resolution plans should include
procedures for informing and consulting employee representatives throughout the resolution
processeswhereappropriate.EventhoughneitheroftheNordiccountrieshavedirectlytransposed
thestipulatedobligation.DuetoexistingemployeeprotectionmeasuresintheNordicjurisdictions,
suchprotectionmeasuresareinplace.
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agreementsshallbeenforcedinaccordancewithnationallawandcustoms.Thesameisstipulatedin
Recital10ofUCITSV.However,what is important to emphasise is the fact that neither of theEU
regulations or directives emphasise the role of the collective bargaining. They only stipulate that,
where in accordancewith national law and customs, the remuneration policies have to respect the
collectiveagreements.
4.2.3. Competence and Training
Training was at the forefront of the Europe‐wide employment debate in 1998, and continuing
vocationaltrainingduringworkinglifeiswidelyseenasameansbywhichboththe"employability"of
workersandthecompetitivenessofcompaniesandfinancialinstitutionscanbeenhanced.Since1976,
attheEUlevel,theCEDEFOPhasbeeninvolvedinpromotingtraining, includingcontinuingtraining,
whilespecialattentionhasbeenpaidtotheroleofthesocialpartnersinthepromotionofcontinuing
training.102 The 1989 Community Charter of the Fundamental Social Rights of Workers statedthat
"everyworkeroftheEuropeanCommunitymustbeabletohaveaccesstovocationaltrainingandto
benefit therefrom throughout his working life" and underlines the necessary involvement of the
competentpublicauthorities,companiesandsocialpartners.Thisapproachhasbeenveryimportant
in EU policy on continuing training. At the specialEuropean Council Employment Summitheld
inLuxembourginNovember1997,103continuingtrainingwasalsoreferredtoandthesocialpartners
were urged in the summit conclusions to accept specific commitments. The November 1997 EU
"Employment Summit" reflected this interest, urging the social partners to conclude agreements
increasing the possibilities for training, work experience and traineeships, and to focus on lifelong
training.Currently,acrosstheEU,thereisagreatdiversityinthisarea,withdifferingrolesinnational
trainingsystemsforthesocialpartners,publicauthoritiesandindividualemployersandemployees.In
thisregard,inNordiccountries,collectivebargaininghasanextremelyimportantposition,giventhat
102EurWORK,CollectiveBargainingandContinuingVocationalTraininginEurope,April27,1998,availableonlineat: < https://www.eurofound.europa.eu/observatories/eurwork/comparative‐information/collective‐bargaining‐and‐continuing‐vocational‐training‐in‐europe>.103 Available online at: <https://www.google.dk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwih8__mqPLWAhWiAJoKHe20Dt0QFggoMAA&url=http%3A%2F%2Fg7.europa.eu%2Fen%2Feuropean‐council%2Fconclusions%2Fpdf‐1993‐2003%2FLUXEMBOURG‐EXTRAORDINARY‐EUROPEAN‐COUNCIL‐MEETING‐ON‐EMPLOYMENT‐20‐21‐NOVEMBER‐1997%2F&usg=AOvVaw3bBiUDOaCxXdlrEOSmOeXE>.
CollectivebargaininganditsrolearenotarticulatedontheEUlevelandareperceivedasonlyone
oftheconsiderationsforremunerationpoliciesinfinancialinstitutions.
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the continuing training system is based on the agreements between employers’ organisations and
tradeunions,whichsharetheresponsibilityinthemanagementoftraining.104
In the area of the EU financial regulation, only MiFID II and IDD reflect directly on the issues of
employees’ competence and training. In Recital 79, MiFID II states that, given the complexity of
investmentproductsandthecontinuousinnovationintheirdesign,itisalsoimportanttoensurethat
staffwhoadviseonorsellinvestmentproductstoretailclientspossessanappropriatelevelof
knowledgeandcompetence inrelation to theproductsoffered. Investment firmsshouldallow
theirstaffsufficienttimeandresourcestoachievethatknowledgeandcompetenceandtoapplyitin
providingservicestoclients.InadditiontothisRecital,inRecital54,theMiFIDIIstatesthatitisthe
managementbodythatshouldassumeclearresponsibilitiesacrossthebusinesscycleofthefirm,
in theareasof the identificationanddefinitionof thestrategicobjectives, riskstrategyand internal
governanceofthefirm,oftheapprovalofitsinternalorganisation,includingcriteriaforselectionand
trainingofpersonnel [...].Thisprovisionshould inourunderstandingprovidesufficient incentives
forallinstitutionsgovernedbyMiFIDIItoundertakenecessaryaction.
Furthermore, in the text of the Directive, the MiFID II in Art. 25, Sections 1 and 9 lay down the
specificsofthisobligation.AccordingtoArt.25(1),theMemberStatesshallrequireinvestmentfirms
to ensure and demonstrate to competent authorities on request that natural persons giving
investment advice or information about financial instruments, investment services or ancillary
services to clients on behalf of the investment firm possess the necessary knowledge and
competencetofulfiltheirobligationunderArt.24andthisArticle.Furthermore,itisstipulatedthat
theMemberStateshaveanobligationtopublishthecriteriatobeusedforassessingsuchknowledge
andcompetence.However,theESMAalreadyissuedguidelinesfortheassessmentofknowledgeand
competence,105 which should provide assistance to the Member States. It is also important to
emphasisethatMemberStatesshallensurethataninfringementoftheArt.25(1)shallberegardedas
aninfringementoftheMiFIDIIorofMiFIR.106ThismeansthattheMemberStatesneedtointroducea
mechanismtoassesswhethertheinvestmentfirmshavefulfilledtheirobligationtoensurethattheir
employeespossesstheknowledgeandcompetence.
104EurWORK,CollectiveBargainingandContinuingVocationalTraininginEurope,April27,1998,availableonlineat: < https://www.eurofound.europa.eu/observatories/eurwork/comparative‐information/collective‐bargaining‐and‐continuing‐vocational‐training‐in‐europe>.105ESMA,GuidelinesfortheAssessmentofKnowledgeandCompetence,January3,2017,availableonlineat:<https://www.esma.europa.eu/sites/default/files/library/esma71‐1154262120‐153_guidelines_for_the_assessment_of_knowledge_and_competence_corrigendum.pdf>.106Art.70(3)MiFIDII.
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IDD stipulates the importance of a high level of professionalismand competence among insurance,
reinsurance and ancillary insurance intermediaries and their employees in its Recital 28.
Furthermore, in Recital 29, it emphasises that continuing training and development should be
ensured.Notably,theRecitalcontinueswithenumeratingpossibilitiesfortraininganddevelopment
of various types of facilitated learning opportunities, including courses, e‐learning and mentoring.
Nevertheless,theissuesofform,substanceandrequiredcertificatesareleftfortheMemberStatesto
regulate, whichmight contribute to diversity in the necessary level of knowledge and skills in the
insurance industry across the EU. The IDD in Art. 10 further specifies the individual obligations of
Member States. They shall ensure that insurance and reinsurance distributors and employees of
insurance and reinsurance undertakings carrying our insurance or reinsurance activities possess
appropriateknowledgeandability inordertocompletetheirtasksandperformtheirduties.
Furthermore, the Member States shall ensure that the undertakings comply with continuing
professionaltraininganddevelopmentrequirements(ofaminimum15hoursperyear)inorder
tomaintainanadequatelevelofperformancecorrespondingtotheroletheyperform.SimilartoMiFID
II, Member States shall have in place and publish mechanisms to control and assess employees’
knowledgeandcompetence.
In regard to the implementation of theMiFID, as already stipulated above, only Denmark has fully
transposed theMiFID II,whereasSweden’s lawshouldbeenforceable from2018.However,Finland
hasnotyettransposedMiFIDIIand,giventhattheMiFIDIIhasnotbeenincorporatedintotheEEA
agreement, neither have Norway nor Iceland. Concerning the IDD, this report may not assess the
transposinglegalactsinanyoftheNordiccountriesastheyhaveeithernotyetbeenadoptedorthey
arenotpartoftheEEAagreement.
InDenmark, the requirements regarding knowledge and competences of employees are already in
place. They have been implemented by a form of a Competence Requirements Executive Order.107
According to this Executive Order, an investment company shall ensure that its employees who
provide investment advice or disseminate information about investment products, must have 6
monthsofdocumentedfull‐timeexperiencewiththenecessaryknowledgein:i)relevantlegislation,ii)
investmentproducts,andiii)economicunderstanding.Furthermore,theemployeesshouldpassatest
providedandapprovedbytheDanishFinancialSupervisoryAuthority.Moreover,theExecutiveOrder
givesmore detailed requirements in its annexes. The report does not reflect upon the test and its
content.
107 ExecutiveOrder on CompetenceRequirements for Employees Providing Investment Advice and ProvidingInformation on Certain Investment Products, no. 864, available online at: <https://www.retsinformation.dk/Forms/R0710.aspx?id=192145>.
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Swedish transpositionofMiFIDIIwillbeeffectivefromthebeginningof2018.AccordingtotheAct
2016/17:162,Chapter8,Section15,aninvestmentfirmshallensureand,attherequestoftheSwedish
SupervisoryAuthority(Finansinspektionen),show,thattheemployeeswhoprovideinvestmentadvice
or information about financial instruments, investment services or additional services have the
requiredknowledgeandskillsaccordingtothisAct.Furthermore,Actno2016/17:162stipulatesthat
the government may issue further regulations regarding the requirements for knowledge and
competenceofemployees.Forfurtherspecificationsontheknowledgeandcompetence,theSwedish
governmenthasstatedthattheyareconsideringtheESMAguidelinesbeforetakinganyfurtheraction.
4.2.4. Whistleblower protection
Whistleblowers provide a valuable service to both their employers and the public. It has been
establishedthatwhistleblowerprotectionisessentialtoencouragereportingofmisconduct,fraud,tax
evasionandcorruptioninanyinstitution.108Theriskofthemisbehaviourissignificantlyheightenedin
environmentswhere the reporting ofwrongdoings is not supported or protected. Encouraging and
facilitating whistleblowing, by providing effective legal protection and clear guidance on reporting
procedures,alsohelpsMemberStatesandtheEUtomonitorcomplianceanddetectanyviolationof
financial regulation. Consequently, there are numerous incentives for both financial intermediaries
and governments to adopt effective whistleblowing protection. Employees are often in a unique
positiontorecogniseandreportwrongdoings.Theycanalerttheiremployerstoaproblembeforethe
problemescalates.Nonetheless,ifanemployerrefusestoresolveanissue,employeesmightoftenbe
the only parties capable of reporting the problem to external authorities before greater harm is to
occur. As one court noted, “[w]ithout employees who are willing to risk adverse employment
consequencesasaresultofwhistleblowingactivities,thepublicwouldremainunawareoflarge‐scale
andpotentiallydangerousabuses.”109
108OECD,G20,ProtectionofWhistleblowers:StudyonWhistleblowerProtectionFrameworks,CompendiumofBest Practices and Guiding Principles for Legislation 4 (2011); available online at: <https://www.oecd.org/g20/topics/anti‐corruption/48972967.pdf>.109Dolanv.Cont’lAirlines,56N.W.2d23,26(Mich.1997).
OnlyMiFIDIIandIDDreflectdirectlyontheissuesofemployees’competenceandtraining.Given
that both Directives are in amajority of the Nordic countries in themiddle of transposition or
implementationprocesses, thewordingandthenatureofspecificprovisionsareonly tobeseen.
However, each of the countries should reflect on securing not only effective, but predominantly
substantiveeducationandtraining.
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On the EU level, it was only during summer 2017 that a public consultation on whistleblower
protection was initiated.110 Based on this consultation, the Commission will assess the scope for
horizontalorfurthersectorialactionattheEUlevel,whilerespectingtheprincipleofsubsidiarity.
Inregardtofinancialregulation,therearenumerousEUdirectivesandregulationsthatdirectlyreflect
onwhistleblowingprotection,eventhoughtheterm“whistleblowing”isnotspecificallyused.Starting
withMiFIDII,initsRecital147,itstatesthattheMemberStatesshallestablisheffectiveandreliable
mechanisms to encourage reporting of potential or actual infringements, including protection of
employees reporting infringements within their own institution. These mechanisms should be
withoutprejudiceinordertoensuresafeguardsoftheaccusedperson.ThisRecitalislaterelaborated
byArt.73(5)MiFIDIIonreportinginfringements,whichrequirestheMemberStatestoprovidetheir
competent enforcement agencies with a mechanisms to enable reporting of potential or actual
infringements. Under letter (b) of this Article, reference to appropriate protection for reporting
employeesoffinancialinstitutionsisstipulated.
TheCRD IV provides for same obligation. InRecital61, it states that, in order to strengthen legal
compliance and corporate governance, the Member States shall establish effective and reliable
mechanismstoencouragereportingtocompetentauthoritiesofpotentialoractualbreaches.Specified
byArt. 71, Member States shall ensure that competent authorities establish effective and reliable
mechanismstoencouragethereportingofpotentialoractualbreaches,whilesecuringtheappropriate
protectionforemployeesofinstitutionswhoreportsuchbreaches.Thus,theprovisionsareidentical.
The identicalprovisionsarealsostipulated inIDD inArt.35, inMARArt.32and its Implementing
DirectiveaswellasinUCITSVArt.99d.Therepetitionislogicalgiventhatalloftheinstitutionsface
the same challenges in regard to possible wrongdoings and require an effective and reliable
mechanism tomonitor such wrongdoings while protecting the employees. Hence, the obligation is
clear,itisfortheMemberStatestoestablishsystemstosecuretheaboveandtheotherrequirements
connected to personal data protection, confidentiality and report review, as stipulated by the later
provisions of the abovementioned articles. The natural reaction of theMember Stateswould be to
adoptonemechanismthatwouldbeeffectivefortheemployeesofallfinancialinstitutions.Therefore,
inthefollowingsection,thisreportassessestheexistenceofrelevantwhistle‐blowingmechanismsin
general.
InDenmark,theDanishFinancialSupervisoryAuthority(FSA)establishedwhistleblowerprotection
mechanisms in 2014.111 In fact, currently, there are two sets of whistleblowing mechanisms.One
110 European Commission, Public Consultation on Whistleblower Protection, available online at: <http://ec.europa.eu/newsroom/just/item‐detail.cfm?item_id=54254>.
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mechanismrelatestomarketabusesuchasinsidertrading,unlawfuldisclosureofinsideinformation
and market manipulation under the MAR. This whistleblowing mechanism has been externally
developedbytheDanishFinancialSupervisoryAuthority.Awhistleblowerissupposedtofileareport
withtheFSAwithinacontactformwhichensuresthatareportissentsecurelyandanonymouslyto
theDanishFSA.AnotherpossibilityistofileareportthroughahotlinkthatisoperatedbyFSAorby
personalmeetingwiththerepresentativesofFSA.Withinthisprocedure,thewhistleblowersaresaid
tobeprotectedagainstreprisals,discriminationandothertypesofunfairtreatment,whichshouldbe
securedbytheDanishFSA.Onceapersongainsastatusofawhistleblower,he/shemaynotbelegally
dismissedfromanemploymentordemoted.
Thesecondmechanismisoperatedbythefinancialinstitutionsthemselves.AccordingtotheDanish
regulation,112all financial institutionsmusthavean internalwhistleblowerscheme.Awhistleblower
canfreelychoosewhethertosendhis/herreporttotheinstitution’sinternalwhistleblowerschemeor
totheFSA.Thefinancialundertakingsubsequentlyhastheopportunitytoforwardthenotificationto
theDanishFSA.The financial institutions inDenmarkalsohavenumerousobligationsregardingthe
protection of employees as whistleblowers under non‐financial regulations, including the Danish
WorkingEnvironmentActandtheDanishCriminalAct.AccordingtotheexistingDanishlegislation,in
caseswhereanemployee’srightshavebeenviolated,theemployeemaybeentitledtocompensation.
This compensation is to be based on the principles that apply to any breach of the Danish anti‐
discriminationlegislation,entitlingtheemployeefrom6‐12months’additionalsalary.
In regard to CRD IV, the Swedish legislator assessed that the Swedish financial authority’s
whistleblowingmechanism fulfils the requirements,whileproviding specific instructionsonhow to
reportactualorpotentialbreachesofthefinancialregulationonitswebsiteinaccordancetoa2013
law.113 More importantly, in 2016, Sweden passed a whistleblower protection law applicable to
employeesinalltypesofbusinesses,includingthefinancialinstitutions.ThisActshouldbeviewedasa
part of a larger whistleblower protection framework. Consequently, there are currently also two
whistleblowerprotectionschemes.ThefullytranslatedtitleoftheActisthe“ActonSpecialProtection
againstVictimisationofWorkerswhoSoundtheAlarmonSeriousWrongdoing”,whichentered into
forceon January1, 2017.114ThisAct protects employees aswell as temporaryworkerswho report
serious wrongdoings in their employer’s business from retaliation. Similar to Denmark, the
institutionsandcompaniesarethemselvesobligedtohaveawhistleblowingsystem,whichcanvary
111 Act no. 133/2014 of February 7, 2014. The Act introduced the provisions on whistleblower schemes inSections75aand75boftheDanishFinancialBusinessAct(Lovomfinansielvirksomhed).112Ibid.113Actno.2013/14:228.114Actno.2106:749.
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and consist of everything froman indicated telephonenumber or an email to amore sophisticated
systems with technical solutions provided internally or by external suppliers. The Act requires
employees first to make reports internally or to a labour union. If the employer does not take
“reasonablemeasures”,theemployeecandisclosetheinformationtotheauthoritiesorthemedia.
DuetoFinnishdelayswiththetranspositionofMiFIDII,onlyCRDIVandMARarerelevantforfurther
assessment. Art. 71 of CRD IV andArt. 32(1)‐(3) have been transposed into theAct on the Finnish
FinancialSupervisoryAuthority.115TheFinnishFSAhasestablishedanexternalmechanismtoreport
breachesofthefinancialregulationunderitssupervision.Inaddition,creditinstitutions,pursuantto
Chapter7,Section6of theFinnishCredit InstitutionsAct,arerequiredtohaveprocedures for their
employeestoreportbreachesinternallythroughaspecific,independentandautonomouschannel.
InNorway,ageneralwhistleblowingprotectionactisalsoapplicable–theWorkingEnvironmentAct
of2005,whichobligesallemployers toestablishwhistleblowerprotection.116 Itprotectsemployees’
right to report any inappropriate or possibly illegal activities to the authorities. However, the
abovementioned provisions of financial regulation have either been not included in the EEA
agreement or were considered to be irrelevant due to the existing regulation even though the
NorwegianFinancial SupervisoryAuthority isnot subject toany regulationor formal guideline that
specificallyaddressesitstreatmentofwhistleblowers.Itisonlystipulatedwithinitsinternalpolicies
tofollow‐uponreportsofbreachesregardlessofwhetherthereportismadebyanemployeeorthe
generalpublic.
In Iceland, the only relevant reference is to the CRD IV, which has not been fully transposed into
Icelandic regulation and only a draft of the proposed regulation is available. According to the draft
proposal,Art.71willbeimplementedbywayofamendmentstotheActonFinancialUndertakingsand
theAct onOfficial Control of FinancialActivity, employeenotifications of breach of the activities of
financialundertakings,andsimilarnotificationstotheIcelandicFSAonbreachoftheentitiessubject
to official control of financial activities. It shall be the obligation of the Icelandic FSA to set up
procedures for receiving and following‐up on notifications on violations of the activities that are
supervisedbytheIcelandicFSA.However,thespecificsoftheproceduresandthetoolsforemployees’
protectionareonlytobeseen.
115ActontheFinancialSupervisoryAuthorityno.878/2008adoptedonDecember19,2008.116 TheWorking Environment Act no. 62 of June 17, 2005, amended last by the Act of June 16, 2017 no. 42(Arbeidsmiljøloven).
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The majority of the assessed EU financial legislation stipulates the requirement for effective
whistleblowingprotection,whichindicatestherelevanceofthistoolfortheEUfinancialindustry.
WhilesomeformofwhistleblowingprotectionregulationispresentinalloftheNordiccountries,it
is for furtherassessmentwhether theexistingregulationprovidesaneffectiveprotection for the
employees.
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5. Conclusions and Recommendations
Corporategovernanceofcorporationsisgreatlydependentonthenationallegalframework.However,
in regard to the financial institutions, the situation has become substantially different over the last
coupleofyears.117Asshownbythisreport,numerouscorporategovernanceissuesbecameregulated
attheEUlevel.However,whenreviewingtheEUlegislativeframeworkofthefinancial industry,the
corporate governance tools are addressed, in particular, to banks rather than to other financial
institutions.Thisreflectsthefactthatthebankswereintheforefrontofthediredevelopmentsbefore
and during the Financial Crisis and therefore much of the recent regulations and governance
discussions have focused on them. Nevertheless, the corporate governance issues as well as the
position of employees should be further reflected upon by non‐banking financial regulation.
Furthermore,atthetimeofthepreparationofthisreport,twomajorDirectives,namelyMiFIDIIand
IDD, were only in the process of being transposed and properly implemented by the EU and EEA
MemberStates.Therefore,anassessmentoftheireffectontheNordicjurisdictionswouldbe,forthe
timebeing,premature.
This report has shown that, in regard to the already transposed EU financial Directives, the
transposition is more or less homogenous and fairly similar comprehensive corporate governance
rules are in place across theNordic jurisdictions.There are continuousdifferences between theEU
andEEAMemberStates;however,giventhegeneralhighprotectionoftheemployeesintheNordics,
thediscrepanciesinthelevelofemployeeprotectionarenotobserved.TheEUfinanciallegislationlaid
down several requirements as to the board composition, employee representation, employee
consultation, competence and training. Nonetheless, given the form inwhich the EU adopted these
requirements – a Directive – the EU provides sufficient space for the national specificities and
preferencestoretain.
Asforthefuturerecommendations,thisreportsuggestsfurtherreflectionandresearchatthe
NordiclevelaswellastheEUlevelinthefollowingareas:
Diversityofboardsofdirectors,itsmeaningandapplication
Specificsofremunerationcommitteesandpolicies
Implementationofprovisionsgoverningremunerationandshort‐termisminMiFIDIIandIDD;
ConsultationwithemployeesmissinginMiFIDIIandIDD
AbsenceofcollectivebargainingintheEUfinanciallegislation
117See,ingeneral,NiamhMoloney,‘EUFinancialMarketaftertheGlobalFinancialCrisis:MoreEuropeorMoreRisk?’CommonMarketLawReview47(2010)1317.
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ContentandefficiencyofcompetencyandtrainingrequirementsunderMiFIDIIandIDD
Protectionofemployeesincaseofwhistleblowing
Annexes
Annex 1 – Overview of the transposed and implemented Directives
BRRD
(31/12/2014)
CRDIV
(31/12/2013)
MiFIDII
(03/01/2018)
IDD
(23/02/2018)
UCITSV
(18/03/2016)
Denmark Transposed
182/2015
Transposed Transposed
Multipleacts
Notyettransposed Transposed
11acts
Sweden Transposed
19actsadoptedin2015
Transposed Partiallytransposed
Multipleacts
Notyettransposed Transposed
Multipleacts2016:890‐893
Finland Transposed
Multipleactsadoptedin2015and2015
Transposed Notyettransposed Notyettransposed Transposed
Multipleacts
Norway DraftJointCommitteeDecisionunderconsideration
(03/05/2017)
TransposedbytheFinancialUndertakingsActofApril10,2015.
AdoptedactunderscrutinybyEEA,EFTA
AdoptedactunderscrutinybyEEA,EFTA
DraftJointCommitteeDecisionunderconsideration
(01/04/2014)
Iceland DraftJointCommitteeDecisionunderconsideration
(03/05/2017)
TransposedbytheActonFinancial
Undertakingsno.57/2015andActno.
96/2016
AdoptedactunderscrutinybyEEA,EFTA
AdoptedactunderscrutinybyEEA,EFTA
DraftJointCommitteeDecisionunderconsideration
(01/04/2014)
This table provides an overviewof the transposed or implementedDirectives. The datawere collected fromEUR.lex, EuropeanCommission
overviewofthetranspositionstatusandEEALexwebsiteonDecember6th,2017.