Nordic Implementation EU Financial Rules...Report on Nordic Implementation of EU Financial Rules 1...

Nordic Implementation of EU

Financial Rules Position of Employees

ReportonNordicImplementationofEUFinancialRules

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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.


16

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.


17

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.


18

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.


19

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.


20

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>.


21

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


22

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).


24

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.


25

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>.


26

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.


29

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.


30

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.


31

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.


32

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.


33

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.


34

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).


35

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.


36

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).


37

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.


38

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.


39

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.


40

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>.


43

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.


44

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).


45

The majority of the assessed EU financial legislation stipulates the requirement for effective

whistleblowingprotection,whichindicatestherelevanceofthistoolfortheEUfinancialindustry.

WhilesomeformofwhistleblowingprotectionregulationispresentinalloftheNordiccountries,it

is for furtherassessmentwhether theexistingregulationprovidesaneffectiveprotection for the

employees.


46

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.


47

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


DraftJointCommitteeDecisionunderconsideration

(01/04/2014)

Iceland DraftJointCommitteeDecisionunderconsideration

(03/05/2017)

TransposedbytheActonFinancial

Undertakingsno.57/2015andActno.

96/2016



DraftJointCommitteeDecisionunderconsideration

(01/04/2014)

This table provides an overviewof the transposed or implementedDirectives. The datawere collected fromEUR.lex, EuropeanCommission

overviewofthetranspositionstatusandEEALexwebsiteonDecember6th,2017.

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