FIN-FSA: Regulation can be simplified when risk resilience is preserved

The EU is currently seeking ways to strengthen the competitiveness of the banking sector, support the transmission of financing and promote economic growth.  This topic is important, since a well-functioning and competitive financial sector is a key precondition for the growth of the economy as a whole. Competitiveness and financial stability are not opposites; they support each other. Sustainable competitiveness can only be built on a reliable and stable operating environment.

There have also been Europe-wide discussions of a savings and investments union. If implemented, the proposal would improve the competitiveness of European capital markets. A strong European capital market is also in the interest of Finnish companies and investors. It would improve the opportunities of Finnish investors and companies to make investments and raise financing from capital markets.

Finland’s financial sector is strong and solvent

Over the years, the shock resilience of the Finnish financial sector has been supported, among other things, by risk-based supervision and macroprudential measures strengthening the ability of financial entities to withstand economic and financial market disruptions.  Good risk resilience also improves competitiveness: it strengthens confidence in Finnish entities, supports the availability of financing and creates predictability for both domestic and international market participants.

The FIN-FSA considers it justified to assess regulation regularly and develop it to align with the evolving operating environment. Simplifying regulation, removing overlaps and reducing the administrative burden can improve the functioning of the markets and support the transmission of financing to the real economy when the changes are made based on a careful impact assessment.

– The development of regulation and the strengthening of competitiveness are legitimate objectives.  It is essential to ensure that any easing is targeted at areas where it does not weaken the solvency or risk resilience of financial sector entities, or the stability of the financial system,” says FIN-FSA Director Tero Kurenmaa.

In this debate, a new secondary objective has also been proposed for the FIN-FSA to promote competition in the financial markets, the transmission of financing and sustainable economic growth.  In the FIN-FSA’s view, if such an objective is mandated, it is important to define clearly how these objectives would relate to the FIN-FSA’s statutory supervisory task and to safeguarding confidence in the financial markets as well as financial stability.

In Finland, changes supporting the competitiveness of the financial sector are already having an effect

In Finland, regulation and requirements concerning housing finance have already been eased and made more flexible earlier this year: among other things, the maximum repayment period for housing loans was extended and the housing loan cap was raised.  The aim of the changes was to make housing finance more flexible, support housing transactions and construction, and make it easier to move house. The regulatory changes increase the possibilities to consider the cyclical situation, particularly in regulation concerning the maximum loan-to-value ratio and housing company loans in the construction phase.

The FIN-FSA considers it important that the effects of the changes are monitored as a whole. Household indebtedness in Finland has declined in recent years but remains relatively high by European standards. Therefore, when developing regulation, care must be taken that flexibility does not increase vulnerabilities in the financial system in the long term.

– Well-targeted regulation supports both stability and competitiveness. Easing regulation is justified when the effects have been carefully assessed and the change does not jeopardise the functioning of the financial system,” says Head of Department Samu Kurri.

The FIN-FSA emphasises that, in developing regulation, it continues to be important to seek a balance between the functioning of the markets, competitiveness and financial stability.  The aim should be a regulatory framework that is clear, proportionate and predictable, and that supports the strength of the Finnish financial sector also in the future.

Contact information

Further information is available from Samu Kurri, Head of Department. Requests for interviews are coordinated by FIN-FSA Communications, tel. +358 9 183 5030, weekdays 9.00–16.00.

Appendices

• Finnish financial sector's risk-bearing capacity good – continued uncertainties in operating environment despite pickup in the economy
• Keynote delivered by the FIN-FSA Director General Tero Kurenmaa at the International Bankers Forum (på engleska)