Securitisation Comparative Guide -

1 Legal and regulatory framework

1.1 Which laws typically govern securitisations in your jurisdiction?

There is no specific securitisation legislation in Finland.

The following EU regulations have direct application in Finland:

the EU Securitisation Regulation (2017/2402);
the EU Capital Requirements Regulation (575/2013); and
all lower-level statutes enacted thereunder.

The EU Securitisation Regulation sets out a general framework for securitisation and creates a specific framework for STS securitisations; while the CRR specifies the regulatory capital treatment of securitisation exposures for credit institutions and investment firms.

The Promissory Notes Act (622/1947, as amended) includes provisions on the transferability of a receivable. Depending on the type of receivable and debtor, the Consumer Protection Act (38/1978, as amended) and specific legislation such as the Act on Hire Purchases (91/1966, as amended) may apply.

With regard to personal data, the EU General Data Protection Regulation (2016/679) applies.

In addition, the Bankruptcy Act (120/2004, as amended), the Act on Company Administration (47/1993, as amended) and the Act on Recovery to a Bankruptcy Estate (758/1991) are the insolvency laws applicable in Finland. Enforcement outside insolvency is regulated by the Enforcement Code (705/2007, as amended).

The most essential laws from a tax perspective are:

the Income Tax Act (1535/1992, as amended);
the Business Income Tax Act (360/1960, as amended); and
the Value-Added Tax Act (1501/1993, as amended).

To the extent that notes are placed with Finnish investors or issued on the Finnish market, the Securities Market Act (746/2012, as amended) must be complied with.

1.2 Which bodies are responsible for regulating securitisations in your jurisdiction? What powers do they have?

The Finnish Financial Supervisory Authority (FFSA) is the national competent authority under the Securitisation Regulation and has the powers delegated under the Securitisation Regulation.

1.3 What is the regulators' general approach in regulating securitisations?

The FFSA has not played an active role in relation to securitisations, but it recommends compliance with the European Banking Authority guidelines on STS securitisations.

1.4 What role, if any, does the central bank play in the securitisation market in your jurisdiction?

The central bank of Finland, Suomen Pankki, monitors the development of the market but thus far has not played an active role in relation to securitisations.

2 Market and motivations

2.1 How sophisticated is the securitisation market in your jurisdiction and how has it evolved thus far?

The Finnish securitisation market is currently underdeveloped when compared to the more active jurisdictions globally and within Europe. However, it is the most active of all the Nordic markets. Although Finland has no specific securitisation legislation and little by way of regulatory guidance, the regulatory status quo has allowed for flexible structures and has not hindered the market in the way that local regulatory divergence has done in the other Nordic jurisdictions.

During the 1990s:

securitisation transactions of government housing loans were carried out by banks; and
some paper and pulp companies, among others, securitised their trade receivables.

Later, commercial real estate portfolios were included in securitisation structures. Private securitisations involving various types of portfolios consisting of consumer loans – in particular, automobile loans – have become quite familiar to the Finnish market, followed by public automobile loan transactions. The introduction of the Securitisation Regulation in 2019 has attracted interest among various market participants.

2.2 In which industry sectors, if any, is securitisation most common in your jurisdiction? What major securitisations have been effected thus far?

Securitisations in Finland are heavily represented by consumer loans – in particular, automobile loans originated by Finnish specialised lenders. The largest securitisations in Finland include securitisations of portfolios of Finnish consumer auto hire-purchase contracts by each of:

Santander Consumer Finance; and
LocalTapiola Finance.

Trade receivable securitisations are the second-largest securitised asset class after consumer loans. There is currently no residential mortgage-backed securitisation market to speak of, as Finland is a covered bond jurisdiction.

2.3 What are the benefits of securitisation, for both originators and investors?

The primary benefits of securitisation are:

reducing funding costs by utilising high-quality assets of the originator; and
speeding up access to funding.

Securitisation can also be used to unburden the balance sheet and manage the regulatory capital requirements and risk exposure of the originator.

For investors, securitisation may provide for a stable investment where income derives from the interest and principal paid on assets that also serve as security for payment. Further, investors can tailor the product to meet their requirements for investments.

2.4 What are the risks of securitisation, for both originators and investors?

Investors and the originator may be subject to several risks – for example:

credit risk;
legal risks relating to the originator and the servicer (eg, insolvency);
the risk of non-performance by other parties involved in the securitisation;
regulatory risk; and
market risk.

Where the assets are fixed rate and the transaction is floating rate or the assets and the notes are in different currencies, the transaction is also exposed to interest rate risk or currency risk. Many of the risks can be mitigated through:

hedging;
credit support;
overcollateralisation; or
back-up arrangements.

Carrying out a securitisation may also turn out to be more burdensome than expected for the originator, given the reporting requirements and other administrative features. It is not uncommon for first time originators to be concerned about reputational risks or customer unsatisfaction; but these concerns generally turn out to be unfounded, provided that the transaction is done:

in a transparent and arm's-length manner; and
in a way that causes the least possible disruption to customers.

2.5 Is there a developed covered bond market in your jurisdiction and how does it compare and compete with securitisation as means of disintermediation and recycling bank capital?

Finland has had a well-developed covered bond market since the introduction of the covered bond legislation in early 2000s. Covered bonds are regulated by:

the Act on Mortgage Credit Banks and Covered bonds (151/2022, as amended); and
the Act on Mortgage Credit Banks (688/2010, as amended).

Covered bonds may only be issued by mortgage banks and credit institutions authorised to issue covered bonds; whereas a securitisation is open to all types of issuers. Due to the relatively lower transaction costs and more attractive spreads on the one hand and the stability of Finnish banks on the other, securitisation has not been very interesting to Finnish credit institutions in the current market, apart from a few recent synthetic securitisations. However, in a world of constantly tightening capital requirements, we may see the emergence of significant risk transfer and full capital deduct transactions from Finnish banks in the future.

2.6 To what extent does the government intervene as a state actor in securitisation (eg, by guaranteeing certain securitised assets, providing credit enhancement to impact transactions or sponsoring public bodies to act as originator of or investor in asset-backed securities issues)?

The Finnish government was a major actor when securitisation first emerged, with most securitisation transactions being publicly guaranteed housing mortgage transactions. In the current market, there is no governmental intervention in securitisations.

3 Structures

3.1 What securitisation structures are most commonly used in your jurisdiction?

True sale securitisations are the most common structures in the Finnish market. There have also been a handful of synthetic securitisations. Structures are typically cross-border, with the special purpose vehicle (SPV) most frequently set up in a jurisdiction – such as Ireland or Luxembourg – which has a robust securitisation market and is familiar to investors; although there has been a recent increase in Nordic structures.

In a true sale securitisation, the transfer of assets should be structured so that the transfer of assets cannot be revoked or recharacterised as a secured loan transaction under the insolvency laws. To ensure that the transaction is not recharacterised, the transfer of assets from the originator to the SPV should meet the requirements for a true sale. There are several factors that weigh in on the true sale analysis; but from a structuring perspective, it is important that:

the underlying debtors are notified of the transfer; and
the collections are segregated from the assets of the originator by appropriate collection arrangements.

The SPV's activities are minimised to avoid the need for infrastructure and employees. Servicing is usually carried out by the originator, which is generally unproblematic from a regulatory and true sale perspective, provided that the transaction and servicer role are structured appropriately. Liquidity reserves in the SPV are typically created to manage cash flows.

3.2 What is the split between ‘term' and asset-backed commercial paper transactions?

In general, Finland-led securitisations to date have been term securitisations, although certain Finnish assets have made their way into asset-backed commercial paper programmes.

3.3 What are the advantages and disadvantages of these different types of structures?

True sale securitisation is primarily a funding tool, but it can also be used for capital and risk management. Synthetic securitisation is used for capital and risk management, not funding. Both true sale and synthetic securitisations take a substantial amount of time to plan and prepare, especially for a first-time issuer. True sale usually involves the entire organisation, from management to customer service employees; whereas synthetic securitisation typically involves only the relevant teams. Both types of transactions require significant efforts from the IT and reporting side. Repeat issuances generally tend to be easier, as a significant part of preparing the organisation and systems will already have been done in the first transaction.

Cross-border structures and foreign governing law and dispute resolution may attract a broader set of investors which require that the issuance be carried out under laws with which they are familiar, such as English law. Nordic or purely domestic structures may be more efficient in terms of transaction costs, as a smaller team of advisers is required; but the potential investor pool will be smaller.

3.4 What other factors should originators consider when deciding on a structure?

Generally, at least the following factors should be considered:

the pricing of the issuance achievable by the contemplated structure and asset pool;
the effects on the balance sheet;
regulatory requirements;
any tax issues – for example, with the transfer of assets, interest payments, service fees or income tax treatment of the SPV in all relevant jurisdictions;
the time, effort and costs of setting up and maintaining the structure compared to other available options;
that all features of the securitisation are at arm's length and commercially justifiable; and
that there are no contractual arrangements or other obstacles in place that would prevent the securitisation.

4 Eligibility

4.1 What requirements and restrictions apply to prospective originators in your jurisdiction?

There are no Finnish law requirements or restrictions that apply to prospective originators. However, regulated entities must naturally consider the requirements and restrictions imposed on them. In addition, the EU Securitisation Regulation sets out certain requirements and restrictions that apply to originators.

4.2 What requirements and restrictions apply to prospective investors in your jurisdiction and how are retail and wholesale/professional investors distinguished?

The EU Securitisation Regulation imposes certain requirements and restrictions on investors. For instance, the sale of securitisation positions to retail clients (non-professional investors) is not permitted, unless:

the prospective investor meets a suitability test; and
the investment does not create too large a concentration in the investor's portfolio.

‘Institutional investors' as defined in the EU Securitisation Regulation (eg, insurance undertakings, pension funds, fund management companies and credit institutions) are subject to due diligence requirements when investing in securitisation positions.

‘Professional investors' are generally defined under the Investment Services Act (747/2012, as amended), which implemented the EU Markets in Financial Instruments Directive (2014/65/EU). They include, for example:

investment firms;
credit institutions;
fund management companies;
insurance companies;
pension funds;
large business entities;
certain public institutions;
central banks;
certain international organisations; and
other clients that have sufficient experience and track record and have requested in writing to be treated as professional investors.

‘Non-professional investors' are investors that do not fall within any of these categories.

Securitisations can be offered on a private placement or public basis. To the extent that securities are issued or placed with Finnish investors, the Securities Markets Act applies. In addition, the EU Prospectus Regulation (2017/1129) is directly applicable in Finland.

Depending on the nature and trading volume of the investor, central counterparty clearing obligations and other regulatory requirements may apply.

4.3 What requirements and restrictions apply to custodians and servicers in your jurisdiction?

Custody relating to a financial instrument qualifies as an investment service under the Investment Services Act. Accordingly, a custodian must be an investment firm or credit institution duly authorised to provide such services. There are no specific requirements and restrictions for Finnish custodians involved in securitisations other than those set out in the Investment Services Act – for example, including the safeguarding of assets.

No specific requirements and restrictions apply to servicers under Finnish law. However, activities that fall within the scope of regulated debt collection activities may only be carried out by entities that are registered with the relevant supervisory authority to provide debt collection services. If the originator continues to service the receivables on behalf of an orphan special purpose vehicle, the originator may in some cases need to obtain a debt collection registration.

Under the EU Securitisation Regulation, the servicer must have:

expertise in servicing exposures of a similar nature to those securitised; and
well-documented and adequate policies, procedures and risk management controls relating to the servicing of exposures.

4.4 What classes of receivables and other assets may be securitised in your jurisdiction? What requirements and restrictions apply in this regard?

There are no obstacles as such to securitising virtually any kinds of receivables, provided that the agreement giving rise to the receivables does not include any transfer restrictions. The legal requirement that the purchased receivables be sufficiently identified and perfection requirements that include a notice to the underlying debtors as well as appropriate payment instructions may result in practical issues for structures that might be viable in other jurisdictions where such requirements do not exist. The transfer of future receivables carries certain practical and legal risks.

4.5 What measures, if any, have been taken in your jurisdiction to promote investor involvement in securitisations?

No specific measures have been taken by public bodies. However, Finnish originators, investors and service providers are becoming increasingly active in promoting awareness of the existence of the Finnish market among international industry bodies and at events.

5 Special purpose vehicles

5.1 What forms do special purpose vehicles (SPVs) typically take in your jurisdiction and how are they established?

The SPV should be bankruptcy remote, meaning that there should be no connection between the SPV and the originator that could lead to the securitised assets being returned to the originator's insolvency estate. There is, as such, no legal consolidation of an SPV in the insolvency of the originator, even if they belong to the same group of companies; but transactions with related parties are subject to longer clawback periods than transactions between unrelated parties. This means that the SPV generally should not be set up in the originator's group. It is not possible to establish an orphan entity entirely under Finnish law. For practical purposes, the SPV is usually set up in another country, such as Ireland.

If nonetheless set up under Finnish law, the options will be a limited liability company or a limited partnership.

5.2 Are SPVs typically established locally or offshore? What are the benefits and risks of each?

The SPV is typically established offshore in a jurisdiction with a robust securitisation market, specific SPV legislation or both. The benefits of an offshore SPV in a common SPV jurisdiction include:

investor familiarity with the legislation, which in turn may attract a broader scope of investors;
the availability of experienced and inexpensive corporate service providers;
access to quick and straightforward listing or European Central Bank collateral eligibility for the issued notes;
a tested legal enforcement track record that leads to better certainty in respect of key issues, such as the enforceability of collateral arrangements and limited recourse and non-petition provisions;
more flexible companies legislation; and
potential tax exemptions allowed for SPVs.

A domestic structure may be favoured, especially in private transactions, if:

the investor is familiar with the legal regime and is comfortable with a degree of uncertainty with respect to the enforceability of certain features of the transaction due to a lack of relevant precedents; or
the parties wish to avoid higher transaction costs.

5.3 How is the SPV typically owned?

The SPV will typically be an orphan entity. This construct is typically achieved by using a charitable trust or foundation to establish the SPV and hold the shares in the SPV.

5.4 What requirements and restrictions apply to SPVs in your jurisdiction?

If the SPV is established in Finland, it may be subject to certain regulatory requirements, such as anti-money laundering compliance or, in the case of non-performing loans, professional debt collection legislation compliance. However, typically, the SPV is established offshore and is not subject to any Finnish regulatory requirements or restrictions. That said, even an offshore SPV may trigger regulatory requirements if it is actively engaged in any new lending in Finland. Therefore, any new origination should not be carried out directly via the SPV but rather by the originator transferring title to receivables that it has originated.

5.5 What requirements and restrictions apply to the directors of the SPV? What are their primary duties?

If the SPV is established in Finland, the directors are subject to the general competence requirements and duties of directors under Finnish companies law. There are no specific provisions regarding SPVs or the directors of SPVs that would deviate from the general requirements. If the SPV is an orphan entity, the directors should not be appointed by or involved in the operations of the originator or the investors in any way.

5.6 What measures can be implemented to ensure, as far as possible, the insolvency remoteness of the SPV?

The SPV should:

preferably be set up as an orphan entity independent of the originator or investors;
be established specifically for the transaction; and
not have any business activities or liabilities beyond the securitisation transaction.

Accordingly, the SPV should only hold the transferred assets for the duration of the securitisation and should be dissolved after the transaction. Limited recourse and non-petition provisions are included in the transaction documents and/or constitutional documents of the SPV to ensure that none of the transaction parties sues or files for insolvency against the SPV, although the enforceability of such provisions remains untested in Finland. From an economic and practical perspective, the SPV should be set up with sufficient reserves to deal with liquidity issues to ensure that:

its running costs can be covered from month to month; and
it can pay, for example, any taxes and costs of third-party service providers that are critical for the transaction.

5.7 If the originator becomes insolvent, is there a risk that the assets of the SPV may be consolidated with its own by the courts? If so, how can this be mitigated?

For insolvency purposes, there is as such no legal consolidation between group companies. However, as discussed in question 5.1, transactions with related parties are subject to longer clawback periods than transactions between unrelated parties. Therefore, there is a heightened legal risk to establish the SPV within the same group of companies as the originator. Please see questions 5.1 and 5.6 for further discussion.

6 Transfer of receivables

6.1 Can the transfer of receivables to the SPV be governed by laws other than your local law? If so, what laws are typically chosen?

Pursuant to Article 3(1) of the EU Rome I Regulation (593/2008), a contract will be governed by the law chosen by the parties. This choice of law relates to the contractual obligations arising from such contract, including any receivables. Typically, the transfer agreement will be governed by Finnish law where receivables also arise under a Finnish law-governed contract.

6.2 What local law requirements (documentary and procedural) are required to ensure that foreign law documents are recognised and enforceable locally?

The general principle is that the parties can choose which law to apply to a contract. Therefore, choice of law clauses are generally recognised by the Finnish courts. The laws agreed to govern the contract are applied subject to:

such application of foreign law not being contrary to the overriding provisions of mandatory Finnish law which will be considered to apply irrespective of the agreed choice of law; and
such non-Finnish law not being contrary to the public policy of Finland.

The enforcement of foreign judgments in Finland is always subject to the provisions of any applicable regulations, conventions or treaties. If no regulation, convention or treaty applies, enforcement may require a re-examination of merits and/or judgment of:

a Finnish court;
a court of another EU member state under EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters; or
a court of a country which is signatory to an enforcement treaty with Finland or the European Union, as applicable.

6.3 How does the transfer of receivables from the originator to the SPV typically take place? What are the formal, documentary and procedural requirements for perfecting the transfer?

The transfer is documented by a transfer agreement. A Finnish law transfer agreement is effective and binding between the parties upon satisfaction of the agreed conditions precedent, if any. There are no formalities requirements (eg, notarisation) applicable to such agreements under Finnish law and such agreements are not filed with any authority.

The Rome I Regulation does not regulate the effects of transactions in relation to third parties. Instead, the lex rei sitae principle has traditionally been applied to resolve conflicts in this respect. This means that the effects of a transfer of receivables in relation to third parties should be determined under the laws of the country in which the receivable is deemed to be located. The traditional Finnish jurisprudence largely suggests that a receivable should be deemed to be located where the underlying debtor of the receivable is located. However, it was recently argued that the applicable law should be the domicile of the transferor. Accordingly, in order to ensure that a transfer is valid and enforceable, steps should be taken to ensure the assignment's compliance with both the law of the domicile of the transferor and that of the underlying debtor.

To perfect the transfer of a receivable under Finnish law, the underlying debtor must be notified of the transfer, with appropriate payment instructions that achieve the segregation of the collections from the assets of the originator.

6.4 What other requirements and restrictions apply to the transfer of receivables?

Generally, under the Promissory Notes Act, a creditor is entitled to transfer a receivable without the debtor's consent, unless the underlying receivable documents contain a prohibition against transfer or assignment.

6.5 Is there a doctrine under which a transaction describing itself as a sale can be recharacterised by the courts as a financing secured by assets which are the subject of the purported transfer? How can the application of this doctrine be overcome?

To the extent that the transfer does not qualify as a ‘true sale', the transfer can be recharacterised as a security assignment.

According to traditional doctrine, transfers of title may be recharacterised, for example, if the transfer:

has been agreed to be unwound once an agreed performance in favour of the transferee has been fulfilled;
includes an obligation or a right of the transferor to repurchase the transferred object;
is conditional upon non-performance of the transferor; or
is combined with some other related transaction, right or obligation that provides a financial incentive for either the transferee or transferor to retransfer the title to the transferor.

Another key element is who carries the credit risk relating to the receivables. If the credit risk remains with the transferor or is transferred back to the transferor by means of a derivative contract or other arrangements, it is likely that the transfer of the receivables will not be deemed to have the elements required for a true sale. On the other hand, where the transfer of title is intended to be irrevocable, with no intention to return the title to the transferor, and where the credit risk is transferred to the transferee together with receivables, there are no grounds for recharacterisation. A true sale assessment is always made as an assessment of the overall transaction, taking into account all relevant features.

6.6 If the originator becomes insolvent, is there a risk that the transfer of receivables may be unwound? If so, how can this be mitigated?

Pursuant to the Act on Recovery to a Bankruptcy Estate, any transaction may be revoked if:

it can be deemed as improper or inappropriate from the point of view of the other creditors of the debtor; and
the counterparty of the debtor knew, or ought to have known, of:
- the debtor being or, by virtue of the transaction, becoming unable to pay its debts when due; or
- the improper nature of the transaction.

The critical time period for review is five years preceding:

the filing for enforcement of a claim by foreclosure; or
the filing for insolvency proceedings.

No time limit applies in respect of transactions between related parties.

Further, the grant of a security interest may be revoked if:

the parties did not agree upon the security interest when the indebtedness was incurred; or
the requisite measures for perfecting the security interest were not taken within a reasonable time after the secured indebtedness was incurred.

The critical time period for review is three months preceding the relevant filing (two years in respect of transactions between related parties).

As discussed in questions 5.1 and 5.6, to mitigate the risk of revocation:

the sale should be structured as a true sale; and
the SPV should not be set up in the same group of companies as the originator.

7 Security

7.1 What types of security interests can be taken over the assets of the SPV in your jurisdiction? Which are most commonly used?

The most common security is security over receivables and bank accounts of the SPV. Typically, claims that the SPV has against other entities involved in the securitisation, such as the servicer, will also be included in the security package. To the extent that the securitised receivables are secured or guaranteed, such security will also be included in the security package together with the receivables.

A floating charge covering the qualifying movable assets may be registered against the purchaser's assets. A floating charge will, by operation of law, cover all of the pledgor company's movable assets insofar as any specific assets have not been separately pledged.

In addition to Finnish law-governed security, it is typical that the SPV also grants security over its assets under other applicable laws.

7.2 What are the formal, documentary and procedural requirements for perfecting a security interest?

This depends on the security asset in question. A pledge of receivables and claims is perfected by notifying the underlying debtor of the pledge, with instructions to make any payments of the receivable to the pledgee or its order. This notice need not be registered, notarised or otherwise confirmed by any officials.

A bank account pledge is perfected by way of notice to the account bank. The SPV's rights to the account will be blocked and the security trustee, cash manager and/or servicer will control the bank account instead.

7.3 What charges, fees or taxes arise from the perfection of a security interest?

There are no charges, fees or taxes in connection with the perfection of a security interest in receivables or a bank account. A minor registration fee is charged for registration of a floating charge.

7.4 What other considerations should be borne in mind when perfecting a security interest in your jurisdiction?

The perfection measures should be taken without delay.

7.5 What are the respective obligations and liabilities of the parties under the security interest?

The obligations and liabilities of the parties will generally be set out in the security agreement. Notwithstanding the terms of the transaction documents, mandatory Finnish law requires a pledgee to take the reasonable interests of the pledgor into account. Among other things, this means that the secured creditor has a duty of care in relation to the pledged assets. The duty of care relates to:

the safekeeping of assets during the life of the pledge; and
enforcement of the pledge.

Traditionally, the duty of care entails, among other things:

storing the security assets carefully in a manner that does not cause a risk of damage, loss or loss of value; and
in the enforcement process, obtaining the best possible price that is reasonably obtainable in the circumstances.

7.6 In the event of default, what options are available to enforce the security interest? Is self-help available in your jurisdiction or must enforcement action go through the courts? Are there insolvency regimes such as conservatorship or examinership that impose an automatic stay on the exercise of self-help remedies?

Finnish law recognises two statutory forms of insolvency proceedings:

bankruptcy; and
company administration.

Enforcement can take place either outside of bankruptcy proceedings or during bankruptcy proceedings. However, in company administration proceedings, a moratorium applies and enforcement is generally not possible. The terms of the relevant security agreement regulate the enforcement, subject to constraints set by mandatory Finnish law.

Enforcement outside of bankruptcy proceedings: Depending on the type of security arrangement/asset under security, the secured creditor may generally enforce the security independently or through public enforcement authorities.

Enforcement during bankruptcy proceedings: In a bankruptcy scenario where the secured creditor enforces the security independent from the concurrent bankruptcy proceedings, the secured creditor will use the enforcement proceeds to satisfy its secured claim. The secured creditor will then:

render to the bankruptcy liquidator an account of the proceeds of the enforcement; and
transfer to the bankruptcy liquidator the net proceeds from the enforcement that exceed the creditor's secured claim.

In a bankruptcy scenario where the bankruptcy liquidator enforces the security, the bankruptcy liquidator will distribute the enforcement proceeds to the secured creditor up to the amount of the creditor's secured claim. Any excess proceeds will form part of the assets of the estate (to be distributed to the creditors).

The secured creditor must, however, notify the bankruptcy liquidator of the intended enforcement at least two weeks in advance of such enforcement. Once the bankruptcy liquidator has received the secured creditor's notice of the upcoming enforcement, the bankruptcy liquidator may prohibit the secured creditor from enforcing the pledge for a maximum period of two months in order to either:

determine the secured creditor's right to enforce; or
protect the interests of the bankruptcy estate.

Company administration: If company administration proceedings have been initiated against the debtor:

the secured creditor can no longer enforce the security independently (or accelerate the underlying loans against the pledgor); and
any enforcement procedures already initiated and not completed will be discontinued.

The prohibition against enforcement of the security will remain in force until the court has passed a decision either to accept or reject the administration programme proposed by the administrator. However, this moratorium does not apply where the security in question qualifies as a financial collateral arrangement under the Act on Financial Collateral (11/2004, as amended).

7.7 Will local courts recognise a foreign court judgment in favour of an investor?

a Finnish court;
a court of another EU member state under EU Regulation 1215/2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters; or
a court of a country which is signatory to an enforcement treaty with Finland or the European Union, as applicable.

7.8 If the servicer becomes insolvent, will an enduring power of attorney/mandate granted by the servicer in favour of the secured parties be recognised and enforceable post-insolvency of the servicer?

Generally, a power of attorney may revoked at any time by the principal. If the servicer becomes insolvent, a back-up servicer is typically appointed (or, if already appointed, the back-up services are activated).

7.9 Do limited recourse, non-petition and subordination provisions bind creditors of SPVs in your jurisdiction and what are the applicable qualifications?

It is generally considered that a creditor can contractually subordinate its claim to those of other creditors. However, the effectiveness of limited recourse, non-petition and subordination provisions in relation to third parties remains untested in Finland. Based on the general principle of pacta sunt servanda, such provisions will generally bind the parties to the transaction documents, but not third parties. To mitigate possible risks:

the SPV is commonly set up offshore; and
the limited recourse and non-petition provisions are governed by foreign laws and subject to foreign dispute resolution in a jurisdiction that has clarity on these issues.

8 Registration and disclosure

8.1 What public disclosure and reporting requirements apply to securitisations in your jurisdiction?

Other than disclosure and reporting requirements deriving from the EU Securitisation Regulation, there are no requirements under Finnish law that apply specifically to securitisations. However, to the extent that the EU Prospectus Regulation and/or the Securities Markets Act applies, the prospectus and other disclosure requirements set out therein will apply.

8.2 What registration requirements, if any, apply to securitisations in your jurisdiction?

Other than the registration requirements set out under the EU Securitisation Regulation, there are no registration requirements in Finland for securitisation transactions.

8.3 Is there any requirement to notify obligors of a securitisation? If so, how is this effected?

To the extent that the securitised portfolio consists of receivables with debtors located in Finland, or where the originator is located in Finland, the debtors must be notified of:

the transfer of receivable to the SPV; and
the pledge of the receivable by the SPV in favour of the secured creditors.

There are no particular formalities requirements and the notification may, for example, be included in an invoice.

9 Credit rating agencies

9.1 What requirements and restrictions apply to credit ratings agencies in your jurisdiction? Are there specific provisions that regulate their relationship with issuers?

The EU Credit Rating Agencies Regulation (462/2013) and its delegated rules and guidelines regulate the activities of rating agencies in the European Union, including Finland. There are no credit rating agencies in Finland.

9.2 What are the main factors that rating agencies consider when rating the securities of the issuer?

A rating agency analyses the pool of loans to be securitised in order to establish the key risks in securitisation transactions. The key risks include:

credit risk;
legal risk;
counterparty risk; and
interest rate risk.

The factors that influence credit risk include:

the borrower profile;
the underlying assets;
lending norms; and
the markets in general.

Legal risk can relate to:

the documentation of the transaction; and
counterparty risk in terms of the capability of different transaction parties to perform various tasks.

Interest rate risk refers, for example, to a mismatch in the underlying loan pool and interest on securities.

10 Taxation

10.1 What tax considerations should be borne in mind from the perspective of the originator? What strategies, if any, are available to mitigate them?

The sale and transfer of receivables is usually deemed an exempt supply for value-added tax (VAT) purposes. However, the VAT treatment of transactions relating to credit and debts remains a complex and evolving area. For example, where a transaction is considered to fall within the definition of ‘debt collection and factoring', the SPV may be considered to have supplied a service to the originator (seller) that is subject to VAT. Therefore, any service fees or discounts inherent in the purchase price must normally be thoroughly reviewed and assessed to avoid any pitfalls.

10.2 What tax considerations should be borne in mind from the perspective of the issuer? What strategies, if any, are available to mitigate them?

Broadly speaking, and assuming a non-Finnish issuer (which is typically the case), the purchase of receivables should not give rise to Finnish tax liabilities for a purchaser/issuer with no taxable presence in Finland (ie, it is not expected to create a permanent establishment for the SPV). This is also the case where the SPV appoints an independent servicer that carries out serving activities for the SPV in the ordinary course of its business.

10.3 What tax considerations should be borne in mind from the perspective of investors? What strategies, if any, are available to mitigate them?

Securitised instruments normally provide investors with interest income that is taxable at ordinary rates.

11 Trends and predictions

11.1 How would you describe the current securitisation landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?

Since the introduction of the EU Securitisation Regulation, there have been several Finnish simple, transparent and standardised securitisations which have included the securitisation of auto loan hire purchase contracts, most of which were consumer contracts.

We are not aware of any legislative reforms in the pipeline.

12 Tips and traps

12.1 What are your top tips for the smooth conclusion of securitisations and what potential sticking points would you highlight?

Before carrying out a securitisation, the originator in particular should:

ensure that there is a commercial reason for carrying out the transaction; and
ensure that it has the requisite competency and resources to implement and carry out the securitisation.

The securitisation structure should also be set up as a robust structure taking into account:

the legal and commercial points of view; and
the tax and accounting implications.

To the extent the originator is a prudentially supervised entity, prior discussions with the Finnish Financial Supervisory Authority are recommended.

Co-Authored by Niklas Thibblin.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Finland: Securitisation Comparative Guide