The Legal 500: Fintech Country Comparative Guide 2018

The In-House Lawyer

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5 Dec


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Dittmar & Indrenius > Insight > The Legal 500: Fintech Country Comparative Guide 2018

The aim of this guide is to provide its readers with a pragmatic overview of the law and practice of fintech law across a variety of jurisdictions. This country-specific Q&A provides an overview to Fintech law in Finland. It will cover open banking, regulation of data, cryptocurrencies, blockchain, AI and insurtech.

Read our Finland overview.

The Q&A is part of The Legal 500’s and The In-House Lawyer’s global guide to Fintech.

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Government Proposal to implement EU's Fifth Anti-Money Laundering Directive in Finland
4 Oct 2018 The Finnish Government proposal implementing the provisions of EU's Fifth Anti-Money Laundering Directive (the "Fifth AML Directive") was submitted to the Parliament on 4 October 2018. The proposal includes, inter alia, amendments to the Anti-Money Laundering Act (the "AML Act") and enactment of two new acts. The objective is that the proposed legislation would enter into force on 1 January 2019. Only approximately one year after the AML Act entered into force in Finland, it will be amended due to the latest amendments to European anti-money laundering legislation. The amendments form part of the EU Commission's action plan on strengthening the fight against terrorist financing and must be implemented by the Member States by 10 January 2020. Our observations of the proposed key amendments to the current legislation are set out below. In summary, the Fifth AML Directive significantly limits anonymity in the financial sector and tackles money laundering and terrorist financing in new ways. Continuous compliance efforts are therefore needed from both current and new reporting entities under the AML Act. Key Observations 1. Extension of the Scope of the AML Act to Crypto Market Crypto currencies or virtual currencies are currently not explicitly regulated by Finnish law and they are not considered to be payment instruments under the payment service legislation. The proposed amendments will both define virtual currencies for the first time under Finnish law and also set specific requirements for those providing services related them. The scope of the AML Act would be extended to cover custodian wallet providers and providers engaged in exchange services between virtual currencies and fiat currencies. This means that, in the future, all crypto exchanges and all providers of electronic wallets for virtual currencies such as bitcoin would be covered by the AML Act. These platforms and providers would be required to register with the Finnish Financial Supervisory Authority and they would have to meet the requirements of the AML Act including the same responsibilities as other reporting entities, such as monitoring transactions and implementing customer due diligence. Additionally, a new Act on the Providers of Virtual Currencies (FI: Laki virtuaalivaluuttojen tarjoajista) is being proposed. The scope of the Act would cover also issuers of virtual currencies, although in many occasions the identity of such is not known. The scope of the AML Act would further be extended to cover e.g. art dealers (with respect to transactions where the value amounts to 10,000 euros or more) and all forms of tax advisory services. 2. Beneficial Ownership Information Registers of beneficial ownership information required under the current AML Act will come into effect as planned. Accordingly, all legal persons, excluding listed companies, are required to keep information on their beneficial owners as of 1 January 2019 and enter beneficial owners to the registers maintained by the Finnish Patent and Registration Office by 1 July 2020. In addition, reporting entities and competent authorities would have to notify the holder of the registers of discrepancies found between the beneficial ownership information on the registers and the beneficial ownership information they hold otherwise. Furthermore, beneficial owners would have an obligation to provide the respective companies with their beneficial ownership information required for the registers. 3. Politically Exposed Persons Politically exposed persons (PEPs) continue to be high risk for the purposes of the Know Your Customer (KYC) procedures and require enhanced due diligence. In order to enable reporting entities to better identify PEPs, offices and functions that qualify as politically exposed on national level including also nationally registered international organizations would be specified in a separate Government Decree. 4. High-Risk Third Countries According to the proposed amendments to the AML Act, reporting entities would be required to implement enhanced due diligence measures to monitor suspicious transactions involving high-risk countries more strictly. This includes, inter alia, obtaining information on details regarding the nature of the relationship, the origin of the transferred funds and the business partner’s motivation to liaise. Additionally, the reporting entity’s higher management would be required to give consent to the business relationship. Also existing business relationships would be strictly monitored. According to the proposal, the Finnish Financial Supervisory Authority would be given further authority in the subject matter, after which it may for example refuse reporting entities from high-risk third countries to establish themselves in Finland or prevent reporting entities from Finland to establish themselves in high-risk third countries. 5. Monitoring of Bank and Payment Accounts According to the Fifth AML Directive, Member States shall establish centralized automated mechanisms, such as central national registries or central electronic data retrieval systems, for bank and payment accounts to ensure the quick identification of all accounts of any individual by the financial intelligence units and competent authorities. In Finland, a new Act on the Bank and Payment Accounts Monitoring System (Fi: Laki pankki- ja maksutilien valvontajärjestelmästä) is being proposed to enable direct access to relevant account information by competent authorities. The centralized monitoring system would include both automated interfaces for information searches and a register maintained by the Finnish Customs. Credit institutions and their Finnish branches must establish an electronic data retrieval system that enables providing the information to the competent authorities without delay. Payment institutions, electronic money issuers, custodian wallet providers, providers engaged in exchange services between virtual currencies and fiat currencies and issuers of virtual currencies as well as their Finnish branches must provide information to the bank and payment accounts register. 6. Electronic Money Products Under the current AML Act, reporting entities may apply simplified due diligence measures with respect to e-money which meets certain conditions, including threshold amounts. The threshold for identifying holders of non-rechargeable prepaid cards would now be lowered from EUR 250 to EUR 150 per month. E-money online transactions with prepaid cards would be limited to EUR 50. 7. Going Forward As a main rule, the proposed amendments are intended to enter into force on 1 January 2019. The Government’s proposal (HE 167/2018 vp) is available here (only in Finnish). Developments on the European Union stage continue: the lawmaking procedure concerning proposal for a directive which would facilitate the use of financial and other information for the prevention, detection, investigation or prosecution of money laundering, associate predicate offences and terrorist financing is under way. Also further regulations relating to anti-money laundering are projected in the future. We are happy to discuss the implications of the proposed legislation as well as keep you updated on the legislative process. For more information and guidance, please contact the Head of our Corporate Advisory, Compliance & CSR practice group, Hanna-Mari Manninen.
Blockchain Does Not Block Change
18 Jun 2018 Blockchain technology and its applications will change the world of transactions and with it, the world of intellectual property. The technology was previously known mainly in the context of cryptocurrency, but now multiple industries are exploring its potential applications. The possibilities the technology offers are nearly endless and because of its broad applicability, it will almost certainly have an impact on several business sectors. Below we discuss the application of blockchain technology to transparent supply chains and intellectual property registration and enforcement. What's So Special About It? Blockchain is more than just the platform for the cryptocurrency Bitcoin, with which it is often wrongly confused with as being synonymous. Blockchain's emergence in 2008 as the Bitcoin's enabler was only the beginning and the past two or three years have brought the technology to the limelight especially because its properties make it a near-perfect disruptor to all business fields which use intermediaries to handle transactions between individuals, businesses and even machines. It has been proven time and again that trust is a delicate commodity, and without it transactions have a short shelf life. As there is inherent distrust between parties in transactions, blockchain's game changer feature is the way it changes the way we trust others. With blockchain, transactions can be secured without any of the traditional institutions that we have grown used to as intermediaries and that paves the way for blockchain to change the very nature of how transactions are executed. Due to its immutable nature, blockchain can also be used to change the way we look at supply chain integrity, IP registrations and enforcement of IP. "As there is inherent distrust between parties in transactions, blockchain's game changer feature is the way it changes the way we trust others." Supply Chain Integrity The importance being able to ensure supply chain integrity is paramount to all companies dealing with branded or otherwise exclusive goods. Blockchain is an excellent tool in bringing transparency into the process, and when you combine it with such technologies as the Internet of Things (IoT) and smart contracts, magic happens. Exhibit A of this claim are the companies that already tap into the blockchain for supply chain transparency, such as Provenance, which offers a digital passport for a product's authenticity and origin, Everledger which is used for uploading the characteristics, history and ownership of diamonds to the blockchain and Modum, which offers a monitoring solution for pharmaceuticals and their temperature during transportation. These are initiatives which, at least to the level of trust exhibited by these services, have not been possible in the pre-blockchain era. IP Registration The contents of IP registration are traditionally defined by documentation, (trademark information, patent records, ownership details). By virtue of its nature, there are applications for the blockchain technology in the recording and verification of different components of such documentation, such as ownership, identity, contents, transaction history, etc. The blockchain technology could be used by the IP offices to aid in the registration and granting of IP rights, e.g. to be used instead of the traditional databases with information on registered trademarks, designs and patents. Changing the recording system to be based on blockchain would increase the registrations' value and trustworthiness and create additional regulatory opportunities to build from these newfound possibilities. The European Union Intellectual Property Office EUIPO has understood the possibilities blockchain offers and is developing their readiness to use blockchain to record and enforce IP rights. EUIPO has engaged blockchain experts, national IP offices and right holder representatives in the development of blockchain applications. IP Enforcement The blockchain technology has a definite potential to completely revolutionize IP enforcement and anti-counterfeiting. If the right holder is able to convey to the authorities, especially the customs, a message that authentic products contain an easily readable feature proving that the product is authentic, it would greatly enhance the potential for unauthorized products to be caught by the authorities. Technology related interactive tags is not new, but the previous solutions such as QR codes, NFC and RFID tags were much more prone to copying and other misuse than blockchain-related technology. Counterfeiters and dealers in grey market goods would be unable to alter the information contained in the blockchain. First Wave A growing number of companies are riding the early developer wave and have started offering blockchain related IP services. Such companies include Bernstein Technologies, which secures IP assets and innovation processes, Kyna, which automates the transaction of patents, Ujo, a platform which allows musicians to automatically license their works through Ethereum and Blockai, which helps artists to register their copyrighted work. Several of the IP related blockchain developer companies are still on startup stage, but we are certain to see the amount of blockchain powered IP services to increase in the near future. Friend or Foe? For blockchain to become more than pie in the sky, there is a lot of work to be done with technological issues. Most of all there is work to be done with legislators, so that the technology is not seen as an enemy of the state, but rather as its ally. However, not all states are reluctant to start implementing blockchain technology to their administrative functions. The Estonian government has been using a Keyless Signature Infrastructure (KSI) technology to allow Estonian citizens to verify the integrity of their records in government databases, helping Estonia to launch digital services such as e-Tax, and reducing the state's administrative burden in the process. "Blockchain has all the characteristics of being a game changer in the networked information economy." Endless Possibilities Blockchain has all the characteristics of being a game changer in the networked information economy. Dozens of countries are investing heavily on its applications, with China leading the pack with 56 % of all patent applications globally coming from Chinese companies. Because of its enormous potential, a lot of venture capital funding is available for its development. A wide range of regulatory responses, as well as international standards and open source development programs already in place, open doors for the widespread use of the blockchain technology. It is already used in e.g. peer-to-peer lending, currency exchange, proof of authorship, data storage, securities trading and clearing. Time will tell how blockchain will change the game in these and in many other fields – especially those with outdated systems in place.  

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