FINLAND: An Introduction to Banking & Finance
Current Relevant Topics
Green and sustainable financing continue to be topical in Finland as the climate crisis continues. Sustainability considerations have become a fundamental part of banks’ strategies and operations. In 2024, banks had to report their green asset ratio, meaning the proportion of their assets associated with environmentally sustainable economic activities, for the first time under the EU Taxonomy Regulation. Banks are further subject to ESG-related reporting obligations under the Corporate Sustainability Reporting Directive, starting with reporting on the financial year 2024 in 2025, but also as part of the reporting required under Capital Requirements Regulation.
Examples of products offered to clients include green loans, being loans for green purposes, and sustainability-linked loans, being loans in which interest rates are linked to certain sustainability targets of the borrower. The Loan Market Association has, in addition to its previously published sustainability-linked loan principles, green loan principles and draft provisions for sustainability-linked loans, at the end of 2024 also published draft provisions for green loans, which we expect will be used in the Finnish loan market too. Furthermore, at the end of 2024, the EU Green Bond Standard Regulation started to apply, being a voluntary standard for green bonds linked to the EU Taxonomy. Aiming at being a “gold standard” for green bonds, time will tell how the product will be adopted by the Finnish market as an alternative to already existing green bond standards.
Especially from 2023 onwards, one very relevant topic in the energy and financing sectors in Finland has been offshore wind power as in that year the Ministry of Economic Affairs and Employment of Finland launched a legislative project to clarify the rules of procedure for offshore wind power in the Finnish exclusive economic zone. On 1 January 2025, the Finnish Act on Offshore Wind Power entered into force. Under the said act, suitable areas for offshore wind power in the exclusive economic zone may be opened for competitive tendering, which consists of three phases: i) the Finnish government selecting the areas suitable for offshore wind power; ii) the Finnish Energy Authority organising the competitive tendering; and iii) granting the winner of the tendering the exclusive right to apply for an exploitation permit from the Finnish government to obtain a fixed-term right of use for a certain area for offshore wind power. It, however, remains to be seen how the financing and security packages for offshore wind power projects in the exclusive economic zone will be arranged, as the Finnish real estate system does not extend to the exclusive economic zone and mortgages are therefore not available for financiers of offshore wind power.
Some Particular Legal Issues Related to the Finnish Banking and Finance Market
Financial assistance/corporate benefit
Like many other countries, Finland has rules regarding the prohibition of financial assistance and a requirement of corporate benefit. According to the Finnish Limited Liability Companies Act (statute 624/2006, as amended), a limited liability company shall not provide loans, assets or security for the purpose of a third party acquiring shares in the company or its parent company. Further, transactions which, in breach of the provisions of the Companies Act, reduce the assets of a company or increase its liabilities without any corporate benefit or a sound business reason for the company, constitute unlawful distribution of assets.
The concept of corporate benefit is always evaluated from the perspective of the company granting loans or security and the assessment is made on a case-by-case basis. Finnish company law does not recognise any group benefit. Finnish market practice in situations where the applicability of the financial assistance prohibition or the existence of a corporate benefit for the company is open for interpretation, is to include generic limitation language in the finance documents applying to both guarantees and security. There is, however, no Finnish case law on such limitation language, and therefore the significance a Finnish court would assign to such a clause cannot be fully determined.
Floating charge
In Finland, common security in financing transactions is a floating charge (also called a business mortgage). A Finnish floating charge covers all movable assets of a company, including all fixed assets (eg, machinery, equipment and trademarks), current assets (eg, raw materials, consumables and finished products and goods) and liquid assets (eg, cash at hand and receivables).
In an insolvency scenario, Finnish floating charges grant priority over 50% of the enforcement proceeds of the relevant assets. The priority is limited to the nominal amount of the mortgage notes evidencing the floating charge plus interest and enforcement costs as determined in the mortgage note.
Some assets (such as shares and receivables) can be separately pledged despite the existence of a floating charge. If a separate pledge has been created over an asset, such asset is not covered by the floating charge. In addition, separate mortgages may be created over certain asset classes (eg, large vehicles and aircraft) under Finnish law. These assets are not covered by a floating charge even if such assets have not been separately mortgaged.
Guarantee as for one’s own debt
When a guarantee is required for payment obligations, in the Finnish market it is common to both require and provide such guarantee in the form of a guarantee as for one's own debt. This form of guarantee is covered by the Finnish Act on Guarantees and Third-Party Pledges (statute 361/1999, as amended). Under such guarantee, a guarantor is, as the name suggests, liable for the principal debt in the same manner as for its own debt. The creditor is entitled to demand payment from the guarantor immediately after the principal debt (in full or in part) has fallen due and payable. Contrary to a demand guarantee, a guarantee as for one’s own debt is related to the underlying debt obligation and subject to the same defences.
When entering into a guarantee as for one’s own debt, it is essential to identify the guarantee as such in the guarantee documentation. If nothing has been indicated in the relevant agreement, a guarantee is taken to create a secondary guarantee which does not place the creditor in as strong a position as a guarantee as for one’s own debt would.
Mankala energy companies
A specific concept in the field of electricity production in Finland is the so-called Mankala principle, which is based on the Finnish Supreme Administrative Court ruling from the 1960s. It establishes that a limited liability company, instead of paying dividends, may produce affordable energy for its shareholders as set out in its articles of association. The shareholders have the obligation to bear the operating costs in proportion to their shareholding in the company and have the corresponding right to a proportion of the electricity produced. The purpose of a Mankala company is to produce electricity for its shareholders at the lowest possible cost, whether as an independent energy producer or as an energy procurement company. The shareholders may, in turn, use the electricity for their own purposes or sell it onwards. The purpose of a Mankala company is not to make a profit; the lower procurement costs constitute the benefit received by the shareholders. In energy financing, the impact of Mankala structures should always be carefully considered.