Changes to the Companies Act and the Securities Markets Act

Key changes concern the remuneration of listed companies’ management, related party definitions, and disqualification from the decision-making of the general meeting and the board of directors of listed companies. The changes are based on amendments made to the Shareholder Rights Directive (SHRD II).

New provisions amending the Finnish Companies Act and the Securities Markets Act concern the remuneration of listed companies’ management, related party definitions, and disqualification from the decision-making of the general meeting and the board of directors of listed companies. These changes relate to amendments made to the Shareholder Rights Directive (SHRD II) and entered into force in Finland on 10 June 2019, however, they contain numerous transitional provisions. In this post, I will briefly go through the changes .

Listed companies must establish a management remuneration policy, which they must present at a general meeting for the first time at the latest in the annual general meeting held after 1st January 2020 and at least every four years thereafter. The remuneration policy shall set out the principles for the remuneration of the members of the board of directors, any members of the supervisory board and the CEO as well as the key terms of the CEO’s service contract.

In addition, listed companies must prepare a remuneration report for the financial year beginning on or after 1 January 2020. The remuneration report will be presented and voted on for the first time during the 2021 general meeting period.

The definition of a related party in the Companies Act will be divided into two levels, so that the Act provides for a broader related party definition in accordance with the IAS 24 standard for listed companies and a more limited definition for non-listed companies. For non-listed companies, the scope of the related party definition remains unchanged and the proposal does not oblige non-listed companies to establish a related party register. These changes will come into force on 10 June 2019.

A shareholder, who is considered as a related party of the listed company, may not vote on an agreement or other legal action of which such shareholder, or a person in a related party relationship to him/her, is a party to, and the legal action is not part of the company’s normal business operations or is not made on market or market equivalent terms. However, there are many exceptions to these disqualification grounds such as share issue and share issue authorisation, distribution of funds, acquisition and redemption of own shares, and merger and demerger. These changes, as well as the provisions on the disqualification of board members described below, will become applicable on 10 June 2019.

A member of the board of directors may not participate in the handling of an agreement in the company or its subsidiary in situations, where a contractual party and the member are in a related party relationship and the legal action is not part of the company’s normal business operations or are not made on market or market equivalent terms. The same rules for disqualification apply to the CEO, where appropriate, as to members of the board of directors of listed companies.

SHRD II requires asset managers and institutional investors to establish and disclose an engagement policy. This must be done within six months of the Act entering into force, so by 10 December 2019 at the latest.

In addition to these changes, we would also like to draw your attention to the Financial Supervisory Authority’s Market Bulletin 1/2019, which states that, in the future, insider information will always be included in the basic information of a stock exchange release whenever disclosure of insider information is involved. Thus, when publishing insider information, the title of the release is no longer referred to as the stock exchange release. In this context, the Financial Supervisory Authority also draws companies’ attention to the fact that information contained in the stock exchange release must be relevant and clear. You can read the full Market Bulletin here: Market Bulletin 1_2019. (in Finnish)

If you have any questions about these changes, please do not hesitate to get in touch using the form below.