According to the audit carried out by the National Audit Office of Finland (NAOF), the Financial Stability Authority is well placed to carry out bank resolution tasks.
The Act on the Resolution of Credit Institutions and Investment Firms (‘the Resolution Act’) provides the Financial Stability Authority, which was established at the beginning of 2015, with powers to apply resolution tools and powers in accordance with the Bank Recovery and Resolution Directive. Operational independence has been ensured by establishing the Financial Stability Authority as a separate agency.
National resolution authorities, such as the Finnish Financial Stability Authority, are responsible for resolution tasks concerning nationally supervised ‘less significant banks’. The NAOF audit was directed at the bank resolution tasks under the responsibility of the Financial Stability Authority. Under the banking union’s Single Resolution Mechanism, the Single Resolution Board is responsible for any resolution activities concerning ‘significant banks’.
“The Financial Stability Authority has drawn up the first resolution plans for all less significant banks in Finland. These plans largely cover the topics recommended for such plans,” says Principal Performance Auditor Vuokko Mustonen.
However, the National Audit Office recommends that the Financial Stability Authority should clarify the sections of the resolution plans concerning information and communication plans.
Financial system crisis management requires collaboration between all relevant authorities. The Financial Stability Authority and the Bank of Finland should draw up a memorandum of understanding (MoU) on cooperation that clarifies the procedures for the exchange of information as required by law. The MoU on cooperation and the division of duties between various authorities regarding financial system crisis management should be updated to match the changed operating environment and institutional structures.
“We recommend the Financial Stability Authority and the Bank of Finland to draw up a memorandum of understanding on cooperation. The Ministry of Finance, in turn, should ensure that the memorandum of understanding on cooperation between various authorities is updated. We also recommend the Ministry of Finance to expand its reporting on the activities of the Financial Stability Authority to Parliament,” says Mustonen.
The NAOF has the right to obtain information from the competent banking supervisory authority, i.e. the Finnish Financial Supervisory Authority, but it does not have the mandate to audit its activities. The NAOF also recommends that, to enhance the comprehensiveness of the external audit of the banking union, the Ministry of Finance should examine the possibility of extending the NAOF’s audit rights.