The third-largest of Finland’s four pension insurance companies is now waiting to find out if the country’s financial supervisory authority will send in a lawyer as its authorised representative to monitor the company’s management, following alleged rules breaches.

Elo, which operates in the Finnish earnings-related pension system alongside the other pension insurers Ilmarinen, Varma and Veritas, is currently involved in an administrative hearing process with the Finnish FSA (FIN-FSA, Finanssivalvonta).

This judicial process is an escalation of the FSA’s intervention at Elo which began in March when the pension insurer’s solvency fell below the regulatory limit for one day during the international market crash triggered by the pandemic.

Kaisa Forsström, head of department at FIN-FSA, told IPE: “In this Elo case, the FIN-FSA suspects that incompetence and carelessness has occurred in the management of affairs.

“Therefore, the FIN-FSA has reasons to consider the appointment of the attorney,” she said.

In a hearing letter from the FSA dated 30 September, the watchdog said it considered that overall, Elo’s actions described in the letter showed that under Finnish regulations, there had been incompetence and carelessness at the company between March 2020 and 8 May 2020.

“The incompetence has been related in particular to the board’s ability to manage Elo’s operations as the investment market situation changes and solvency deteriorates rapidly as a result,” the FSA concluded in the heavily-redacted letter seen by IPE.

“Carelessness has been associated in particular with Elo’s investment risk-taking combined with a weak solvency situation, given the need for increased risk monitoring and operational action, and the lack of preparation for measures required in a weak solvency situation,” the letter read.

However, Elo, which submitted a written response to the FSA on 30 October, has argued against the imposition of an authorised representative (AR) within its management.

A spokeswoman for Elo told IPE that the firm had adopted several measures to further strengthen its existing operational models.

“In Elo’s opinion the measures already taken and still to be taken do appropriately address the concerns raised by the FIN-FSA,” she said.

“Therefore, in Elo’s opinion there is no need to have an AR appointed,” she said.

“Elo is now waiting for the FIN-FSA to evaluate the adequacy of those measures and make the decision based on that assessment,” the spokeswoman said.

If the FSA did decide to appoint an AR, the appointee would act as a representative of the FIN-FSA to ensure that Elo’s activities met its requirements, and they would have the right to attend any meetings at the company, she said.

A spokeswoman for FIN-FSA told IPE no AR for Elo had yet been nominated.

Problems at any of Finland’s four pension insurance companies can have implications for rival firms and the whole earnings-related pension system.

This is because the pension insurers provide the bulk of earnings-related pensions, and while competitors, they are also jointly liable for the funded portion of accrued pension rights.

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