Sweden: Banking and Financing Business in Sweden

Last Updated: 11 May 2004
Article by Peter Kullgren

The Swedish Financial Market

The Swedish Financial Market has expanded rapidly during the last decade. Companies have broadened the scope of their business, and many new companies have entered the market. One important change is the bank-insurance concept, i.e. banking and insurance operations are offered by the same financial group. This position has been adopted by all the leading actors on the Swedish market and we have a new structure for the financial services industry today. Furthermore, the customers are banking more and more via the internet or the phone. These new channels of distribution have enabled the development of new services and strengthen the competition on the market.

There are four main types of banks on the Swedish market; Swedish commercial banks, foreign banks, savings banks and co-operative banks. Commercial banks can be divided into three categories, the largest of which comprises the four Swedish major banks; FöreningsSparbanken, Svenska Handelsbanken, Nordea and SEB. Even before Sweden’s accession to the European Union on January 1, 1995, foreign banks were allowed to open branches in Sweden. We have now about twenty foreign banks that conduct business on the Swedish market through some kind of establishment. Most foreign banks concentrate on the corporate banking market and the securities market.

Regarding financing business, mortgage credit institutions are the largest group. This business is conducted by so called credit market companies. The credit market companies mainly direct their business towards corporate customers (instalment finance, leasing, factoring etc.), and to some extent, to the retail market (credit and debit cards, hire purchase finance etc.).

As mentioned above, internet has been important for the Swedish banks and their customers. Swedish banks are among the most advanced in internet banking services. All major banks in Sweden offer online status on accounts and other assets, online payments, and the possibility to buy and sell units in the funds and shares.

In June 2003 the government presented a bill proposing a new legislation (the "Banking and Financing Business Act") to reform the existing rules regarding banking business and financing business. The new legislation covers both banking business and financing business and will have impact on the existing structure on the Swedish market. The competition on the deposits market will also strengthen.

The following is a brief summary of some of the main features of the Banking and Financing Business Act. The summary is merely a general description of certain major aspects and consequently it does not deal with all aspects that will need to be taken into account when considering banking or financing business activities in Sweden. Professional advice should be obtained on a case-by-case basis, and the contents of this publication should not be relied on alone.

The Banking and Financing Business Act

The new Banking and Financing Business Act is based on the following premises:

  • A new definition of banking business.
  • Banks monopoly regarding deposits is abolished.
  • A new definition of financing business.
  • New rules regarding solidity, liquidity, risk management and transparency.

The new Banking and Financing Business Act is expected to come into force on July 1, 2004.

A New Definition of Banking and Financing Business

Banks and credit market companies must be authorised by the Financial Supervisory Authority.

Banking business involves any business which includes

a) the arrangement of payments in general systems, and

b) acceptance of moneys on terms under which it will be repaid at short notice not longer than 30 days.

Financing business involves any commercial activities which purpose is to

a) accept money from the public (direct or indirect from a company with close links) with an obligation to repay the money, and

b) provide credits, credit guarantees, factoring or leasing.

Following financing business is exempted: Business conducted by Swedish and certain foreign banks, securitization business (SPV), insurance companies, investment companies and companies where the financing business pertains to the sale of services or goods manufactured or sold by the relevant entity itself.

Not only banks, but also credit market companies will be allowed to conduct investment business.

EEA entities that are subject to supervision in their home jurisdictions and that are permitted to engage in financing business under home-country authorisations, are exempt from the Swedish authorisation requirements upon notification to the Swedish authorities by the home-country supervisor. EEA entities are free either to provide cross-border services into Sweden or to set up a branch in Sweden, without any further authorisations from Swedish authorities.

Non-EEA entities, on the other hand, which engage in financing business in Sweden, could only legally do so from a branch establishment in Sweden. Applications for authorisation to set up branches in Sweden to engage in financing business are directed to the Financial Supervisory Authority.

An overseas entity that has been authorised to do the equivalent of banking and or financing business in its home jurisdiction may set up a representative office in Sweden for the purposes of marketing or acting as an intermediary of the services. A representative office must be notified to the Financial Supervisory Authority.

Banks Monopoly regarding Deposits is Abolished

On July 1, 2004 banks monopoly to accept money on terms under which it will be repaid, with or without interest or a premium, either on demand or at short notice (deposit-taking) will cease. This will make it possible for credit market companies to accept money from the public that shall be repaid at short notice. Deposits with banks and credit market companies will be covered by the Swedish guarantee of deposits.

However, even companies that are not banks or credit market companies will be allowed to offer deposit-taking. The business will be regulated by a new act on deposit-taking. The deposits may not exceed SEK 50,000 from one customer. These deposits will not fall within the Swedish guarantee of deposits. The legislation contains provisions regarding information to customer, acquisition and management trial and minimum capital requirement. Although, these companies are not supervised by the Financial Supervisory Authority, they will be inspected ones a year by the authority controlling that the companies fulfil certain conditions laid down in the legislation.

New Rules regarding Solidity, Liquidity, Risk Management and Transparency

Banks and credit market companies will be covered by new rules regarding solidity, liquidity, risk management and transparency. The business shall be conducted without jeopardizing the ability to fulfil its obligations. A company must identify, measure and control risks related to the business. The business shall be conducted and organized making it possible to get a good view of the economic situation of the company.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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