Besides the usual business intelligence, this article gives the thumbs down and the thumbs up to events during the past year that are particularly deserving of attention.
This years' Thumbs Down…
…goes to the Ministry of Finance! The Over-Indebtedness Inquiry, which reported to the Ministry of Finance during 2023, had produced well-prepared proposals for the establishment of conditions to manage the increasing over-indebtedness, above all of households. A part of this was the debt and credit register that has long been requested by the industry. Introduction of the register was, however, not included in the bill that the government subsequently submitted to the Riksdag. Instead, the Ministry of Finance has hastily, and with no further impact assessment, produced its own memorandum. This memorandum contained the clearly more detailed proposal to repeal the Certain Consumer Credit-Related Operations Act (2014:275) (”LVK”), with the overall aim of only allowing the granting and brokering of consumer credit from credit institutions. In practice, this way of tackling the over-indebtedness issue entails a complete undermining of the 70 or so companies that operate with a licence according to LVK. Neither is there anything to suggest that the proposal would add anything in the battle against over-indebtedness. On the contrary, the Swedish Financial Supervisory Authority has intensively monitored credit assessments in companies licensed according to LVK and it has not been able to observe shortcomings in a single case throughout the year. However, the fact that such shortcomings have been noted among credit institutions strengthens the impression that the proposed measure is entirely misguided.
The proposal from the Ministry of Finance also arrives in the midst of the Consumer Credit Inquiry's ongoing investigation regarding incorporation of the new consumer credit directive, which was ordered by the Ministry of Justice. This inquiry too proposes an abolition of LVK, but simultaneously proposes that it should be replaced by an expanded Mortgage Business Act (which in that case would naturally change name). Companies operating under a licence according to LVK would, according to the Consumer Credit Inquiry, seamlessly move to operating under the new legislation. How these different proposals relate to each other is somewhat unclear and only addressed briefly by the Consumer Credit Inquiry. The proposals, which are contradictory on many points, are now simultaneously on the table and creating a high degree of confusion in the sector. A certain degree of support, or at least communication, between the Ministry of Finance and the Ministry of Justice would have been appropriate.
This years' Thumbs Up…
…goes to the Ministry of Climate and Enterprise! The Ministry has appointed a new implementation board with the aim of strengthening the competitiveness of Swedish companies by avoiding implementation of the EU's legal directives above minimum level. This should enable unjustified regulatory burdens to be avoided to the maximum extent possible. For an industry that is as regulated as the financial sector, this could entail a significant easing, given that there has been a tendency in Sweden in many cases for national regulation to go further than is required. The implementation board will also be involved to a greater degree in the early stages of the process prior to presentation of draft legislation, i.e. in the commission's fact gathering and consultation processes, with a focus on pushing forward to protect Swedish companies' competitiveness. It remains to be seen the actual effects that the implementation board will entail, but it is nevertheless clear that the initiative is welcome.
Notices
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Supervisory activities of the Financial Supervisory Authority
FI decides on censure and penalty fee for Klarna Bank
FI decided on 11 December 2024 to issue Klarna Bank with a censure linked to a penalty fee of SEK 500 million. The censure was issued because Klarna is deemed to have violated a number of central regulations in the Anti-Money Laundering Act. The violations included the fact that Klarna did not adequately consider the risks in some of its distribution channels, that insufficient due diligence measures had been taken in relation to customers who use its ”invoice” product, and that there were no procedures for model risk management.
FI decides on censure and penalty fee for Partner Fondkommission
FI decided on 11 December 2024 to issue Partner Fondkommission with a censure linked to a penalty fee of SEK 100,000 due to the fact that Partner had neglected to report transactions with financial instruments. Partner was observed to have provided the investment service ”execution of order on behalf of clients” in connection with seven share issues without having reported the transactions, which constitutes a violation of the reporting obligation in Mifir.
FI reviews certain credit institutions' management of non-performing exposures
FI will conduct an in-depth analysis of management of non-performing exposures by 13 small and medium-sized credit institutions. The analysis will comprise the credit institution's risk management framework in relation to non-performing loans and its strategies to reduce the proportion of such loans.
FI issues Amal Express with a penalty fee
FI has issued a penalty fee to Amal Express of SEK 100,000 as a result of shortcomings in its overall risk assessment, risk assessment of customers and measures for due diligence in its hawala operations. The association has consequently not met the requirements set in the anti-money laundering regulation.
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Judgements and decisions
The Supreme Administrative Court rejects the Swedish Tax Agency's approach to taxation of reinsurance accepted
The Supreme Administrative Court dismisses the Swedish Tax Agency's appeal of previous courts' judgements in a case against Gamla Livförsäkringsaktiebolaget SEB Trygg Liv. The Swedish Tax Agency considered that the insurance company's business in relation to reinsurance accepted shall be subject to income tax, instead of being taxable as yield tax, when the reinsurance concerns risks relating to sickness- and accident policies. The Supreme Administrative Court considered there to be no legal support for such an interpretation and thereby dismissed the Swedish Tax Agency's appeal.
The Supreme Court issues its judgement in case of mortgage fraud
The Supreme Court has established in a judgement that those who provide false information with the aim of obtaining a mortgage can be sentenced for fraud, thereby clarifying the implication of the damage requirement. The provision of incorrect information in the case had not led to any actual loss for the lending institution and there had been adequate security for the credit. However, the Supreme Court observed that for fraud to be present, it was sufficient that the claim, resulting from the incorrect credit information, had been linked to a greater risk of loss than the lender would have had reason to anticipate for liability.
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Sustainability
Regulation on ESG rating adopted
The Council and Parliament have adopted a new regulation on rating of sustainability-related activities. The aim is to strengthen the reliability of ESG ratings as well as to increase transparency. It includes imposing licensing requirements to provide ESG ratings and that companies with licences will be placed under the supervision of Esma.
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Digital resilience, crypto services etc.
ITS adopted regarding information register in accordance with Dora
After the protracted discussions regarding which identification code would be requested in the templates for reporting of information registers in accordance with Dora, the commission has now adopted the implementing regulation that is required to commence application of the reporting requirement. The version of the regulation adopted stipulates that either LEI-code or EUID, or both, can be used.
Guidelines adopted on the classification of crypto assets
The European supervisory authorities have adopted guidelines on the classification of crypto assets such as asset-linked tokens, e-money tokens or other crypto assets. The aim is to ensure a uniform application of MiCA.
FI has analysed the use of AI in the financial sector
As a result of the rapid development of generative AI technology, FI has produced a report that surveys how AI is used by Swedish financial companies. The report observes that a high proportion (84%) of the companies surveyed use the technology in some way. However, not as many have adopted a formal policy for the purpose (41%). The major risks that the companies themselves have identified in connection with AI concern data quality and data protection. FI also observed that the inspection will follow the use of AI in connection with its supervision in accordance with the new AI-regulation.
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Money laundering and terrorist financing
FI updates Q&A regarding periodic reporting
FI has updated its questions and answers regarding the periodic reporting required by the anti-money laundering regulation. The answers include certain clarifications linked to the definition of correspondent relationships, as well as instructions when it comes to distribution channels.
FI states that it is following new travel rule guidelines
FI has stated that the inspection will follow Eba's new guidelines on information requirements in connection with transfers of funds and certain transfers of crypto assets. The guidelines mean that the obligation to provide information about sender and receiver will not only be applied to ordinary payments, but also when transferring crypto assets.
New guidelines to ensure enforcement of sanctions
Eba has adopted new guidelines with the aim of ensuring that credit- and payment institutions' governance- and risk management arrangements are adequate to maintain restrictive sanctions. Eba thereby considers that the risk of potential circumvention of the sanctions is reduced.
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Securities etc.
The new Listing Act enters into force
On 4 December 2024 the EU's Listing Act entered into force, which contains changes in the Prospectus Regulation and the Market Abuse Regulation, as well as regulations for the securities market (Mifid and Mifir). The aim is to simplify the raising of capital for small and medium-sized companies.
Esma is seeking points of view for its technical advice in relation to the Listing Act
Esma has initiated a consultation regarding the technical advice that the authority will submit in relation to application of the changes in the Market Abuse Regulation (Mar) and regulations for the securities market (Mifid/Mifir). In terms of Mar, the advice shall include examples of relevant dates for disclosure and under which conditions disclosure can be delayed. In terms of Mifid, the advice shall comprise a review of the criteria for an MTF to be classified as a growth market for small and medium-sized companies, as well as certain other registration criteria for an MTF. The consultation will conclude on 30 April 2025.
Esma responds regarding the Commission's consultation on macroprudential measures for credit intermediation outside the banking sector
During the spring, the Commission initiated a consultation on the adequacy of credit intermediation regulation outside the banking sector (so-called Non-Bank Financial Intermediation; ”NBFI”). Esma has now responded in relation to this consultation and is principally focusing on shortcomings in the regulation of liquidity management for mutual funds and alternative investment funds. One proposal that Esma is putting forward in its response is the introduction of a notification period for the redemption of open funds that invest in illiquid assets with a long-term investment horizon, such as real estate. Esma is also calling for further investigations concerning the potential risks that mutual funds with high levels of financial leverage entail for financial stability.
Esma is initiating a consultation regarding lending funds that are open for redemption
Esma is seeking points of view for a draft of technical standards in relation to the authorisation that the authority has received as a result of changes in the alternative investment funds directive. The technical standards concern criteria that a lending- or investment fund shall meet to enable it to be open for redemption. The consultation concludes on 12 March 2025.
New rules for clearing of securities have been adopted
Both the Council and Parliament have adopted changes in the EU's regulations for market infrastructure (Emir). The change contains requirements that participants in central counterparties within the EU must clear a proportion of their derivative contracts at a central counterparty within the EU. The aim is to reduce dependence on central counterparties in third countries.
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Banking and payment services, etc.
New proposals on the Riksbank's financing
The government has put forward a proposal regarding new options for the Riksbank's financing. These include the Riksbank requiring that a proportion of credit institutions' borrowing and debt obligations shall be matched by the credit institutions' borrowing at the Riksbank, if the Riksbank's equity falls below its target level. Moreover, changes are incorporated in the EU's finality directive with the implication that payment institutions will also be able to participate in the Riksbank's settlement system if they meet certain requirements. It is proposed that the changes enter into force on 1 January and 9 April 2025 respectively.
New capital adequacy rules for specialised debt restructurers
Certain changes in the Capital Requirements Regulation enter into force on 1 January 2025. One of these is that credit institutions that meet the conditions to be classified as a specialised debt restructurer will not need to make deductions in their capital base calculation for insufficient coverage of non-performing exposures. It is the credit institution itself that determines whether the conditions for the classification are met, i.e. that the main business comprises purchase, management and restructuring of non-performing credits, that the balance sheet total does not exceed EUR 20 billion and also that the net stable funding ratio does not fall below 130 per cent.
Eba consulting on guidelines for the implications of proportional diversification methods
Eba has produced draft guidelines that are now being sent out for consultation for what is deemed to constitute a ”significant number of exposures”. The assessment is of importance because it must be possible to assign a risk weighting of 75 per cent to the exposure in question, instead of 100 per cent in connection with the institution's capital requirement calculation for credit risk according to the standardised approach. The initial proposal is that a maximum of 10 per cent of individual household exposures may exceed 0.2 per cent of the total value of household exposures for it to be possible for the more advantageous risk weighting to be applied. The consultation proceeds until 12 February 2025.
Eba publishes final technical standards for capital requirement calculations in relation to market- and counterparty risk
As a part of the changes in the Capital Requirements Regulation, Eba has been mandated to produce technical standards for the capital requirement calculation of market- and counterparty risks. More specifically, the technical standards concern production of a method to identify a position's main risk driver as well as to determine whether a transaction constitutes a long- or a short position. The definitions are important in determining whether an institution is covered by the simplified calculation methods for institutions with smaller operations in their trading book.
The government is proposing a licensing obligation for currency exchange and money transfers
On 10 December 2024, the government presented a bill to the effect that the previous registration requirement for currency exchangers and certain payment service providers shall be replaced by a licensing obligation. The background is that these actors are judged to have a central function in money laundering for criminal networks, and higher requirements and clearer supervision are therefore deemed to be appropriate. Account information service providers will nevertheless continue to be exempt from the licence requirement in future. However, according to the proposal, such providers will be covered by the Anti-Money Laundering Act.
FI changes rules as a result of the EU's second banking package
FI has decided to change its rules (FFFS 2014:12) on prudential requirements and capital buffers. The changes include more favourable treatment under certain conditions for exposures in the form of covered bonds according to CRR and that assumptions regarding implicit state support can be made in connection with certain credit assessments. In addition, FI's provisions regarding interest-rate risk in other operations and the provisions regarding reporting of internally assessed capital requirements are being repealed. The changes enter into force on 1 January 2025.
FI states that it is following new guidelines on securitisation
FI stated on 12 December that the Inspection will follow Eba's new guidelines on STS criteria for securitisation in the balance sheet. The guidelines clarify how the requirements for simplicity, standardisation and transparency, as well as the requirements placed on credit protection agreements, third party inspections and synthetic excess spread, shall be applied to securitisation in the balance sheet for them to be regarded as ”simple, transparent and standardised”.
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Insurance
Eiopa calling for further exemptions from Dora
Several amendments to the Solvens II directive were adopted at the end of 2023. One of these amendments is that more insurance companies shall be exempted from the Solvens II directive's area of application. However, it is expected that it will not be until 2026 at the earliest before these exemptions start to be fully applied. On the other hand, application of Dora will commence as early as 17 January 2025. It is only companies that are exempted according to the current Solvens II that will be exempted from Dora's area of application, which means that companies that are exempted as a result of the changes being incorporated into Solvens II will be covered by Dora until then. Eiopa considers this to be disproportionately burdensome for such companies, which is why the authority has requested a harmonisation of Dora's area of application with what will apply in Solvens II after the changes.
Eiopa is consulting regarding new appendices to its stance on risk-mitigation techniques in relation to lapse risk
Eiopa has initiated a consultation regarding a proposal to clarify how risk-mitigation techniques through reinsurance should be used in relation to insurance companies' calculation of their lapse risk for the solvency capital requirement. The consultation also covers proposals for guidance in relation to termination clauses in reinsurance agreements and their impact on capital requirement calculations. The consultation proceeds until 07 February 2025.
Eiopa invites consultation regarding awareness of climate-related risks
Eiopa is seeking points of view from the sector regarding a proposal for a new EU-wide tool that intends to increase awareness among home-owners of their vulnerability to natural disasters and climate-related risks. The consultation concludes on 28 February 2025.
