SWEDEN: An Introduction to Banking & Finance: Regulatory

Sweden: A Country of ESG Early Adopters and the Global FinTech Hub

We can safely say that financial regulation is a dynamically growing area globally, and certainly in the EU. However, Sweden is a particularly interesting case, for a number of reasons.

The financial regulatory market in Sweden is regulated by Finansinspektionen (“The Swedish Financial Supervisory Authority”, or “The Authority”), which promotes a stable financial system that contributes to sustainable development and a high level of consumer protection. It publishes rules for financial firms and monitors compliance with these rules, and its experts also analyse the risks that could lead to instability in the financial system.

Finansinspektionen clearly communicates its focus areas. For 2023 these include continued consumer protection, resilience to cyber-attacks and similar threats, greenwashing, compliance with anti-money laundering and counter terrorist financing rules, and compliance with sanctions. It also maintains an ongoing dialogue with the supervised companies, listening to their views and taking into account their feedback.

Mitigate risks and increase competitive advantage

The Authority acts decisively and proactively to ensure the rules apply to everyone concerned, with no exceptions. It continuously acts in a clear manner, leaving no doubt that tolerating non-compliance by companies can lead to disastrous consequences.

There is a tangible financial risk, as fines are not necessarily marginal. The possibility of non-compliant companies going out of business cannot be ruled out.

As an example, in March 2023, Swedbank AB (a large, listed bank) received a fine of SEK850 million (approximately EUR72 million) following a major IT incident in conjunction with changes in a business-critical IT system. In May 2023, Finansinspektionen issued an injunction to the currency exchange company, My Change Scandinavia AB, to immediately cease its operations because of “extensive and severe deficiencies in the firm’s work to combat money laundering and terrorist financing”. This clearly shows that not only large banks are carefully supervised.

Ensuring a professional financial regulatory compliance function is no longer viewed as a needless burden, but rather as a business-critical function with direct impact on performance and strategic perspectives.

Properly managed, financial regulatory compliance can become a competitive advantage; eg, making it easier to attract new investors or leading to an increased company valuation.

The country of ESG early adopters embraces the CSRD

Good quality non-financial reporting can also make a company more attractive in the eyes of investors and other stakeholders. However, a good non-financial report should not be confused with a company marketing brochure, where everything is presented in bright colours.

With the Corporate Sustainability Reporting Directive (CSRD) entering into force, reliable, honest, and informative non-financial reporting has become not only a best practice but also a legally required market standard.

The first group of companies will have to comply with the new regulations for reporting periods beginning already in January 2024, with reports published in 2025. For the time being this applies to large listed companies, with the implementation for other large companies and smaller listed businesses to be phased in over the coming years.

However, companies should not put off their preparations, as preparing a strong non-financial report is a significant effort requiring a serious commitment. A quick-fix solution is not an option.

Revolution or… a business case 

In numerous jurisdictions the CSRD means revolutionary changes. However, ESG (environmental, social, and governance) was big in Sweden long before it became a buzzword.

The Swedish financial sector has the know-how, capabilities and – above all – real-life experience in ESG-related matters, which can serve as inspiration and an example to companies from other countries. Today, this has proved to be, to a large extent, jurisdiction-agnostic.

We see increasing numbers of financial institutions from other jurisdictions coming to Sweden for assistance and inspiration concerning their ESG undertakings.

Being ESG early adopters translates into a competitive advantage for Swedish business in the wake of the CSRD becoming a reality. Embracing ESG and non-financial reporting is an opportunity that can lead to better business and increased competitiveness on the international market.

Financial regulatory advisory services: no longer an optional cost

Fifteen or even ten years ago it was a rather daunting task to convince businesses to spend significant resources on properly handling financial regulatory matters, being viewed as an optional and unnecessary cost.

Today, experienced professionals, whether working in-house or acting as external advisers, are very much in demand, and nobody questions whether good service should be adequately remunerated.

Over the past few years, the number of professional service firms focusing on financial regulatory assistance has also been increasing significantly.

Such boutique advisory firms continue to emerge on the market. Some of them are regulated by the Swedish Bar Association (law firms), but there are also numerous small consulting firms.

An idea for future students: become a financial regulatory expert

Demand for senior regulatory advice is growing all the time, and the lack of truly experienced professionals is one of the biggest challenges on the market.

It can sometimes lead to situations where a relatively junior professional with just a few years’ experience may be viewed as a “senior adviser”. It also translates into a relatively high turnover of employees in financial institutions and in-house financial regulatory functions.

From the business perspective, it often also means that less experienced professionals are more inclined to say “no” to everything, as an easier and safer option. A good and experienced financial regulatory expert should be able to explain “how” in accordance with existing rules.

An increasing focus on ESG and non-financial reporting obligations will lead to an even greater demand for experienced financial regulatory experts.

Stockholm: the financial capital of Scandinavia?

A few years ago, the city of Stockholm promoted itself as “The Capital of Scandinavia”. In fact, Stockholm could be considered as the financial capital of Scandinavia and Sweden – as a global FinTech hub.

The continuously high level of activity of Swedish financing banks and asset managers is one aspect, but following Brexit we have seen a number of UK financial institutions setting up their new subsidiaries in Stockholm, with the aim of benefiting from the EEA passporting system, and effectively treating Stockholm as their European hub.

However, Sweden’s position as a leading financial market also attracts the attention of suspicious businesses. In 2022, Finansinspektionen released a record high number of warnings of firms suspected of investment fraud, and in 2023 the number of warnings has continued to increase. The Authority remains highly active and committed to protecting consumers and the market in general.

FinTech is a clear growth area in Sweden. Open finance is widely used, in particular regarding payments, and the country is considered as an open finance early adopter globally.

Klarna is one of the world’s most recognised players on the financial services arena. However, there are hundreds, if not thousands, of innovative FinTech companies in Sweden, with Stockholm being viewed as a particularly attractive place for starting and developing FinTech businesses.

Newcomers particularly appreciate the vibrant FinTech community and easy access to potential business partners, clients, and investors. They are also attracted by the Swedish lifestyle, good living conditions, and the friendly environment for foreigners.

Last but not least, a stable and predictable financial regulatory system is also one of the main factors attracting new players to the Swedish market.