Overview of the Swedish FinTech Market
Sweden is a technologically advanced country known for producing numerous start-up companies within FinTech. Products span across areas such as banking services, payment settlement services, lending, cryptocurrency and biometrics. In terms of FinTech, Sweden has produced companies such as Klarna, iZettle, Spotify, Lendify, Trustly, Safello and BehavioSec, among several others. The Swedish FinTech industry is still growing rapidly and multiple FinTech companies have recently emerged in areas such as loan consolidation and peer-to-peer lending.
Most of the FinTech companies do not qualify as banks, insurance companies or investment firms. When the business model does not qualify as a “heavily” regulated activity, FinTech companies are spared the extensive regulations applicable to larger market actors, such as banks. However, over recent years the licensing requirements have increased rather than decreased and, by way of example, new regulations regarding consumer credit institutes, mortgages and alternative investment funds have been introduced. For payment services and credit intermediation however there are still “lighter” licences available for FinTech companies.
Sweden’s digital and technological infrastructure is advanced and one of the most common means of personal identification in Sweden is electronic. Swedish banks have also co-developed a national electronic payment system that enables direct electronic transfer of funds between bank accounts. Furthermore, residents in Sweden have the option to receive all government mail and correspondence electronically at an online portal and to submit tax returns and other forms online.
A Digitalised Country
The use of digital payments has increased significantly over the last few years and there are some companies that do not accept cash payment. The Swedish Central Bank (Sveriges Riksbank) is currently investigating a complete replacement of cash with an electronic currency, referred to as the Swedish “E-krona”. This project, however, is still in an early development phase and no official decision has been made. A committee has been formed to investigate a general transition towards the digitalisation of currency and the committee will publish its statement on 30 November 2022 at the latest.
In 2012, six of the largest banks in Sweden co-developed an electronic payment system named Swish, which is now used by over 7 million people in Sweden. Swish is accessed through an application for mobile devices (and certain other electronic devices with similar operating systems) that enables end-users to make payments electronically. Payment using Swish is often possible (and used) in consumer purchases. Swish is also a very common method for transferring funds between individuals and is, by way of example, often used when expenses are shared (such as payment for meals). To access Swish the user must be an existing customer with one of the banks linked to Swish, and each bank is responsible for the offers and terms for the service provided to their customers. Furthermore, a BankID is required to use Swish.
A Swedish BankID is the most commonly used electronic identification in Sweden and is used by the majority of the Swedish population (including companies). BankID is an electronic ID document comparable to a passport, driver's licence and other physical ID documents. The BankID is considered an advanced electronic signature under Swedish and European law and was created through a cooperation and network between banks operating in Sweden. The BankID can (in addition to signing documents) be used as an electronic identification where the person’s identity is then guaranteed by the bank that issued that person’s BankID. The BankID software can be used on multiple devices including mobile phones.
The Swedish banks Handelsbanken, Nordea, SEB and Swedbank have a joint initiative together with the Danish bank Danske Bank and the Finnish bank OP Financial Group to explore the possibility of establishing a pan-Nordic payment infrastructure for domestic and cross-border payments in the Nordic currencies and the euro. This common infrastructure is called P27 Nordic Payments and is intended to enable real-time domestic and cross-border payments to be carried out quickly and easily through a common platform. Their vision is to establish the first integrated region for domestic and cross-border payments in multiple currencies within the Nordics.
Swedish financial regulation is mainly based on European directives. The Swedish legislator most often takes a maximum harmonisation approach and generally avoids goldplating and light-regime exemptions. Major frameworks for FinTech companies such as MiFID, PSD, IDD and MLD have been transposed similarly to many others jurisdictions in Europe.
Cross-border business into and from Sweden is common. For regulated financial services this is facilitated by licence passportation (EU mutual recognition) through regulator-to-regulator notification.
Swedish anti-money laundering (AML) regulation is applicable to many FinTech business models. Sweden has strict supervision of AML and the Swedish Financial Supervisory Authority (SFSA) requires that regulated companies have detailed AML policy documents and procedures in place.
Regulators in Sweden
The SFSA is the competent authority and main supervisor in relation to the FinTech industry in terms of financial regulation and licences. FinTech companies with services targeting consumers are also subject to supervision by the Swedish Consumer Agency (SCA) which monitors, for example, marketing towards consumers. As FinTech companies often have data-heavy operations, the Swedish Authority of Privacy, which supervises compliance with GDPR, is also relevant within FinTech in Sweden.
Sanctions against smaller FinTech companies usually lead to warnings, smaller fines and/or the revocation of their SFSA licence. In case of bank owned FinTech operations, sanctions generally consist of fines. Significant sanctions from the SFSA are uncommon but the SCA is very active in monitoring consumer lending and insurance mediation, among others. The SFSA has stated that one of its main focuses during 2021 will be the review of consumer credit providers and intermediaries, which encompasses many FinTech companies.
Swedish Government Initiatives
On March 2018 the SFSA introduced the SFSA Innovation Centre, which is a step in the Swedish Government’s plan to establish a good business environment for FinTech companies. The Innovation Centre is meant to serve as a first point-of-contact for companies where they can raise questions regarding applicable regulation for new business models and innovations within FinTech. Sweden does not have a regulatory sandbox regime and the Innovation Centre serves to mitigate the resulting difficulties for FinTech companies.
In 2017 the Swedish Financial Technology Association was founded with the purpose of gathering the Swedish FinTech community and to facilitate co-operation between authorities and other business organisations.
Investors from around the globe are attracted by Swedish FinTech companies and the constant high pace of innovation. The FinTech start-up trend can be expected to continue and, in a constantly changing, more digitalised world there will arise new consumer demands to be met and new B2B systems to be solved.
As a full-service law firm and one of Sweden’s leading legal advisors within FinTech, Vinge is able to offer a broad range of FinTech related legal advice and meet this growing market. Despite the economic and social disruption caused by COVID-19 during this past year, there has been little if any indication of the FinTech industry halting. The authors Emma Stuart-Beck, Caroline Krassén and Lave White have together with their team advised on a multitude of large and complex projects within the FinTech domain. Vinge, its clients and Sweden’s FinTech industry have shown strong perseverance in these difficult times.
Contributed by Emma Stuart-Beck, Caroline Krassén and Lave White