SWEDEN: An Introduction to Banking & Finance: Regulatory

Sweden: ESG Early Adopters and a Global Fintech Hub

We can safely say that financial regulation is dynamically growing worldwide, especially within the European Union. Sweden stands out as a particularly intriguing case for a number of reasons.

Finansinspektionen and Its Priorities

Finansinspektionen (the Swedish Financial Supervisory Authority, or the “Authority”) regulates Sweden’s financial market. Its mission is to promote a stable financial system that contributes to sustainable development and offers a high level of consumer protection. The Authority publishes rules for financial firms, monitors compliance and analyses risks that could lead to financial instability.

Finansinspektionen clearly communicates its priorities. For 2024 these include:

• assessing how the financial sector manages a changed economic landscape characterised by higher interest rates and lower growth;
• ensuring that the financial sector can deliver crucial services in uncertain times;
• reviewing whether financial corporations are adequately protecting themselves from being used for criminal purposes; and
• ensuring that consumers are offered correct and high-quality services.

The Authority continues to prioritise combating money laundering, focusing on vulnerable industries such as parts of the fintech sector, crypto-asset traders, small and medium-sized banks and cash-intensive businesses. It maintains an ongoing dialogue with supervised companies, valuing their feedback and perspectives.

Mitigating Risks and Enhancing Competitive Advantage

The Authority acts decisively to ensure that rules apply to everyone concerned, and it is not afraid of going after big market players.Notably, in June 2024 it issued a fine of SEK100 million (approximately EUR8.6 million) to Nasdaq Stockholm AB. In 2023, Swedbank AB faced a fine of SEK850 million (approximately EUR73 million). Smaller institutions are also under scrutiny; Amal Express, a payment service provider, received a fine of SEK100,000 (approximately EUR8,600) in November 2024 due to anti-money laundering compliance issues.

A robust financial regulatory compliance function is now viewed as a business-critical asset rather than a burdensome expense. Effective compliance can offer a competitive advantage – for instance, making it easier to attract new investors and potentially increasing company valuation.

Embracing Regulatory Challenges: DORA, NIS2, CER and CSRD

The financial sector faces challenges in adjusting to major forthcoming regulations.

The Digital Operational Resilience Act (DORA) addresses information and communication technology issues for almost all entities under the supervision of Finansinspektionen. Furthermore, the Network and Information Systems Directive 2 (NIS2) and the Critical Entities Resilience Directive (CER) also impose extensive obligations on other sectors of the industry. Fines for private critical entities for non-compliance may reach 2% of annual global turnover or EUR10 million, whichever is higher.

The Swedish Cybersecurity Act is a local regulation, initially scheduled to enter into force as of 1 January 2025. However, it seems that it will become effective later, most probably in the summer of 2025.

Implementing new routines to comply with these regulations will require significant effort, especially since addressing various interrelated regulations is not necessarily obvious.

With numerous new regulations on the horizon, it may seem that the Corporate Sustainability Reporting Directive (CSRD) was already dealt with a long time ago. The Swedish implementation of CSRD has been delayed, and the first reporting periods for the initial group of companies will in most cases not begin until January 2025, with reports published in 2026. Reliable non-financial reporting has transitioned from best practice to a legal requirement.

ESG: A Business Case

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 as an example to companies from other countries. Today, this has proved to be jurisdiction-agnostic to a large extent.

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

Being early adopters of ESG translates into a competitive advantage for Swedish business. 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: Essential, Not Optional

A decade or so ago, investing in financial regulatory compliance was often seen as an unnecessary cost. Today, experienced professionals in this field are in high demand, and nobody questions whether good service should be adequately remunerated. The number of professional service firms focusing on financial regulatory assistance has also been increasing.

The shortage of truly experienced professionals is a major market challenge. From a business perspective, this often means that less experienced professionals are more inclined to say “no” to everything, as a safer option. An experienced expert should be able to explain “how” in accordance with existing rules.

An increasing focus on ESG and non-financial reporting obligations, as well as rapidly growing regulatory requirements, will lead to an even greater demand for experienced financial regulatory experts.

Consumer Protection, Fraud Prevention and Crypto Investments

Finansinspektionen remains committed to protecting consumers and the market. An increasing number of consumers are falling victim to investment fraud. In a November 2024 report to the Swedish government, the Authority proposed various measures to enhance investment fraud prevention.

The Authority also emphasises the importance of supervised companies considering customers’ sustainability preferences. While Sweden leads in this area, expectations are rising. Balancing detailed information with simplified messaging will be a key focus for many institutions.

Crypto-related projects are closely supervised. In May 2024, the Authority reported that over half of Swedes who traded in crypto certificates over the past six years lost money.

Despite this, fully compliant crypto projects are most welcome in Sweden. Notably, large international crypto providers choose Sweden as the jurisdiction in which to publish their prospectuses.

E-Krona: Sweden’s Potential Digital Currency

Since 2020, Riksbank, Sweden’s central bank, has been working on the e-krona pilot project, a potential central bank digital currency akin to a digital version of the Swedish krona. In March 2024, Riksbank released its latest report analysing how the e-krona could function. Features such as secure offline usability would require extensive development in technology, regulation and processes. The project continues, keeping alive the possibility of Sweden launching an official digital currency.

Fintech: A Clear Growth Area

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

While Klarna is among the world’s most recognised financial services companies, Sweden hosts hundreds of innovative fintech firms. Stockholm is particularly attractive 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 friendly environment for foreigners.

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 the financial capital of Scandinavia and Sweden a global fintech hub.

Swedish financing banks and asset managers maintain high levels of activity. Following Brexit, we have seen a number of UK financial institutions setting up their subsidiaries in Stockholm, with the aim of benefiting from the EEA passporting system, effectively treating Stockholm as their European hub. Most recently, we have seen Norwegian asset managers moving their funds to Sweden, with the latest examples including such players as Alfred Berg.

A stable, predictable and efficient financial regulatory framework is one of the main factors attracting new players to the Swedish market, making the country stand out in the global financial services arena.