EN
OPINION OF THE EUROPEAN CENTRAL BANK
of 20 June 2003
at the request of the Swedish Ministry of Fina nce on a proposed legislative reform of Swedish
banking and finance law
(CON/2003/10)
1. On 26 February 2003, the European Central Bank (ECB) received a request from the Swedish
Ministry of Finance for an opinion on a proposed legislative reform of Swedish banking andfinance law ( lagrådsremiss om reformerade regler för bank- och finansieringsrörelse ) (the
legislative proposal).
2. The ECBs competence to deliver an opinion is based on the second indent of Article 105(4) of the
Treaty establishing the European Community and the fifth and sixth indents of Article 2(1) ofCouncil Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank bynational authorities regarding draft legislative provisions
1 as the legislative proposal relates to
payment and settlement systems and to rules applicable to financial institutions with influence onthe stability of financial institutions and markets. In accordance with the first sentence ofArticle 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council of theECB has adopted this opinion.
The reform of Swedish banking and finance law
3. The Swedish reform of banking and finance law wa s initiated following the crisis in the banking
sector in the early 1990s through the appointment by the Swedish Government of a committee toinvestigate the need for changes in the regulations governing banks and credit market undertakings the Banking Law Committee ( Banklagskommitteen ). In its main report,
2 this committee
recommended a comprehensive modernisation of the legislation governing banks and credit marketundertakings. These recommendations were later addressed in a ministerial memorandum,
3 which
formed the basis for the legislative proposal. According to the legislative proposal, the risk ofserious disruption to the payment system and the credit supply  which would entail extensive
                                                
1 OJ L 189, 3.7.1998, p. 42.
2 Regulation and Supervision of Banks and Credit Market Undertakings ( Reglering och tillsyn av banker och
kreditmarknadsföretag, SOU 1998:160).
3 Reformed Regulations for Banking and Financing businesses ( Reformerade bank- och finansieringsrörelseregler ,
Ds 2002:5).
2socioeconomic costs  makes regulation of banks and other credit institutions necessary. The
intention is to achieve a stable financial system, in terms of resistance to both problems inindividual institutions and macroeconomic di sturbances, which provides good conditions for
competition and a high degree of efficiency. The legislative proposal refers to the three mainfunctions of the financial system: (i) the redistribution of savings to the benefit of existing needsregarding consumption and investment; (ii) the redistribution and reduction of risks; and (iii) theefficient fulfillment of the function of intermediary with regard to payments. It states that a well-
functioning financial system should in particular ensure the reduction of the risk of disruption tothe payment transmission function. One reason given for this focus is that systemic risk is a greaterconcern for the payment transmission function than for the other main objectives of the financialsystem. The market structure and developments with regard to financing activities, including theavailability of capital through the securities market, mean that there is less risk of a crisis withrespect to the supply of credit compared with the payment systems infrastructure, considering thelatters dependence on relatively few institutions. Although there is no legislative monopoly forbanks to act as intermediaries with regard to  payment systems, the existing monopoly for banks to
take deposits has in practice resulted in a situation whereby banks have a dominant position asproviders of payment services. Moreover, the trend towards consolidation in the banking industryhas led to an increased dependence of the payment system function on ever fewer institutions and,consequently, systemic vulnerability has become greater. In order to safeguard the payment system,the legislative proposal attaches particular impor tance to payment intermediaries receiving short-
term deposits and participating in payment systems open to a large number of senders and receiversof payments.
4. Against this background, the legislative proposal recommends a  new definition of banking
(bankrörelse ). This differs from the current definition, which refers to deposits on account where
the balance is determined in nominal amounts and is available to the depositor at short notice.Instead, the legislative proposal suggests that the focus should be shifted towards an increasedprotection of the transmission of payments by entities that are both recipients of funds available tothe depositor at short notice and providers of money transmission services via general paymentsystems. The proposed new definition is also different from the definition of credit institutions inCommunity law, as further considered in paragraphs 11 - 14 below.
5. The legislative proposal states that neither the safeguarding of the payment system, nor consumer
protection considerations, justify a restriction to banks of the right to accept deposits. On thecontrary, it argues that an elimination of the banks deposit-taking monopoly would increasechoice and competition. It therefore recommends that the exclusive right of banks to acceptdeposits  is abolished. This suggestion is addressed in paragraphs 15 - 17 below.
6. The legislative proposal states that the need to regulate the provision of credit is not as strong as the
need to regulate the payment system function. It is, however, difficult to define exactly whichforms of financing are most worthy of protection. The legislative proposal recommends a  new
3definition of the term financing activities ( finansieringsrörelse ), based on the Community law
definition of credit institutions. The definition of  financing activities refers to institutions that
accept repayable funds from the public and provide credit. This aspect of the legislative proposal isdiscussed in paragraphs 18 - 19 below. 
7. The legislative proposal also recommends a reformation of the rules  for banks and credit market
undertakings, including new regulations concerning solvency  and liquidity, risk management  and
transparency. Banks and credit market undertakings need to conduct their business in a manner thatdoes not put at risk their capacity to meet their obligations and they should therefore be obliged toidentify, measure, govern and control any risks a ssociated with their business. The business should
also be conducted and organised in a manner that allows an overview of the institution's financialposition and be generally sound. These proposed new rules, and the role of the FinancialSupervisory Authority ( Finansinspektionen ) in this respect, are addressed in paragraphs 20 - 21
below. 
8. The legislative proposal also addresses specifically the supervisory activities of the Financial
Supervisory Authority and its ability to monitor and intervene vis-à-vis institutions and with regardto the financial sector. The proposed legislation would allow the Financial Supervisory Authority toimpose a wider range of sanctions, as considered in paragraph 22 below. 
9. The main part of the reform is contained in a proposed new Act on banking and financing activities
(förslag till lag om bank- och finansieringsrörelse ). In addition, the legislative proposal contains a
suggestion for a new Act on deposit-taking ( förslag till lag om inlåningsverksamhet ). Moreover, it
contains several additional amendments to other Swedish acts related to banking and finance,including the Sveriges Riksbank Act ( lagen (1988:1385) om Sveriges Riksbank ), the Act on
consumer credit ( konsumentkreditlagen (1992:830) ), the Act on measures against money
laundering ( lagen (1993:768) om åtgärder mot penningtvätt ), the Act on capital adequacy and large
exposures for credit institutions and securities firms ( lagen (1994:2004) om kapitaltäckning och
stora exponeringar för kreditinstitut och värdepappersbolag ), the Marketing Act
(marknadsföringslagen (1995:450) ), the Act on deposit guarantees ( lagen (1995:1571) om
insättningsgaranti ), the Act on systems for the settlement of obligations in the financial market
(lagen (1999:1309) om system för avveckling av förpliktelser på finansmarknaden ) and the Act on
the issuance of electronic money ( lagen (2002:149) om utgivning av elektroniska pengar ). Many of
these latter amendments of related acts represent changes of a legislative technical nature (such asthe amended references in the Riksbank Act) resulting from the proposed introduction of the newAct on banking and financing activity and the repeal of the current Swedish acts on banking(bankrörelselagen (1987:617) ) and financing activity ( lagen (1992:1610) om
finansieringsverksamhet ) and are not commented upon separately. 
10. The legislative proposal concerns several existing EU directives. The proposed Acts on banking
and financing activities and on deposit-taking are, inter alia , intended to reflect rules contained in
such directives. For instance, the proposed new de finition of banking has to be read against the
4provisions of Directive 2000/12/EC of the European Parliament and of the Council of
20 March 2000 relating to the taking up and pursuit of the business of credit institutions4 (the
Consolidated Banking Directive). Other relevant EU legal acts are Directive 94/19/EC of theEuropean Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes
5 (the
Deposit Guarantee Scheme Directive), Directive 98/26/EC of the European Parliament and of theCouncil of 19 May 1998 on settlement finality in payment and securities settlement systems
6 (the
Settlement Finality Directive) and Directive 2000/ 46/EC of the European Parliament and of the
Council of 18 September 2000 on the taking up and pursuit of and prudential supervision of thebusiness of electronic money institutions
7 (the E-money Directive). Also Council
Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for thepurpose of money laundering
8 (the Money Laundering Directive) is relevant considering the
proposed extension to allow non-supervised entities to take deposits under the new regime.
The definition of banking
11. The legislative proposal introduces a new definition of banking so as to include both payment
services through general payment systems and the receipt of funds available to the depositor withless than 30 days notice. Part of the rationale behind this new definition is the wish to focus on theactivity which, according to the analysis in the legislative proposal, requires most attention from asystemic risk perspective, namely the functioning of payment systems open to a large number ofsenders and receivers of payments. This proposed new definition of banking is different comparedto the definition of credit institution in the Consolidated Banking Directive. The Communitydefinition of credit institution is contained in Article 1 of the Consolidated Banking Directive andrefers to an undertaking whose operations consist of accepting deposits or other repayable fundsfrom the public and granting credits for its own account. As explained in the legislative proposal,also the existing Swedish definition of banking differs from the definition of credit institution inthe Consolidated Banking Directive. In accordance with Chapter 1, Article 2 of the SwedishBanking Act currently in force ( bankrörelselagen (1987:617) ), banking refers to operations that
include deposits on account if the balance is determined in nominal amounts and available to thedepositor on short notice. The provision of credit, which is a part of the definition of creditinstitutions in the Consolidated Banking Directiv e, is thus not a requirement for the conduct of
banking under either the current or the proposed Swedish legislation. Those institutions whichtoday do not meet the criteria for banks and which engage in lending are currently regulated insteadby the Act on financing activities ( lagen (1992:1610) om finansieringsverksamhet ). As clarified in
the legislative proposal, all Swedish undertakings that engage in the type of activities carried out by
                                                
4 OJ L 126, 20.3.2000, p. 1.
5 OJ L 135, 31.5.1994, p. 5.
6OJ L 166, 11.6.1998, p. 45.
7OJ L 275, 27.10.2000, p. 39.
8 OJ L 166, 28.6.1991, p. 77.
5credit institutions, as defined in the Consolidated Banking Directive, are thus currently subject to a
Swedish regulation that meets the latters requirements. According to the legislative proposal, therepeal of the Banking Act and the Act on financing activities and the enactment of the proposednew Act on banking and financing activities, which will introduce the new definition of bankingbusiness, will not change this situation.
12. The effects of the proposed Swedish definition of banking is in the following considered in the
light of the use of the term credit institution in Community legislation in general and in ECB legalacts. The ECB has considered the proposed new definition with particular regard to (a) the need forfurther integration of the financial markets on an EU-wide basis; and (b) the Eurosystemsmonetary policy operations, the collection of monetary statistics, and the competence of theEuropean System of Central Banks (ESC B) in the field of payment systems. 
13. There is no legal requirement to use in national laws the same definition of credit institutions as in
the Consolidated Banking Directive, and differences do exist between Member States. Suchdifferences can, however, make the achievement of a truly single financial market more difficult.Extensive and innovative national reforms, as presented in great detail in the Swedish legislativeproposal, may very well have implications for the functioning and future development of thefinancial market elsewhere in the EU. Hence, all Member States ought to have a common interestin the kind of important policies set out in the legislative proposal. The ECB is of the opinion that,to the extent possible, amendments to national financial legislation should promote the integrationof EU financial markets. The ECB notes in this connection that future Community legislation canbe expected to maintain the reference to credit institutions, as currently defined, which complicates
the analysis of the resulting effects of having a divergent national definition. This issue has alreadybeen raised in previous consultations by other parties and is considered in the legislative proposal,where it is noted that some Swedish entities may comply with the proposed new definition of
banking although they do not provide credit. The ECB would in this regard like to stress the
importance of ensuring a level playing field across countries within the EU.
14. The legal acts of the ECB also make use of the term credit institutions, as defined in the
Consolidated Banking Directive, and attach certai n rights and obligations to an institution which
has this status. The question as to which types of entities in a certain Member State are regarded ascredit institutions is of particular importance to the ECB in the context of the Eurosystemsmonetary policy operations and for the collection of monetary statistics. For countries that haveadopted the euro, it is particularly important to establish the status of credit institutions in relationto the access to the standing facilities that are used as monetary policy instruments and to ensureequal treatment throughout the euro area. These inst itutions would also have  to comply with the
Eurosystems requirements with regard to the minimum reserve system and the statistical reportingrequirements of the ECB in the field of money and banking statistics. Moreover, the question of aninstitutions status as a credit institution is also important in relation to participation in EU paymentsystems. In this respect, the Consolidated Banking Directive and the Settlement Finality Directive
6form a legislative framework that aims to ensure th at only credit institutions subject to supervision
by competent authorities participate in payment systems that are protected through the provisionson settlement finality implementing the latter directive. Hence, only undertakings that meet thedefinition of participant under the Settlement Finality Directive (credit institutions) are entitled toparticipate in payment systems that have been designated under it, including the TARGET system
operated by the central banks. Again, divergent national definitions complicates the application ofthe Eurosystem-wide (and, in relation to TARGET , the ESCB-wide) rules, even if the ECB can
make efforts to take account of national differences when formulating its rules and, for itsGuidelines, during the implementation stage.
The abolition of the banks monopoly on deposit-taking
15. The legislative proposal also abolishes the banks monopoly on deposit-taking. It is intended to
enhance competition with regard to deposit-taking and introduce an element of choice forconsumers through greater variety of alternatives for the deposit of their savings. This is achievedby, on the one hand, allowing entities other than banks to take deposit and, on the other hand,ensuring that households will continue to have access to forms of deposit-taking where the fundsdeposited are guaranteed under the Act on deposit guarantee ( lag (1995:1571) om
insättningsgaranti ). Through the proposed abolishment of the banks monopoly on deposit-taking,
credit market undertakings will also be allowed to take deposits and the proposal extends thedeposit guarantee to cover such deposits. In addition, the legislative proposal provides othercompanies not covered by the Act on deposit guarantee with the opportunity of taking depositsfrom the general public. This latter proposal will thus apply to non-financial institutions, which arenot subject to prudential supervision by the Swedish Financial Supervisory Authority and depositswith such entities will not be covered by the deposit guarantee. Instead, the proposal introduces aset of special requirements for these entities and deposits through the enactment of the Act ondeposit-taking activities ( lag om inlåningsverksamhet ). These requirements refer to the form of
associations that may take non-guaranteed deposits, namely limited companies ( aktiebolag ) and
economic associations ( ekonomiska föreningar ) with a minimum restricted own capital
(SEK 10 million for limited companies and SEK 5 million for economic associations) and to theowners and auditors of such entities. They also prescribe a maximum amount on deposit perconsumer of SEK 50,000 and specify the need to provide clear information concerning the status ofthe deposit as non-guaranteed. Other requirements refer to the presentation of the deposit-takingactivity in the annual accounts and the possibilities for the Financial Supervisory Authority tointervene in cases of non-compliance. Finally, any undertakings involved in deposit-taking will
also be subject to the Swedish legal rules and measures against money laundering. 
16. In view of the special legal requirements and the role of the Financial Supervisory Authority, the
proposed new (non-guaranteed) regime for deposit-taking should have no systemic riskimplications. In this context, the ECB woul d like to emphasize, however, the importance of
achieving the intended public awareness concerning the status of these additional entities as non-
7supervised and of the deposits as not covered by the deposit guarantee scheme. The effectiveness of
the application of the obligations to provide clear information contained in Section 7 of the Act ondeposit-taking will be important in this regard. The information must be effectively communicatedto the general public since it is important for depositors to be fully aware that the FinancialSupervisory Authority does not in fact conduct prudential supervision over these entities (and thatthe monitoring of the entities financial health th erefore rests with the depositors themselves). This
is especially relevant if these non-supervised entities encounter problems, since misconceptionsconcerning the supervision of these entities could otherwise potentially create negative spillovereffects on the financial system. 
17. The ECB would also like to mention that the proposed Act on deposit-taking should apply
exclusively to deposits that serve as savings deposits (store of value) and not to deposits thatserve as means of payment. Deposits collected by deposit-taking entities which are not supervisedcredit institutions should not function as electronically-stored means of payment since this couldlead to a possible characterisation of the new form of deposit-taking as electronic money fallingunder the E-money Directive.
Financing activities
18. The need to regulate financing activities is consider ed less important than the need to regulate the
transfer of payments. With regard to the granting of credits, the legislative proposal takes as astarting point the Community definition of credit institutions (receiving deposits from the publicand granting credits for its own account) and lays down a new definition of financing activities.The proposed definition refers to institutions that (i) accept repayable funds from the public,directly or indirectly through a closely connected company; and (ii) provide credit, give guaranteesin support of credit transactions or acquire debt obligations or rent out personal property forfinancing purposes. As a general rule, financing activity will only be allowed with authorisationfrom the Financial Supervisory Authority and will be subject to the latters supervision, althoughcertain exceptions are proposed. One change to the current regime is the proposal that only creditproviders that take deposits from the general public will be covered by the definition and subject tothe Financial Supervisory Authority. Other deposit-taking entities (not covered by the definition offinancing activities), will be subject to the rules in the Act on measures against money laundering,which is welcomed by the ECB. 
19. The ECB shares the view that it is deposit-taking  entities participating in general payment systems
that require most attention from a systemic risk perspective. Considering the proposed new rules onthe extension of deposit-taking activity to encompass banks and credit market undertakings whichparticipate in general payment systems, the E CB would like to emphasize that the supervisory
resources should focus on the more systemically relevant institutions. The expansion of the tasks ofthe Financial Supervisory Authority will require that sufficient resources continue to be allocated toits core functions with regard to financial stability. It is also recalled that, as an additionalsafeguard, the Treaty allocates the oversight of payment systems to the central bank and the
8continued close co-operation between the Supervisory Authority and the Riksbank will remain
important.
The rules for banks and credit market undertakings
20. The legislative proposal contains common new rules for banks and credit market undertakings. The
ECB notes, in particular, the proposed new rules concerning solvency, liquidity, risk managementand transparency. The legislative proposal states its intention of defining a regime whereby creditinstitutions conduct their business in a manner that ensures, inter alia , that they can fulfil their
obligations and control their risks.
21. The ECB welcomes the proposed new prudential rules for banks, considering, inter alia,  the role of
the Financial Supervisory Authority referred to in Chapters 13  17 of the proposed Act on bankingand financing activities and its power to issue more detailed regulations within its competence. Inaddition, the ECB notes that, in the previous consultation on the legislative proposal, SverigesRiksbank indicated that, although solvency is important, the control of liquidity risk should befurther emphasized considering, inter alia , the moral hazard stemming from the Riksbanks
function as lender of last resort. On this spec ific issue, the ECB understands that the Swedish
Government shares this point of view, as explained in the legislative proposal, and this iswelcomed by the ECB.
Supervision
22. The legislative proposal allows the Financial Supervisory Authority to apply a wider range of
sanctions related to the authorisation and supervision of credit institutions. It explains that thepresent system of sanctions has been criticised for not providing the Financial SupervisoryAuthority with sufficient possibilities to intervene appropriately. The possibility of revoking abank's charter or a credit market undertakings licence is never used in practice since it is, as a rule,considered as too far-reaching an intervention. The future system should enable the FinancialSupervisory Authority to concentrate its supervisory initiatives on breaches of a more seriousnature from the point of view of system stability. The Financial Supervisory Authority should havegreater scope than at present to assess the measure that is appropriate in a particular situation and tobe equipped with more means at its disposal for intervention. A new system of interventions andsanctions, which is more flexible than the present regime, is suggested in the legislative proposal.The Supervisory Authority can, inter alia , issue an order to take action within a specified period, a
prohibition against the carrying out of a certain decision or a warning. If there is a serious breach,the credit institutions authorisation can be withdrawn. The Authority may decide not to interveneif a breach is minor or excusable, if the institution rectifies the problem, or if another authority hasintervened and this is regarded as sufficient. The ECB welcomes the proposal to provide theFinancial Supervisory Authority with a set of sanctions that are better adapted to the objectives ofeffective prudential supervision.
923. The ECB confirms that it has no objection to the competent national authorities making this
opinion publicly available at their discretion. This  opinion will be published on the ECBs website
six months after the date of its adoption.
Done at Frankfurt am Main on 20 June 2003. 
The President of the ECB
[signed]
Willem F. DUISENBERG