Opinion of the European Central Bank of 20 June 2003 at the request of the Swedish Ministry of Finance on a proposed legislative reform of  Swedish banking and finance law (CON/2003/10)
Date: 2003-06-20
Institutions: European Central Bank
Subjects: Sweden, banking, financial policy, financial stability, national law, payment system

EN

OPINION OF THE EUROPEAN CENTRAL BANK

of 20 June 2003

at the request of the Swedish Ministry of Finance 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  and

finance  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)  of

Council Decision 98/415/EC of 29 June 1998 on the consultation of the European Central Bank by
national  authorities  regarding  draft  legislative  provisions1  as  the  legislative  proposal  relates  to

payment and settlement systems and to rules applicable to financial institutions with influence on

the  stability  of  financial  institutions  and  markets.  In  accordance  with  the  first  sentence  of

Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council of the

ECB has adopted this opinion.

The reform of Swedish banking and finance law

3. 

The Swedish reform of banking and finance law was initiated following the crisis in the banking

sector in the early 1990s through the appointment by the Swedish Government of a committee to

investigate 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 market
undertakings. 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  of

serious  disruption  to  the  payment  system  and  the  credit  supply  –  which  would  entail  extensive

1 
2 

3 

OJ L 189, 3.7.1998, p. 42.
Regulation  and  Supervision  of  Banks  and  Credit  Market  Undertakings  (Reglering  och  tillsyn  av  banker  och
kreditmarknadsföretag, SOU 1998:160).
Reformed  Regulations  for  Banking  and  Financing  businesses  (Reformerade  bank-  och  finansieringsrörelseregler,
Ds 2002:5).

                                                
socioeconomic  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  in

individual  institutions  and  macroeconomic  disturbances,  which  provides  good  conditions  for

competition  and  a  high  degree  of  efficiency.  The  legislative  proposal  refers  to  the  three  main

functions of the financial system: (i) the redistribution of savings to the benefit of existing needs

regarding consumption and investment; (ii) the redistribution  and reduction  of  risks; and (iii)  the

efficient 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  to

the payment transmission function. One reason given for this focus is that systemic risk is a greater

concern for the payment transmission function than for the other main objectives of the financial

system.  The  market  structure  and  developments  with  regard  to financing  activities,  including  the

availability  of  capital  through  the  securities  market,  mean  that  there  is  less  risk  of  a  crisis  with

respect to the supply of credit compared with the payment systems infrastructure, considering the

latter’s  dependence  on  relatively  few  institutions.  Although  there  is  no  legislative  monopoly  for

banks 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  as

providers of payment services. Moreover, the trend towards consolidation in the banking industry

has 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  importance to  payment  intermediaries  receiving  short-

term deposits and participating in payment systems open to a large number of senders and receivers

of 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  increased

protection of the transmission of payments by entities that are both recipients of funds available to

the  depositor  at  short  notice  and  providers  of  money  transmission  services  via  general  payment

systems. The proposed new definition is also different from the definition of ‘credit institutions’ in

Community 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  the

contrary,  it  argues  that  an  elimination  of  the  banks’  ‘deposit-taking  monopoly’  would  increase

choice  and  competition.  It  therefore  recommends  that  the  exclusive  right  of  banks  to  accept

deposits 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  which

forms  of  financing  are  most  worthy  of  protection.  The  legislative  proposal  recommends  a  new

2

definition  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 is

discussed 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 that

does not put at risk their capacity to meet their obligations and they should therefore be obliged to

identify, measure, govern and control any risks associated with their business. The business should

also be conducted and organised in a manner that allows an overview of the institution's financial

position  and  be  generally  sound.  These  proposed  new  rules,  and  the  role  of  the  Financial

Supervisory  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 regard

to the financial sector. The proposed legislation would allow the Financial Supervisory Authority to

impose 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 as

the amended references in the Riksbank Act) resulting from the proposed introduction of the new

Act  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  definition  of  banking  has  to  be  read  against  the

3

provisions  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  the
European  Parliament  and  of  the  Council  of  30  May  1994  on  deposit-guarantee  schemes5  (the

Deposit Guarantee Scheme Directive), Directive 98/26/EC of the European Parliament and of the
Council of 19 May 1998 on settlement finality in payment and securities settlement systems6 (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  the

business  of  electronic  money 

institutions7 

(the  E-money  Directive).  Also  Council

Directive 91/308/EEC  of  10  June  1991  on  prevention  of  the  use  of  the  financial  system  for  the
purpose  of  money  laundering8  (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 with

less than 30 days notice. Part of the rationale behind this new definition is the wish to focus on the

activity which, according to the analysis in the legislative proposal, requires most attention from a

systemic risk perspective, namely the functioning of payment systems open to a large number of

senders and receivers of payments. This proposed new definition of banking is different compared

to  the  definition  of  credit  institution  in  the  Consolidated  Banking  Directive.  The  Community

definition of ‘credit institution’ is contained in Article 1 of the Consolidated Banking Directive and

refers to an  undertaking  whose  operations  consist of  accepting  deposits  or  other  repayable  funds

from 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’ in

the  Consolidated  Banking  Directive.  In  accordance  with  Chapter  1,  Article  2  of  the  Swedish

Banking 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 the

depositor  on  short  notice.  The  provision  of  credit,  which  is  a  part  of  the  definition  of  credit

institutions  in  the  Consolidated  Banking  Directive,  is  thus  not  a  requirement  for  the  conduct  of

banking  under  either  the  current  or  the  proposed  Swedish  legislation.  Those  institutions  which

today do not meet the criteria for banks and which engage in lending are currently regulated instead

by 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 
5 
6
7
8 

OJ L 126, 20.3.2000, p. 1.
OJ L 135, 31.5.1994, p. 5.
OJ L 166, 11.6.1998, p. 45.
OJ L 275, 27.10.2000, p. 39.
OJ L 166, 28.6.1991, p. 77.

4

                                                
credit 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, the

repeal of the Banking Act and the Act on financing activities and the enactment  of the  proposed

new Act on banking and financing activities, which will introduce the new definition of ‘banking

business’, 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 legal

acts. The ECB has considered the proposed new definition with particular regard to (a) the need for

further  integration  of  the  financial  markets  on  an  EU-wide  basis;  and  (b)  the  Eurosystem’s

monetary  policy  operations,  the  collection  of  monetary  statistics,  and  the  competence  of  the

European System of Central Banks (ESCB) 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.  Such

differences 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 legislative

proposal,  may  very  well  have  implications  for  the  functioning  and  future  development  of  the

financial market elsewhere in the EU. Hence, all Member States ought to have a common interest

in 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 integration

of EU financial markets. The ECB notes in this connection that future Community legislation can

be 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 already

been 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  certain 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 as

credit  institutions  is  of  particular  importance  to  the  ECB  in  the  context  of  the  Eurosystem’s

monetary  policy  operations  and  for  the  collection  of  monetary  statistics.  For  countries  that  have

adopted the euro, it is particularly important to establish the status of credit institutions in relation

to the access to the standing facilities that are used as monetary policy instruments and to ensure

equal  treatment  throughout  the euro  area. These institutions  would  also  have  to  comply  with  the

Eurosystem’s requirements with regard to the minimum reserve system and the statistical reporting

requirements of the ECB in the field of money and banking statistics. Moreover, the question of an

institution’s status as a credit institution is also important in relation to participation in EU payment

systems. In this respect, the Consolidated Banking Directive and the Settlement Finality Directive

5

form a legislative framework that aims to ensure that only credit institutions subject to supervision

by competent authorities participate in payment systems that are protected through the provisions

on  settlement  finality  implementing  the  latter  directive.  Hence,  only  undertakings  that  meet  the

definition of ‘participant’ under the Settlement Finality Directive (credit institutions) are entitled to

participate 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 of

the  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  its

Guidelines, 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  for

consumers through greater variety of alternatives for the deposit of their savings. This is achieved

by,  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 funds

deposited  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  the

deposit  guarantee  to  cover  such  deposits.  In  addition,  the  legislative  proposal  provides  other

companies  not  covered  by  the  Act  on  deposit  guarantee  with  the  opportunity  of  taking  deposits

from the general public. This latter proposal will thus apply to non-financial institutions, which are

not subject to prudential supervision by the Swedish Financial Supervisory Authority and deposits

with such entities will not be covered by the deposit guarantee. Instead, the proposal introduces a

set  of  special  requirements  for  these  entities  and  deposits  through  the  enactment  of  the  Act  on

deposit-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 the

owners  and  auditors  of  such  entities.  They  also  prescribe  a  maximum  amount  on  deposit  per

consumer of SEK 50,000 and specify the need to provide clear information concerning the status of

the  deposit  as  non-guaranteed.  Other  requirements  refer  to  the  presentation  of  the  deposit-taking

activity  in  the  annual  accounts  and  the  possibilities  for  the  Financial  Supervisory  Authority  to

intervene  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  risk

implications.  In  this  context,  the  ECB  would  like  to  emphasize,  however,  the  importance  of

achieving the intended public awareness concerning the status of these additional entities as non-

6

supervised 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 on

deposit-taking will be important in this regard. The information must be effectively communicated

to  the  general  public  since  it  is  important  for  depositors  to  be  fully  aware  that  the  Financial

Supervisory Authority does not in fact conduct prudential supervision over these entities (and that

the monitoring of the entities’ financial health therefore rests with the depositors themselves). This

is  especially  relevant  if  these  non-supervised  entities  encounter  problems,  since  misconceptions

concerning  the  supervision  of  these  entities  could  otherwise  potentially  create  negative  spillover

effects 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’  that

serve as means of payment. Deposits collected by deposit-taking entities which are not supervised

credit institutions  should  not function  as  electronically-stored  means of  payment  since this  could

lead to  a  possible  characterisation  of  the  new  form  of  deposit-taking  as  electronic  money  falling

under the E-money Directive.

Financing activities

18.  The need to regulate financing activities is considered less important than the need to regulate the

transfer  of  payments.  With  regard  to  the  granting  of  credits,  the  legislative  proposal  takes  as  a

starting  point  the  Community  definition  of  credit  institutions  (receiving  deposits  from  the  public

and 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 guarantees

in  support  of  credit  transactions  or  acquire  debt  obligations  or  rent  out  personal  property  for

financing  purposes.  As  a  general  rule,  financing  activity  will  only  be  allowed  with  authorisation

from the Financial Supervisory Authority and will be subject to the latter’s supervision, although

certain exceptions are proposed. One change to the current regime is the proposal that only credit

providers that take deposits from the general public will be covered by the definition and subject to

the Financial Supervisory Authority. Other deposit-taking entities (not covered by the definition of

financing 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 on

the extension of deposit-taking activity to encompass banks and credit market undertakings which

participate  in  general  payment  systems,  the  ECB  would  like  to  emphasize  that  the  supervisory

resources should focus on the more systemically relevant institutions. The expansion of the tasks of

the Financial Supervisory Authority will require that sufficient resources continue to be allocated to

its  core  functions  with  regard  to  financial  stability.  It  is  also  recalled  that,  as  an  additional

safeguard,  the  Treaty  allocates  the  oversight  of  payment  systems  to  the  central  bank  and  the

7

continued  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 management

and transparency. The legislative proposal states its intention of defining a regime whereby credit

institutions  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 banking

and financing activities and its power to issue more detailed regulations within its competence. In

addition,  the  ECB  notes  that,  in  the  previous  consultation  on  the  legislative  proposal,  Sveriges

Riksbank  indicated  that,  although  solvency  is  important,  the  control  of  liquidity  risk  should  be

further  emphasized  considering,  inter  alia,  the  ‘moral  hazard’  stemming  from  the  Riksbank’s

function  as  lender  of  last  resort.  On  this  specific  issue,  the  ECB  understands  that  the  Swedish

Government  shares  this  point  of  view,  as  explained  in  the  legislative  proposal,  and  this  is

welcomed 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  the

present  system  of  sanctions  has  been  criticised  for  not  providing  the  Financial  Supervisory

Authority  with  sufficient  possibilities  to  intervene  appropriately.  The  possibility  of  revoking  a

bank'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  Financial

Supervisory  Authority  to  concentrate  its  supervisory  initiatives  on  breaches  of  a  more  serious

nature from the point of view of system stability. The Financial Supervisory Authority should have

greater scope than at present to assess the measure that is appropriate in a particular situation and to

be equipped with more means at its disposal for intervention. A new system of interventions and

sanctions, 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 intervene

if a breach is minor or excusable, if the institution rectifies the problem, or if another authority has

intervened  and  this  is  regarded  as  sufficient.  The  ECB  welcomes  the  proposal  to  provide  the

Financial Supervisory Authority with a set of sanctions that are better adapted to the objectives of

effective prudential supervision.

8

23.  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

9