As we embark upon yet another week of uncertainty regarding what Brexit deal, if any, the Prime Minister might secure, the latest in my Q&As with EU regulators sees me heading to Sweden.
I fondly recall, back in my FSA days, visiting Finansinpektionen (the Swedish FSA) to find out more about the payments market in Sweden and how they approached licensing and supervision, given they were one of the few EU Member States that took advantage of article 26(1) of PSD1 to allow for ‘Small Payment Institutions’ (SPIs). Colleagues at Finansinspektionen were friendly, approachable and keen to exchange knowledge and experience, so I was hopeful that they would continue to be so despite my own departure from the regulator. I am thankful, therefore, to Roger Jacobsson for sparing the time to answer our standard questions regarding UK payment/e-money institutions looking to establish a second business in Europe to benefit from passporting rights.
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Tell me about the payments market in Sweden
The Swedish payments market consists of 37 payment institutions, 72 registered payment service providers (SPIs) licensed under PSD and PSD2, as well as a few e-money institutions. And then of course you have the banks and credit institutions who are also payment service providers. Sweden has a fairly large fintech sector where payments is perhaps the largest one. Payments in Sweden is heavily card based, and the use of cash is constantly diminishing with a growing number of vendors not even accepting cash.
Talk me through the application process; can UK firms submit information submitted to the FCA?
Both yes and no. We have our own regulatory code (Regulations and general guidelines [FFFS 2010:3] governing payment institutions and registered payment service providers) stating what information we want you to provide in an application. The regulatory code is available in English on our website www.fi.se. If the information submitted to the FCA is updated in accordance with our regulatory code and the Swedish Payment Services Act (SFS 2010:751) – i.e. PSD2-compliant – you can submit that information in an application for a Swedish licence. However, we normally want you to provide translations into Swedish of key documents like internal regulation on AML, compliance, and risk control. This is to minimise the risk of miscommunication between us and you, and to assure that you have understood the Swedish regulation on payment services correctly.
Given that firms will have to set up a new legal entity, does Finansinpektionen have a ‘minimum requirement’ in terms of staffing levels in the new Swedish office?
If you apply for a licence in Sweden, as a legal person you would have to have your main office in Sweden. You will also have to actually conduct payment services from that legal person. We will not accept “shell corporations”, where the payment services are actually provided from someone else, somewhere else. Exactly where to draw the line is hard to say, but you would have to have some staff in place in Sweden to be able to fulfill the requirements mentioned.
What is the process, as distinct from other regulators perhaps?
When you hand in your application, physical or by e-mail, we will start by sending you a letter stating who will be the case officer and where to pay the application fee. Once we have received the application fee we will start by checking if your application is complete in accordance with our regulatory code. If not complete, we will give you an opportunity to complete the application. Once complete, we will start reviewing the application. If uncertainties arise, or if the application gives us reason to believe you won’t be compliant with the legislation and regulations, you will get a chance to clarify or state your opinion before we determine the outcome of the application.
What are your expectations in relation to outsourcing?
This is pretty much explained in chapter 10 of our regulatory code FFFS 2010:3. In short – if the outsourcing agreement is of material significance for the payment service operation, you will need to ensure a number of things in the written outsourcing agreement to secure control and oversight of the business outsourced, and the risks that come with the outsourcing. You are always fully responsible for the outsourced business in relation to your customers – the payment service users. As a nod back to our earlier answer, you are not allowed to outsource the actual payment services themselves. If you would do so, we would not consider you to be the payment service provider for that payment service.
Safeguarding has been a particular problem for UK firms with many banks reluctant to open segregated accounts for this sector. Is there similar difficulty in Sweden?
No, not that we’re aware of. We do however know of some money remitters (sending money through Dubai to Africa e.g.) having problems getting or keeping a bank account, basically because the banks consider them to be too high an AML-risk.
How long might it take for an application to be determined?
Well, regarding the average handling time of applications, it’s very hard to tell. We have no automated data on average handling times but, since applications hardly ever are complete and paid for from day one, somewhere around 4-5 months on average would be pretty accurate.
Will you entertain a pre-application meeting with the firm?
Pre-application meetings are not a part of our regular application process. If we deem it beneficial or necessary once the application process is ongoing, we do however appreciate having the opportunity of meeting the applying firm.
Is there an application fee?
Yes there is. At the moment the application fee for a payment institution license is 150,000 SEK, which is about 14,400 EUR.
The FSA/FCA did not allow payment institutions to hold funds on a payment account without a completed payment order, resulting in many firms seeking an e-money licence. What is the Finansinpektionen view on such businesses?
Interesting view. We do not however have such restrictions when it comes to keeping means of payment on a payment account. As long as the means are kept there for the purpose of making future payments (within a reasonable timeframe) we would not object.
If you think Sweden is the place for you, or if you feel another EU jurisdiction makes better sense, we would be happy to help you with your application. Please click below to contact us today and we will get in touch to discuss your post-Brexit requirements.