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Sweden’s Banking Sector: A Look into Depositor Protection, Regulatory Challenges, and Consumer Protection

Correct as of: February 22, 2021

In a bid to ensure the stability of its financial system, Sweden established a depositor protection scheme in January 1996, in line with EU directives. The scheme covers Swedish financial institutions and requires them to pay annual fees that will be used to make potential payments under the scheme.

Depositor Protection: A Safety Net

The maximum guaranteed amount under the Swedish depositor protection scheme is €100,000. The guarantee applies to depositors in all categories except other banks and securities firms. However, certain restrictions apply, excluding savings in the form of:

  • Securities
  • Insurance plans
  • Individual pension savings plans

In the event of a bank’s insolvency, certain depositors are entitled to preference under Swedish insolvency law, ranking ahead of unsecured non-preferred creditors.

Regulatory Challenges

The banking industry is currently facing several regulatory challenges. These include:

  • Rapid increase in mortgage lending and high levels of household indebtedness, resulting in large credit risk exposures for Swedish banks
  • Amortisation requirements on mortgage loans have been introduced to address these concerns
  • Sweden’s decision not to participate in the EU banking union poses an additional challenge, with some banks opting to relocate their headquarters to other countries with more favorable regulatory conditions

Consumer Protection: A Key Objective

Consumer protection is a major objective underpinning Swedish financial markets law. Banks are subject to consumer protection rules, which aim to ensure:

  • A safe and sound business within the bank
  • The practice of providing small, expensive loans has been in focus recently, prompting legislation to ensure that companies providing loans to consumers are always subject to licensing requirements

Future Changes: A Look Ahead

In the coming years, regulatory changes may prioritize a proportionate application of new regulatory regimes, ensuring that:

  • Smaller and non-systemically important banks are not disproportionately burdened
  • The rapid growth of the fintech sector is also likely to prompt further regulatory changes to enable continued competition while ensuring financial stability and consumer protection