## _cr11283 ## Source details **Canonical URL:** [_cr11283](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11283.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11283.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11283.pdf.json) --- ### Executive Summary — Overall assessment and key conclusion - Compliance with International Organization of Securities Commissions (IOSCO) Principles is generally high, although some concerns need to be resolved. - Overarching concerns: - Finansinspektionen’s (FI) operational independence and sufficiency of resources impair FI’s ability to discharge supervisory and oversight functions adequately and effectively. - FI’s mandate should be clearly defined with stable objectives and priorities that are not micromanaged by government. - A revised legal structure ensuring greater independence of FI might be considered. - FI’s current funding and resources affect its ability to deploy sufficient staff to ensure minimum and consistent levels of supervision across supervised entities. - Prioritization of resources on systemic institutions risks being unable to identify prudential risk buildup and ongoing investor risks (e.g., mis-selling of financial products) elsewhere in the sector. - Subject to limitations imposed by lack of numbers (which limits the number and frequency of on-site inspections), staff do an excellent job in supervising investment firms and investment fund managers. - The dissuasive power of the current sanctions for market abuse should be reviewed. ### Strengths in the regulatory and market framework - Shareholder protection, accounting, and auditing: - Good level of protection of shareholders in Sweden. - Accounting and auditing standards are high, are kept current with international enhancements, and sometimes exceed them. - Market structure and self-regulation: - Reliance on stock exchanges to monitor/enforce significant elements of the legal and regulatory framework has been effective historically but may be losing effectiveness as competition for listings by “for profit” exchanges develops. - Sweden has three exchanges although one (NASDAQ OMX) remains dominant. - Self-regulatory bodies remain important: NASDAQ OMX’s role is significant; the Swedish Securities Council (SSC) acts in takeover situations using powers delegated by FI. - Cross-border cooperation: - FI has put in place a good framework for cross-border cooperation within the EEA and beyond; signed numerous MoUs and Letters of Intent. - Change in law to remove the “Swedish interest” constraint on information sharing should enable FI to become a full signatory to the IOSCO multilateral MoU. ### Assessment scope, methodology, and process - Assessment facts: - Assessment conducted March 9–21, 2011 as part of the FSAP by Richard Britton (external technical expert employed by the IMF). - Initial IOSCO assessment conducted in 2001; legislative framework expanded and strengthened since then, primarily due to Sweden’s implementation of EU directives, regulations, and recommendations. - Methodology and inputs: - Assessment based on IOSCO Principles and methodology adopted in 2003 and updated in 2008. - Assessor relied on: (i) FI self-assessment; (ii) review of relevant laws and documents provided by FI; (iii) meetings with FI staff and public authorities (including MoF); (iv) meetings with market participants. - Benefited from two academic reports: Professor Howell E. Jackson (November 2010) and Eckbo, Paone, Urheim (August 2010). - FI agreed to exploratory discussions on status of new IOSCO principles; summary included as Appendix I. ### Regulatory structure and roles - Unitary regulator model: - FI is a single administrative authority responsible for licensing and supervising all entities providing financial services. - Legal basis: Financial Supervisory Authority Instructions Ordinance (2007) and the Instructions Ordinance (2009). - FI responsibilities include supervision, regulation and licensing; coordinating AML-CFT supervision; promoting a stable and sound financial system; ensuring consumer protection; monitoring developments and notifying government of systemic risks. - FI divided into four operational departments: (i) Legal, (ii) Markets, (iii) Insurance and Investment Funds, and (iv) Banks and Investment Firms; no free-standing Enforcement Department. - FI has adopted a more risk-based supervisory approach for large complex groups. - Other authorities and roles: - Riksbanken (RB): promotes safe and efficient payment mechanism; overarching responsibility for financial system development; can provide special liquidity assistance in exceptional circumstances. - Swedish National Debt Office (NDO): support authority under Government Support to Credit Institutions Act; manages deposit insurance and investor compensation systems. - Swedish Consumer Protection Agency (CPA): safeguards consumer interests and investigates unfair marketing of financial products. - Swedish National Economic Crime Bureau (NECB): prosecuting authority for securities market offences; FI forwards suspicious trade reports (STR) and evidence to NECB. ### Assets under management (AUM) and collective investment schemes (CIS) - Key statistics and composition: - AUM at the end of 2010: SKr 1.706 trillion. - Number of CIS under management: 921 - UCITS: 519 - Special funds: 400 - Managed by 105 authorized firms: - Fund management companies: 82 - Investment firms: 23 - Foreign CIS authorized in Sweden under UCITS-based legislation: 3,977 - Two specialized funds integrated into the Swedish State Pension System (AUM in these two categories not included in table). - CIS AUM (SKr billions) by year (preserved): - 2007 1,486; 2008 1,043; 2009 1,459; 2010 1,706 - Net value of assets (preserved): - 2007 1,416; 2008 1,017; 2009 1,393; 2010 1,635 - UCITS / Non-UCITS (preserved): - UCITS: 2007 1,223; 2008 859; 2009 1,164; 2010 1,328 — 81% - Non-UCITS: 2007 193; 2008 158; 2009 229; 2010 307 — 19% - Total (net value of assets): 2007 1,416; 2008 1,017; 2009 1,393; 2010 1,635 — 100% - By fund type (2010 values and table figures preserved where shown): - Money market funds: 71 — 4% - Equity funds: 964 — 59% - Mixed funds: 203 — 12% - Fund of funds: 55 — 10% - Other funds: 136 - (Total net value of assets: 2007 1,416; 2008 1,017; 2009 1,393; 2010 1,635 — 100%) ### Market structure, listings and ownership (preserved figures) - Listings and listing requirements: - At the end of 2009, 255 companies were listed on NASDAQ OMX Stockholm. - Only limited companies with at least SKr 500,000 in capital may offer shares for public trading. - To be listed on NASDAQ OMX Nordic, expected market value of the shares must be not less than EUR one million; business must have existed for at least three years and show stable profitability or have financial resources to cover operations for at least twelve months. - Share ownership structure (as of December 2009): - Households: 13.9 percent - Public Sector: 8.2 percent - Non-financial enterprises: 9.6 percent - Financial enterprises: 28.6 percent - Non-profit organizations: 4.3 percent - Foreign owners: 35.4 percent - Intermediaries and assets (as of February 2011): - 89 banks and savings banks authorized to carry on securities business. - 135 investment firms authorized to carry on securities business. - Total assets for securities firms amounted to around SKr 16 billion. - Assets under management (AUM) SKr 28 billion. - Capital SKr 4 billion. - Most nonbank securities firms are relatively small and privately owned; four large Swedish banks are dominant. ### Markets, trading venues and statistics (preserved) - NASDAQ OMX Stockholm is the dominant exchange; data from Thomson Reuters: 42 percent of Swedish equity trading took place outside NASDAQ OMX in February 2011. - NASDAQ OMX Stockholm members: 113 share trading members. - Trading mechanism: electronic matching of orders in a central limit order book (CLOB). - Other licensed Swedish exchanges: Nordic Growth Market (NGM) and Burgundy. - Multilateral trading facilities (MTFs) in Sweden: First North, Nordic MTF, and Aktietorget. - Trading statistics (Table 3: Sweden: Equity Trading on NASDAQ OMX, 2009 — preserved): - Market value 31/12 2009, SEK billion: 3,413 - Turnover 2009, SEK billion: 3,393 - Average daily turnover, SEK billion: 13.5 - Annual turnover, billion shares: 58 - Total number of deals closed during the year, million: 30.3 - Average amount per deal: 112,127 - Average number of deals per day: 120,375 - Rate of stock turnover, percent: 119 - Table 4: Total Turnover of Standardized on-Exchange Contracts, January–October, 2010 (preserved): - Index futures: 5.398 trillion - Index options: 29.767 billion - Equity futures (forwards): 19.017 billion - Equity options: 20.820 billion - Interest rate futures (forwards): 38.276 trillion - Interest rate options: 31 million - Total: 43.722 trillion ### Main findings by thematic area (selected) - Principles for the Regulator (1–5): - FI is unitary regulator but must regulate banking, securities and insurance under several statutes; interface issues can create investor risks (effectiveness/enforcement rather than legislative gaps). - FI highly accountable but operational independence restricted by mandatory special requirements during the financial year and reliance for 85 percent of funding on Parliament. - Staff resources have increased but remain insufficient; turnover high. - Processes reasonably transparent; representation prior to major sanctions may need enhancement. - Board and staff subject to highest professional standards. - Self-Regulation (6–7): - Self regulation has long history and larger role in Sweden than many European countries. - FI’s ability to secure changes in exchange rules/processes is limited short of significant sanctions. - Listing rules of securities exchanges are set out in law; accountability of exchanges to FI in this area is unclear. - Enforcement (8–10): - FI has comprehensive inspection, investigation, surveillance and enforcement powers. - Scarce resources limit enforcement/compliance activities; FI finds it difficult to do more than 10 AMC specific on-site inspections a year. - Maximum fines licensees can be subject to are considered too low (cap SKr 50 million; fines limited to 10 percent of previous year’s revenues). - FI’s discretionary not-fining of a remedial fund manager indicates weakness in administrative sanctions. - Collective Investment Schemes (17–20): - FI has inadequate resources to effectively supervise fund management companies and insurance intermediaries marketing CIS. - Insurance intermediaries largely unsupervised for non-insurance business; reliance on customer complaints is inadequate. - Emergence of unlicensed fund salespersons exploiting Swedish interpretation of UCITS marketing rules; Sweden plans to strengthen IFA wording so any marketing requires notification or license. - FI unable to fully supervise compliance with asset segregation rules; recent multi-year breaches highlighted. - Intermediaries (21–24): - Number of staff for prudential and conduct-of-business supervision is insufficient. - Six major firms seen by prudential supervisors at least annually and often quarterly; remainder seen once in 2.5 years. - Conduct of business supervisors do not do on-site inspections except for cause or themed projects. - Risk-based supervision approach introduced to optimize limited resources. - Secondary Markets and Market Abuse (25–29): - Authorization provisions for trading systems operated by some large banks do not fully meet transparency requirements. - Sweden implemented Market Abuse Directive; criminal sanctions for insider dealing assessed as not sufficiently dissuasive (Partly Implemented for Principle 28). - FI does not itself monitor open positions but can require full information from CSD, CCP and licensed firms. ### IOSCO Objectives and Principles — Summary implementation (aggregate) - Fully implemented (FI) – 17 - Broadly implemented (BI) – 8 - Partly implemented (PI) – 4 - Not implemented (NI) – 0 - Not applicable (N/A) – 0 ### Recommended Action Plan (selected recommendations preserved by Principle) - Principle 1: - Clarify that insurance intermediaries wishing to sell shares, bonds, structured products and other complex products must be licensed under the SMA and develop mechanisms to inform current and potential licensees. - Principle 2: - Government should reconsider policy of attaching specific short term project requirements to Parliament’s annual budget allocation for FI. - Government should examine benefits of changing FI funding mix to rely more on fees and allow FI, subject to consultation, to set fees at levels necessary to fulfill mandates. - Principle 3: - Government and FI should consult to ensure FI has sufficient, experienced and qualified staff. - FI should consider career paths and work environment measures to retain staff. - Principle 4: - FI should review internal processes allowing licensees to make representations prior to imposition of major sanctions such as license revocation. - Principle 7: - Government might consider whether issuer regulation should be statutory by a single statutory body such as FI given competing for-profit securities exchanges. - Principle 9: - Clarify relationship between FI and CPA. - Principle 10: - FI should assess balance between supervision and enforcement in current structure. - FI should consider increasing fines to dissuasive levels and review statutory discretion not to fine remedial fund management companies. - Principle 14: - FI and NASDAQ OMX should consider greater specificity and transparency for criteria under which a listed company can delay publishing price sensitive information. - Government might consider whether EU maximum of 120 days for filing annual reports is adequate. - Principle 15: - FI might consider whether requirement for insiders to report transactions in 5 days is too long given current technology. - Principle 16: - MoF should conclude review of whether for-profit exchanges should continue to enforce accounting standards on listed companies. - Principle 17: - Strengthen regulation of insurance intermediaries who sell CIS; end provision permitting unlicensed persons to sell unapproved foreign CIS where no money changes hands directly. - FI, in consultation with government, should increase resources in investment funds supervision department. - Government should review maximum level of fines and FI should review policy of forbearance in use of fines. - Principle 18: - FI should argue in ESMA that a custodian should not be affiliated with the management company of a UCITS; consider additional segregation and independent auditor confirmation where AMC and custodian are not at arm’s length. - Principle 21: - FI, in consultation with government, should increase resources in the securities firms supervision department. - Principle 22: - Consider more timely/frequent reporting by securities firms. - Principle 24: - Consider giving FI express authority to petition the court for appointment of a receiver/administrator. - Principle 25: - FI should review and analyze performance of trade matching or execution algorithms of automated trading systems as part of trading system oversight. - Principle 28: - Government should review legal and judicial framework around prosecution of securities market crimes to make process more effective, proportionate and dissuasive. ### Authorities’ response to the assessment - The Swedish authorities appreciate the IMF work assessing Sweden against IOSCO principles. - Overall, the authorities agree with the mission’s assessment and consider many recommendations valuable to improve regulation and supervision of securities markets. ### Additional notable facts, examples and enforcement cases (preserved) - FI resource and enforcement examples: - FI finds it difficult to carry out more than 10 AMC specific on-site inspections a year. - Example: a largest fund management company self-reported overcharging and repaid clients SKr 540 million; FI decided not to fine the AMC. - FI fined two big four banks for custody deficiencies: SKr 2.5 million and SKr 3.5 million. - Criminal prosecution statistics for market abuse (by year/persons prosecuted — preserved): - 2002 – 2 (3 persons) - 2003 – 0 - 2004 – 1 (1 person) - 2005 – 3 (7 persons) - 2006 – 3 (7 persons) - 2007 – 5 (11 persons) - 2008 – 4 (6 persons) - 2009 – 8 (15 persons) - 2010 – 0 - Maximum criminal fine amounts noted: - SKr 150,000 or (SKr 200,000 (EUR 22,000) for multiple offences). - FI staffing growth: - 2000 FI had 154 employees (full time); nine years later number grown to 229. - FI funding: - FI is dependent for about 85 percent of its annual budget on an allocation from Parliament; FI retains on average a15 percent retention of the fees collected (as collected fees are passed to government with retention). *Source: IMF assessment — Executive Summary and detailed findings, IOSCO Principles implementation in Sweden (assessment conducted March 9–21, 2011).* ### Executive Summary ...................................................................................................... ### Executive Summary ### Overall assessment and key conclusion - Compliance with International Organization of Securities Commissions (IOSCO) Principles is generally high, although some concerns need to be resolved. - Overarching concerns: - Finansinspektionen’s (FI) operational independence and sufficiency of resources impair FI’s ability to discharge supervisory and oversight functions adequately and effectively. - FI’s mandate should be clearly defined with stable objectives and priorities that are not micromanaged by government. - A revised legal structure ensuring greater independence of FI might be considered. - FI’s current funding and resources affect its ability to deploy sufficient staff to ensure minimum and consistent levels of supervision across supervised entities. - Prioritization of resources on systemic institutions is necessary, but risks being unable to identify buildup of prudential risk and on-going risks to investors (e.g., from mis-selling of financial products) in the remainder of the financial sector. - Subject to the limitations imposed by lack of numbers (which limits severely the number and frequency of on-site inspections they are able to carry out, for example), staff do an excellent job in supervising investment firms and investment fund managers. - The dissuasive power of the current sanctions for market abuse should be reviewed. ### Strengths in the regulatory and market framework - Shareholder protection, accounting, and auditing: - There is a good level of protection of shareholders in Sweden. - Accounting and auditing standards are high, are kept current with international enhancements, and sometimes exceed them. - Market structure and self-regulation: - Reliance on the stock exchanges to monitor and enforce significant elements of the legal and regulatory framework has been effective historically but may be losing effectiveness as competition for listings by “for profit” exchanges develops. - Sweden has three exchanges although one (NASDAQ OMX) remains dominant. - Self-regulatory bodies remain important: NASDAQ OMX’s role is significant, particularly as regards supervision of listed companies; the Swedish Securities Council (SSC) acts in takeover situations using powers delegated by FI. - Cross-border cooperation: - FI has put in place a good framework for cross-border cooperation within the European Economic Area (EEA) and beyond. - FI has signed numerous Memoranda of Understanding (MoUs) and Letters of Intent with fellow regulators; there is evidence these work in practice. - Recent change in the law to remove the “Swedish interest” constraint on information sharing should enable FI to become a full signatory to the IOSCO multilateral MoU and will enhance FI’s reputation in this area. ### Assessment scope, methodology, and process - Assessment facts: - An assessment of implementation of IOSCO Principles in Sweden’s securities market was conducted March 9–21, 2011 as part of the Financial Sector Assessment Program (FSAP) by Richard Britton, an external technical expert employed by the IMF. - An initial IOSCO assessment was conducted in 2001; legislative framework has been expanded, strengthened and set out in greater detail since then, primarily due to Sweden’s implementation of EU directives, regulations, and recommendations. - Methodology and inputs: - The assessment was conducted based on the IOSCO Principles and methodology adopted in 2003 and updated in 2008. - In June 2010 IOSCO approved a revision to the IOSCO Principles, adding nine new Principles; a draft methodology had been circulated and was expected to be endorsed at the IOSCO Annual General Meeting in April 2011, so the assessment did not use the draft methodology. - The assessor relied on: - (i) a self-assessment developed by the FI; - (ii) review of relevant laws and other documents provided by FI; - (iii) meetings with FI staff and other public authorities, in particular representatives of the Ministry of Finance (MoF); - (iv) meetings with market participants, including banks, investment firms, fund managers, and market operators. - The assessment also benefited from two recent academic reports: “A Report on the Mandate, Structure and Resources of the Swedish Financial Supervisory Authority, Professor Howell E. Jackson, November 2010” and “Efficiency of Share Voting Systems—Report on Sweden, Eckbo, Paone, Urheim, August 2010.” - FI agreed to hold exploratory discussions on the status of implementation of the new IOSCO principles; a summary of such discussions is included as Appendix I to the assessment. ### Regulatory structure and responsibilities - Unitary regulator model: - Sweden’s financial regulation is based on the unitary model: a single administrative authority (FI) is responsible for licensing and supervising all entities providing financial services. - Legal basis: Financial Supervisory Authority Instructions Ordinance (2007) and the Instructions Ordinance (2009). - FI responsibilities include supervision, regulation and licensing of financial markets and financial firms, coordinating supervision for AML-CFT, promoting a stable and sound financial system, and ensuring solid consumer protection in the financial system. - FI must monitor and analyze developments to detect risks of instability and must notify the government if risks could adversely affect the functioning of the Swedish financial system. - FI must ensure that its rules and processes are cost effective and easy for citizens and companies to understand and follow. - Other authorities and roles: - Riksbanken (RB): promotes a safe and efficient payment mechanism integrated with clearing and settlement systems supervised by FI; overarching responsibility for financial system development with focus on institutions, markets and infrastructure important to financial stability; can provide special liquidity assistance to financial companies under FI supervision in exceptional circumstances. - Swedish National Debt Office (NDO): support authority under the Government Support to Credit Institutions Act; responsibility for entering support agreements with FI and RB; manages deposit insurance and investor compensation systems. - Swedish Consumer Protection Agency (CPA): safeguards consumer interests; investigates and takes action against unfair marketing practices for financial products. - Swedish National Economic Crime Bureau (NECB): prosecuting authority for a range of securities market offences; FI forwards suspicious trade reports (STR) and other evidence of possible criminal offences to NECB. - FI organization and practices: - FI licenses and regulates banks, securities firms, insurance companies, fund managers, exchanges and clearing and settlement bodies through periodic reporting and on-site inspections. - FI analyzes financial positions of licensees, can mandate remedial action and impose sanctions, and identifies trends in the market as a whole. - FI is divided into four operational departments: (i) Legal, (ii) Markets, (iii) Insurance and Investment Funds, and (iv) Banks and Investment Firms; Legal Department handles permits/licenses and notifications. - FI does not have a free-standing Enforcement Department. - FI has adopted a more risk-based supervisory approach for large complex groups. - The ordinance contains provisions to foster cooperation among statutory bodies; in practice this has resulted in many MoUs and letters of intent domestically, in the EEA and beyond. - Regulatory scope and EU integration: - Framework rests on a list of activities subject to authorization/licensing: (i) offering securities to the public; (ii) provision of investment services and activities; (iii) management of collective investment schemes (CIS); (iv) operation of a regulated market (RM). - Definitions of securities business and securities are found in MiFID (came into force in 2007). - Almost every aspect of the legislative and regulatory framework subject to this assessment (with the exception of FI’s fining powers) has been introduced, modified or reviewed for compliance following the introduction of pan-EU directives or regulations. - National differences remain due to minimum vs. maximum harmonization directives and optional exemptions; transposition of directives into national law can produce divergences. ### Market structure and statistics - Listings and listing requirements: - At the end of 2009, 255 companies were listed on NASDAQ OMX Stockholm. - Only limited companies with at least SKr 500,000 in capital may offer their shares for public trading. - Public companies listed on NASDAQ OMX Stockholm may also be quoted on the Nordic list (Helsinki, Copenhagen and Iceland). - To be listed on NASDAQ OMX Nordic, expected market value of the shares must be not less than EUR one million; ownership must be sufficiently widely held; business must have existed for at least three years and show stable profitability or have financial resources to cover operations for at least twelve months. - Share ownership structure (as of December 2009): - Households: 13.9 percent - Public Sector: 8.2 percent - Non-financial enterprises: 9.6 percent - Financial enterprises: 28.6 percent - Non-profit organizations: 4.3 percent - Foreign owners: 35.4 percent - Source: “Ownership of shares in companies quoted on Swedish exchanges, December 2009,” Statistics Sweden. - Intermediaries and assets (as of February 2011): - 89 banks and savings banks authorized to carry on securities business. - 135 investment firms authorized to carry on securities business. - All were located in Sweden. - Total assets for securities firms amounted to around SKr 16 billion. - Assets under management (AUM) SKr 28 billion. - Capital SKr 4 billion. - The four large Swedish banks are a dominant force on the securities market. - With few exceptions, nonbank securities firms are relatively small and in most cases privately owned. - Investment advice requires a license as a securities firm; very few firms offer investment advice as their sole activity. ### Identified areas for action and focus (high-level) - Strengthen FI independence and clarify mandate: - Consider a revised legal structure to ensure greater independence of FI. - Define stable objectives and priorities and reduce micromanagement by government. - Address resource constraints: - Improve FI funding and staffing to enable sufficient numbers and frequency of on-site inspections and consistent supervision across entities. - Balance prioritization on systemic institutions with capacity to identify prudential and investor protection risks across the sector. - Review enforcement and sanctions: - Assess the dissuasive power of current sanctions for market abuse. - Monitor evolving role of exchanges: - Reassess reliance on exchanges for monitoring/enforcement as competition for listings increases and exchange incentives change. - Continue and deepen cross-border cooperation: - Enable FI to become a full signatory to the IOSCO multilateral MoU following removal of the “Swedish interest” constraint on information sharing. *Source: IMF assessment—Executive Summary, IOSCO Principles implementation in Sweden (assessment conducted March 9–21, 2011).* ### 20. After a dip in 2008, AUM have rebounded strongly to a record level of ### _cr11283 - 20. After a dip in 2008, AUM have rebounded strongly to a record level of ### Assets under management and collective investment schemes (CIS) - AUM at the end of 2010: SKr 1.706 trillion. - Number of CIS under management: 921 - UCITS: 519 - Special funds: 400 - Managed by 105 authorized firms: - Fund management companies: 82 - Investment firms: 23 - Foreign CIS authorized in Sweden under UCITS-based legislation: 3,977 - Two specialized funds integrated into the Swedish State Pension System (AUM in these two categories are not included in the table below). - Most major fund management companies have significant operations in Luxemburg where most of their non-Swedish targeted funds are licensed. ### CIS and fund composition (table figures preserved) - AUM (SKr billions) by year: 2007 1,486; 2008 1,043; 2009 1,459; 2010 1,706 - Net value of assets: 2007 1,416; 2008 1,017; 2009 1,393; 2010 1,635 - UCITS: 2007 1,223; 2008 859; 2009 1,164; 2010 1,328 — 81% - Non-UCITS: 2007 193; 2008 158; 2009 229; 2010 307 — 19% - Total (net value of assets): 2007 1,416; 2008 1,017; 2009 1,393; 2010 1,635 — 100% - By fund type (2010 values unless otherwise stated): - Bond funds: 719 (2007), 394 (2008), 1,067 (2009?) [table formatting ambiguous in source] - Money market funds: 84 (2007?), 90 (2008?), 70 (2009?), 71 (2010) — 4% - Equity funds: 787 (2007?), 460 (2008?), 723 (2009?), 964 (2010) — 59% - Mixed funds: 277 (2007?), 219 (2008?), 283 (2009?), 203 (2010) — 12% - Fund of funds: 73 (2007?), 71 (2008?), 107 (2009?), 55 (2010) — 10% - Other funds: 124 (2007?), 84 (2008?), 116 (2009?), 136 (2010) - Total: 1,416 (2007); 1,017 (2008); 1,393 (2009); 1,635 (2010) — 100% ### Markets and trading venues - NASDAQ OMX Stockholm is the dominant stock exchange and marketplace for Swedish shares; its market share has declined sharply in the last two years. - NASDAQ OMX Group, Inc. owns and operates multiple exchanges and is currently the sixth largest trading venue in Europe. - Supervision of NASDAQ OMX’s global business requires close cooperative relationships between FI and fellow regulators. - NASDAQ OMX Stockholm members: 113 share trading members (securities companies and banks licensed by FI); includes remote members (foreign companies trading from abroad). Currently no non-financial companies or branches of foreign companies as members. - Trading mechanism: electronic matching of orders in a central limit order book (CLOB). - Data from Thomson Reuters: 42 percent of Swedish equity trading took place outside NASDAQ OMX in February 2011. - Other licensed Swedish exchanges: Nordic Growth Market (NGM) and Burgundy. - Multilateral trading facilities (MTFs) in Sweden: First North, Nordic MTF, and Aktietorget. - Competition intensified since 2007 due to MiFID; new providers have achieved significant market shares. - European Commission conducting a “MiFID review” to address absence of consolidated tape and consolidated “best bid and offer.” ### Trading statistics (preserved exactly from tables) - Table 3: Sweden: Equity Trading on NASDAQ OMX, 2009 - Market value 31/12 2009, SEK billion: 3,413 - Turnover 2009, SEK billion: 3,393 - Average daily turnover, SEK billion: 13.5 - Annual turnover, billion shares: 58 - Total number of deals closed during the year, million: 30.3 - Average amount per deal: 112,127 - Average number of deals per day: 120,375 - Rate of stock turnover, percent: 119 - Table 4: Sweden: Total Turnover of Standardized on-Exchange Contracts, January–October, 2010 - Index futures: 5.398 trillion - Index options: 29.767 billion - Equity futures (forwards): 19.017 billion - Equity options: 20.820 billion - Interest rate futures (forwards): 38.276 trillion - Interest rate options: 31 million - Total: 43.722 trillion ### Market structure and trading practices - Majority of share trading is in electronic trading systems belonging to an exchange or MTF; some trading occurs outside these systems. - Some off-system trading is conducted under NASDAQ OMX Stockholm regulations and reported as normal exchange transactions; the remainder is OTC. - Bond trading in Sweden is largely by telephone. - About 85 percent of spot FX trade in SKr by primary dealers is done through electronic platforms. - Interbank trading in foreign exchange derivatives is mostly not electronic. - Equity derivatives trading largely under NASDAQ OMX derivatives markets (DM); DM provides clearing for exchange-traded derivatives and certain OTC derivatives. ### General preconditions for effective securities regulation - No significant barriers to entry and exit; competition encouraged and foreign participation welcomed. - Legal and accounting systems support effective regulation; commercial law is up-to-date; corporate governance standards are up-to-date. - Insolvency legislation is sophisticated though enforcement of market contracts post-insolvency has issues. - Regulators have legally enforceable powers of decision and action. - Taxation framework supportive of industry operations. ### Main findings — regulator, self-regulation, enforcement, cooperation, issuers, CIS, intermediaries, secondary markets - Principles for the Regulator (Principles 1–5) - FI is a unitary regulator covering banking, securities and insurance under several statutes; interfaces between acts can create investor risks (an enforcement rather than legislative gap). - FI is highly accountable. - Restrictions on operational independence arise from mandatory special requirements during the financial year and reliance for 85 percent of its funding on Parliament. - Staff resources have increased but remain insufficient; turnover, particularly of experienced staff, is high. - Processes are reasonably transparent; representation prior to major sanctions may need enhancement. - Board and staff subject to highest professional standards with appropriate monitoring. - Principles for Self Regulation (Principles 6–7) - Self regulation has a long history and a larger role in Sweden than in many European countries. - FI’s ability to secure changes in certain exchange rules/processes is limited short of imposing significant sanctions. - Listing rules of securities exchanges are set out in law; accountability of exchanges to FI in this area is unclear. - Principles for Enforcement (Principles 8–10) - FI has comprehensive inspection, investigation, surveillance and enforcement powers; delegated powers (e.g., Swedish Securities Council on takeovers) include oversight and review. - Scarce resources limit enforcement and compliance activities, limiting FI’s ability to ensure compliance and detect breaches. - Interface between supervision and enforcement does not recognize different skill sets required. - Maximum fines licensees and others can be subject to are too low. - FI’s discretionary use of not fining a fund manager that remedied a breach indicates a weakness in administrative sanctions. - Principles for Cooperation (Principles 11–13) - FI and other government authorities obligated to share information, including with foreign regulators; confidentiality provisions and gateways appear effective. - FI has more than 40 active MoUs and Letters of Intent with foreign authorities. - Change in law (March 1, 2011) allows FI to share information with foreign counterparts even if alleged conduct would not constitute a breach of Swedish law if conducted in Sweden. - Following the change, FI reapplied to become a full signatory to the IOSCO Multilateral Memorandum of Understanding (MMoU); this was granted in April 2011. - FI has extensive powers to assist foreign regulators and to access information held by other entities. - Principles for Issuers (Principles 14–16) - Listing rules derive from statute, limiting FI’s direct influence over listed companies except via exchanges. - Provisions allowing companies to keep confidential information lack specificity; NASDAQ OMX claims its criteria for exceptions are narrow. - Maximum of 120 days for filing annual reports (EEA standard) is slow compared with markets where 90 or 75 days is the norm. - High level of protection for securities holders via company law and EU directives on takeovers and shareholder rights. - Sweden applies “comply or explain” for corporate governance; governance code updated by a private self-regulatory body. - Classes of shares with multiple voting rights can make companies largely immune from hostile takeovers, but arrangements are transparent. - Takeovers governed by listing rules and enforced in part by the Swedish Securities Council under delegated FI powers. - Accounting and auditing standards are high; Sweden has adopted IFAC ISA; independence of auditors required under the Auditors Act and Swedish Auditing Standards (RS). - Group accounts and listed companies must use IFRS as adopted by the EU; other companies may use IFRS and Swedish GAAP. - Principles for Collective Investment Schemes (Principles 17–20) - FI has inadequate resources to effectively supervise fund management companies and insurance intermediaries marketing CIS. - FI finds it difficult to do more than 10 AMC specific on-site inspections a year. - Last comprehensive survey (three years ago) showed a level of non-compliance suggesting many breaches go undiscovered unless investors complain. - Insurance intermediaries are largely unsupervised for this business: not required to provide quarterly reports, require no capital but carry PII; FI relies on customer complaints. - Over-reliance on licensees self-reporting breaches or external auditors reporting; system evidence shows it has not worked as intended. - A category of fund salespersons has emerged exploiting a Swedish interpretation of UCITS implementation allowing marketing (advertising) of a CIS without a requirement to obtain a license in advance; this creates an unregulated sales channel with no safeguards on quality or suitability. - Sweden plans to strengthen the wording of the IFA so any kind of marketing of a CIS in Sweden will require a notification or license. - FI is resource-constrained and unable to fully supervise compliance with asset segregation rules; recent cases highlighted multi-year breaches. - FI’s policy on fining powers not sufficient as a deterrent to major fund managers and custodians. - Disclosure requirements follow UCITS III and appear sufficient. - New rules and additional obligations on boards of UCITS management companies will come with implementation of UCITS IV in July 2011. - FI issued guidance on unlisted securities imposing a special duty of care on fund managers: valuations should be carried out by independent and competent persons according to consistently applied and pre-defined principles; valuation should not be performed by those responsible for fund management. - Appropriate regulations govern treatment of pricing errors and suspension of redemptions. - Principles for Intermediaries (Principles 21–24) - Number of staff for prudential and conduct of business supervision is insufficient. - Applicants for a license are only subject to an on-site inspection if business is sufficiently large/complex that physical Chinese walls are an issue. - Six major firms are seen by prudential supervisors at least annually and often quarterly; remainder seen once in 2.5 years. - Conduct of business supervisors do no on-site inspections except for cause or themed projects. - Within staff limits, inspections and examinations are thorough with detailed pre-visit planning and comprehensive feedback and follow-up. - A risk-based supervision approach has been introduced to optimize limited resources. - Interface problems between SMA and the Insurance Intermediation Act create risk to retail investors: unless licensed under SMA, an insurance intermediary is not permitted to give investment advice on shares, bonds, structured products or other complex instruments, but some are doing so. - FI initiated a full review of relevant regulations covering full regulation of insurance intermediaries, including selling investment funds; project seeks ways to tighten application procedures and propose necessary regulatory changes. - Initial and ongoing minimum capital requirements are harmonized at EU level under the Capital Requirements Directive (CRD) and transposed via the Capital Adequacy and Large Exposures Act (2006). - Requirements per IOSCO Principle appear present: adequate management and organizational structure, internal controls, senior management reputation and experience, internal audit, independent external auditor, self-reporting obligations. - Effectiveness of external auditor reporting is in doubt following a large case that stretched supervision resources. - MoUs in place for crisis management: FI, RB, and the MoF have signed a MoU; FI is signatory to EU MoU on cross-border financial stability cooperation. - For Swedish institutions with significant activities abroad, there are MoUs with relevant jurisdictions; FI does not have a formal MoU with the U.S. SEC. - Regular scenario/stress tests carried out with RB and at Nordic level. - Principles for Secondary Markets (Principles 25–29) - (Content continues beyond provided excerpt.) *Source: _cr11283 - 20. After a dip in 2008, AUM have rebounded strongly to a record level of* ### 36. In comparison with securities exchanges in most of Europe and indeed globally, ### _cr11283 - 36. In comparison with securities exchanges in most of Europe and indeed globally, ### Market structure and transparency - Securities exchanges in Sweden have a wide self regulatory remit compared with most of Europe and globally. - In recent years FI’s powers over exchanges have been significantly strengthened. - The authorization provisions currently applied to trading systems operated by some of the large banks do not fully meet the IOSCO Principle regarding transparency. - Although FI reviews the trading rules of a securities exchange for compliance with the SMA and its regulations, the FI does not review and analyze the performance of trade matching or execution algorithm of automated trading systems. - As markets fragment and a variety of trading platforms are developed, there are transparency challenges across Europe. - Sweden does not appear to derogate from the current MiFID pre and post trade transparency regime. - The rating recognizes the concerns identified in Sweden and elsewhere as part of the current MiFID review on specific elements in the current regime. ### Enforcement, market integrity, and systemic-risk frameworks - Although the NECB has a good record in successfully prosecuting those cases it brings to court, the current regime has only limited deterrent effect in applying dissuasive sanctions for criminal offences such as insider dealing. - Sweden has implemented the Market Abuse Directive. - Sweden has implemented relevant EU directives such as the Settlement Finality Directive to secure market integrity and minimize systemic risk. - Large Exposures are dealt with in the Capital Adequacy and Large Exposures Act to which all banks and market intermediaries are subject. - FI does not itself monitor open positions but has the right to require full information about positions from the central securities depository (CSD), central counterparty (CCP), and licensed firms. - The market authorities have powers to take action under their rules and regulations if necessary. ### Clearing and settlement developments - FI observed that since 2001 the clearing and settlement system for cash bonds and equities on NASDAQ OMX has been radically improved by introducing a gross rather than net settlement system. - The CSD is now owned by Euroclear, one of the two Europe based International Central Securities Depositories (ICSD). - There is a CCP for top tier stocks, the European Multilateral Clearing Facility (EMCF), based in the Netherlands. - FI has a MoU on this arrangement with the Dutch regulator. ### IOSCO Objectives and Principles — Summary Implementation (selected Principles and findings) - Principle 1. The responsibilities of the regulator should be clearly and objectively stated. - Grading: FI - Findings: Although FI is a unitary regulator FI has to regulate the three major sectors of financial services, banking, securities and insurance under several separate statutes. While each Act may be clear when considered in isolation, there can be problems at the interfaces which can create risks to retail investors though this is a matter of the effectiveness of enforcement of the law rather than gaps between laws. - Principle 2. The regulator should be operationally independent and accountable in the exercise of its functions and powers. - Grading: BI - Findings: FI is highly accountable. Restrictions on operational independence arise from the imposition of mandatory special requirements during the course of a financial year and its reliance for 85 percent of its funding on Parliament. - Principle 3. The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers. - Grading: BI - Findings: Although staff resources have increased in recent years they remain insufficient for current and predictable future work; turnover, particularly of experienced staff, is high. - Principle 4. The regulator should adopt clear and consistent regulatory processes. - Grading: BI - Findings: There are rules in place for dealing with the regulator that are intended to ensure procedural fairness, as required by the Principle; the structure of FI is well described and the processes are reasonably transparent. In practice, the process of permitting a party to be heard prior to the imposition of a major sanction such as license revocation may need enhancement. - Principle 5. The staff of the regulator should observe the highest professional standards. - Grading: FI - Findings: The Board and staff of FI are subject to the highest professional standards and these are appropriately monitored. - Principle 6. The regulatory regime should make appropriate use of self-regulatory organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence and to the extent appropriate to the size and complexity of the markets. - Grading: FI - Findings: Self regulation has a long history in Sweden and still has a far greater role here than in many other European countries. - Principle 7. SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. - Grading: BI - Findings: Although the powers of the FI over exchanges have been strengthened since the 2001 FSAP there are still limitations. Despite being regarded as self regulatory bodies, (in that they are not government authorities but exist in the private sector), the listing rules of securities exchanges and the power to make them are set out in the law. As a result, in this part of their business model their accountability to FI, the statutory regulator, is unclear. - Principle 8. The regulator should have comprehensive inspection, investigation and surveillance powers. - Grading: FI - Findings: FI has a comprehensive range of powers and where it has delegated these power, e.g., to the Swedish Securities Council as regards takeovers, that has been done with the appropriate degree of oversight and review. - Principle 9. The regulator should have comprehensive enforcement powers. - Grading: FI - Findings: FI has comprehensive enforcement powers. - Principle 10. The regulatory system should ensure an effective and credible use of inspection, investigation, surveillance and enforcement powers and implementation of an effective compliance program. - Grading: PI - Findings: Scarce resources limit the possibilities to detect breaches. The interface between supervision and enforcement does not recognize the different skill and mind sets required. The maximum amount licensees and others can be fined is too low and there have been cases where the FI’s use of its statutory discretion not to fine a fund manager which has remedied a breach indicates a significant weakness in FI’s use of administrative sanctions. - Principle 11. The regulator should have the authority to share both public and non-public information with domestic and foreign counterparts. - Grading: FI - Findings: FI and other government authorities have fundamental obligation to share information including with foreign regulators. There are appropriate confidentiality provisions in the law and the gateways through these appear effective. - Principle 12. Regulators should establish information sharing mechanisms that set out when and how they will share both public and non-public information with their domestic and foreign counterparts. - Grading: FI - Findings: FI has more than 40 active MoUs and Letters of Intent with foreign authorities. As a result of a very recent change in the law (March 1, 2011) FI can now share information with foreign counterparts even if the alleged conduct is not such that it would constitute a breach of Swedish law if conducted within Sweden. As a result of the change FI became a full signatory to the IOSCO MMoU in April *Source: _cr11283 - 36. In comparison with securities exchanges in most of Europe and indeed globally,* ### 2011. Previously this issue was an impediment to ### 2011. Previously this issue was an impediment to ### Principles 13–30: Findings, gradings and key points - Principle 13. The regulatory system should allow for assistance to be provided to foreign regulators who need to make inquiries in the discharge of their functions and exercise of their powers. - Grading: FI - Findings: - FI has extensive powers to assist foreign regulators with information held by FI. - FI has extensive powers to access information held by other entities. - Principle 14. There should be full, timely and accurate disclosure of financial results and other information that is material to investors' decisions. - Grading: BI - Findings: - Listing rules of NASDAQ OMX and other securities exchanges derive directly from the law; FI has little influence over conduct of listed companies except via seeking appropriate interpretation and enforcement by exchanges. - Provisions allowing a company to keep confidential information it would otherwise be required to make public lack specificity. NASDAQ OMX claims its criteria for granting exceptions are very narrow. - The maximum of 120 days for filing annual reports, while it may the European standard is slow by comparison with some other advanced markets where 90 or 75 days is the norm. - Principle 15. Holders of securities in a company should be treated in a fair and equitable manner. - Grading: FI - Findings: - High level of protection for securities holders in Swedish company law and via implementation of EU directives on takeovers and shareholder rights. - Sweden applies the “comply or explain” approach with regard to corporate governance of public companies. The Code is updated by a private sector body which has self regulatory elements. - Existence of classes of shares with multiple voting rights renders some major companies largely immune from hostile takeover bids, but these arrangements are transparent to incoming minority shareholders. - Conduct of takeovers is governed by stock exchange listing rules; the Swedish Securities Council (a self regulatory body operating under delegated powers from FI and subject to its oversight) plays a role in enforcing rules and granting exemptions. - Company boards must represent interests of all shareholders equally; there are limits to use of defense mechanisms to thwart a hostile bid. - (Duplicate line in source: “There is a high level of protection for securities” appears twice.) - Principle 16. Accounting and auditing standards should be of a high and internationally acceptable quality. - Grading: FI - Findings: - Accounting and auditing standards are high. Supervision of auditors and auditing standards is responsibility of the Supervisory Board of Public Accountants. - Sweden has adopted the IFAC, ISA. Independence of auditors is required under the Auditors Act and RS (Swedish Auditing standard) which is based on the ISA standard but with some enhancements. - Group accounts (and those of listed companies) must be prepared according to IFRS as adopted by the EU. Other companies may use a mix of IFRS and Swedish GAAP; this is tax driven. The Swedish Accounting Standards Board interprets the latter. - Enforcement of elements of the accounting regime for listed companies is responsibility of relevant stock exchanges. This looks unsound in a market where competing for-profit exchanges have begun to compete for listings. The position is currently under review in the MoF. - Principle 17. The regulatory system should set standards for the eligibility and the regulation of those who wish to market or operate a CIS. - Grading: PI - Findings: - Fund management companies and insurance intermediaries who market CIS: department finds it difficult to carry out more than 10 AMC specific inspections in a year. - Last comprehensive survey (three years ago) discovered a level of non-compliance which suggests many breaches currently go undiscovered unless investors complain. - FI has inadequate resources to effectively supervise. Insurance intermediaries are in practice largely unsupervised for the sale of CIS. They are not required to provide quarterly report, require no capital but carry PII; FI relies on customer complaints to indicate problems. - Too much reliance is placed on licensees self-reporting breaches or the external auditor doing so as required under the law. Evidence suggests this system has not been working as intended and FI has begun to explore mechanisms for improvement. - Sweden has seen emergence of a category of fund salespersons exploiting an element of the Swedish interpretation of the UCITS directive whereby marketing (advertising) of a CIS requires no license in advance. The unregulated nature means no safeguards as to quality or suitability of funds sold as would apply to properly notified or licensed fund sales. - Sweden plans shortly to strengthen wording of the IFA so any kind of marketing of a CIS in Sweden will require a notification or license. - Principle 18. The regulatory system should provide for rules governing the legal form and structure of CIS and the segregation and protection of client assets. - Grading: BI - Findings: - Due to resource constraints FI is unable to be fully effective in supervising compliance with its asset segregation rules. Recent cases highlighted breaches extending, in one case, over several years. - FI’s fining policy in this area does not appear sufficiently tough to act as a deterrent to major fund managers and custodians. - Principle 19. Regulation should require disclosure, as set forth under the principles for issuers, which is necessary to evaluate the suitability of a CIS for a particular investor and the value of the investor’s interest in the scheme. - Grading: FI - Findings: - Disclosure requirements are as in the UCITS III Directive and appear sufficient. - New rules and additional obligations on boards of UCITS management companies will apply with implementation of the UCITS IV directive in July 2011. - Principle 20. Regulation should ensure that there is a proper and disclosed basis for assets valuation and the pricing and the redemption of units in a CIS. - Grading: FI - Findings: - Current requirements are as set out in UCITS III and appear satisfactory. There will be new rules on principles for valuation of the fund with the implementation of UCITS IV. - On unlisted securities FI has issued guidance imposing a special duty of care on fund managers. Valuations should be carried out by independent and competent persons according to consistently applied and pre-defined principles; it would not be appropriate for the valuation to be performed by the person(s) responsible for fund management. - Appropriate regulations govern treatment of pricing errors and suspension of redemptions. - Principle 21. Regulation should provide for minimum entry standards for market intermediaries. - Grading: PI - Findings: - Number of staff carrying on prudential and in particular conduct of business supervision is insufficient. - Applicants for a license are only subject to an on-site inspection if their business is sufficiently large and complex that physical Chinese walls are an issue. - The 6 or so major firms are seen by prudential supervisors at least annually and often quarterly; the remainders are seen once in 2.5 years. - Conduct of business rules supervisors do no on-site inspections except for cause or as part of “themed” projects. - Within staffing limits, inspections and examinations appear thorough: pre-visit planning is detailed and objective based; feedback to firms itemizes problem areas comprehensively and action is required and followed up. - Department has introduced a risk based supervision approach to make best use of limited resources. - Unless licensed under the more rigorous requirements of the SMA an insurance intermediary is not permitted to give investment advice on shares, bonds structured products or other complex financial instruments but some are doing so. - FI has initiated a full review of relevant regulations covering full regulation of insurance intermediaries; project looks for ways to tighten application procedure and suggest necessary changes. - Principle 22. There should be initial and ongoing capital and other prudential requirements for market intermediaries that reflect the risks that the intermediaries undertake. - Grading: FI - Findings: - There are initial and ongoing minimum capital requirements with which market intermediaries must comply. - These requirements are harmonized on EU level under MIFID and the Capital Requirement Directive, (CRD). - Fully transposed into Swedish law via the Capital Adequacy and Large Exposures Act (2006). - Principle 23. Market intermediaries should be required to comply with standards for internal organization and operational conduct that aim to protect the interests of clients, ensure proper management of risk, and under which management of the intermediary accepts primary responsibility for these matters. - Grading: FI - Findings: - Requirements set out in the IOSCO Principle appear to be present. - Intermediary required to have adequate management and organizational structure and adequate internal controls. - Senior management must be of sufficiently good repute and sufficiently experienced and accepts primary responsibility for compliance. - Intermediary required to maintain, monitor and regularly evaluate procedures and systems; have an internal audit function and appoint an independent external auditor. - Intermediary should self-report problems to FI and external auditor has same obligation. - Effectiveness of self-reporting requirement is in doubt; one large case has stretched supervision resources further than normal. - Principle 24. There should be a procedure for dealing with the failure of a market intermediary in order to minimize damage and loss to investors and to contain systemic risk. - Grading: FI - Findings: - Appropriate agreements are in place. FI, RB and the MoF have signed a MoU regarding crisis management. - FI is signatory to MoU on cooperation between financial supervisory authorities, central banks and finance ministries of the European Union on cross-border financial stability. - For Swedish financial institutions with significant activities in other countries (e.g., Nordea Bank and NASDAQ OMX), there are MoUs on supervision with other relevant jurisdictions within Sweden and in the Nordic area. - Although NASDAQ OMX is owned by the second largest stock market operating group in the USA, FI does not have a formal MoU with the US SEC. - Regular scenario/stress test situations are carried out together with RB; such situations also at Nordic level. - There is an Investors Compensation Schema as required under EU law. - During the last three years, FI has successfully handled several major instances of failure of an intermediary in cooperation with other authorities in Sweden and overseas (examples: Carnegie Investment Bank in 2008 and the situation in the Baltics in 2008). - Principle 25. The establishment of trading systems including securities exchanges should be subject to regulatory authorization and oversight. - Grading: BI - Findings: - Authorization provisions currently applied to trading systems operated by some large banks do not fully meet requirements of Principle 25 concerning adequate transparency. - Principle 26. There should be ongoing regulatory supervision of exchanges and trading systems, which should aim to ensure that the integrity of trading is maintained through fair and equitable rules that strike an appropriate balance between the demands of different market participants. - Grading: FI - Findings: - FI’s powers over stock exchanges as trading systems have been strengthened in recent years although weakness exists in one aspect of their business model - listings. See Principle 7. - Principle 27. Regulation should promote transparency of trading. - Grading: BI - Findings: - Challenges across Europe in achieving appropriate levels of market transparency. Sweden does not appear to derogate from current MiFID pre and post trade transparency regime. - Rating recognizes concerns identified in Sweden and elsewhere as part of current MiFID review on specific elements in the current regime. - Principle 28. Regulation should be designed to detect and deter manipulation and other unfair trading practices. - Grading: PI - Findings: - Sanctions for violation of the criminal law are not sufficient to be fully effective, proportionate and dissuasive as required by the Principle. - NECB has good record in obtaining prosecutions in those cases it brings to court. Collateral costs of acquiring a criminal record for insider dealing (e.g., diminished prospects for future employment by an FI licensed firm) may add to dissuasive value even if direct costs are very low. - Principle 29. Regulation should aim to ensure the proper management of large exposures, default risk and market disruption. - Grading: FI - Findings: - Sweden has implemented relevant EU Directives such as the Settlement Finality Directive. - Large Exposures are dealt with in the Capital Adequacy and large Exposures Act to which all banks and market intermediaries are subject. - FI does not itself monitor open positions but has right to require full information about positions from the CSD, CCP and licensed firms. - Market authorities have powers to take action under their rules and regulations if necessary. - Principle 30. Systems for clearing and settlement of securities transactions should be subject to regulatory oversight, and designed to ensure that they are fair, effective and efficient and that they reduce systemic risk. - Grading: Not assessed - Findings: - Since 2001 clearing and settlement system for cash bonds and equities on NASDAQ OMX has been radically improved by introducing a gross rather than net settlement system. - It is now owned by Euroclear, one of the two Europe based global ICSDs. - There is a CCP for top tier stocks (ECMF) based in the Netherlands. FI has a MoU on this arrangement with the Dutch regulator. - Aggregate implementation summary (as presented): - Fully implemented (FI) – 17 - Broadly implemented (BI) – 8 - Partly implemented (PI) – 4 - Not implemented (NI) – 0 - Not applicable (N/A) – 0 ### Table 6 — Sweden: Recommended Action Plan to Improve Implementation of the IOSCO Objectives and Principles - Principle 1 - Steps should be taken to clarify that insurance intermediaries wishing to sell shares, bonds, structured products and other complex products must be licensed under the SMA and mechanisms developed to get this message across to current and potential licensees. - Principle 2 - Government should reconsider policy of attaching specific short term project requirements to Parliament’s annual budget allocation for FI initially and during the course of the financial year. - Government should examine benefits of changing the basis of FI’s funding to a structure where the mix between Parliamentary allocation and fees levied by FI is more reliant on the latter and where, subject to consultation, FI can set the fees at the level it believes necessary to fulfill its mandates. - Principle 3 - Government and FI should consult on measures to seek to ensure that FI has sufficient, and sufficiently experienced and qualified staff to meet current and predicated workloads. - FI should consider how best to create career paths and a work environment which encourage staff to remain in public service beyond the time when industry finds their acquired skills and knowledge particularly desirable. - Principle 4 - FI should review its internal processes by which licensees can make representations prior to the imposition of major sanctions such as license revocation. - Principle 7 - Given emergence in Sweden of competing for-profit securities exchanges with significant self regulatory responsibilities, particularly as regards listed companies, government might consider whether issuer regulation should be on a statutory basis by a single statutory body such as FI. - Principle 9 - Clarify relationship between FI and CPA. - Principle 10 - FI should consider whether it has got the balance right between supervision and enforcement in its current structure. - FI should consider increasing fines to dissuasive levels and review use of statutory discretion not to fine fund management companies because they rectify breaches. - Principle 14 - See recommendation under Principle 7. - FI and NASDAQ OMX should consider jointly whether criteria under which a listed company can legitimately delay publishing price sensitive information should be given greater specificity and transparency. - Government might consider whether EU standard of a maximum of 120 days for filing annual reports is adequate. Other major economies outside the EU impose significantly shorter deadlines. - Principle 15 - FI might consider whether requirement for insiders to report their transactions in 5 days is too long given current technology. - Principle 16 - MoF should pursue to definitive conclusion its review of whether for-profit securities exchanges should continue to be responsible for enforcing accounting standards on listed companies. - Principle 17 - Regulation of insurance intermediaries who sell CIS should be strengthened. - FI should implement plans to end provision permitting unlicensed persons to sell unapproved foreign CIS to retail investors as long as no money changes hands directly; this provision should be closed. - FI, in consultation with government, should increase resources in the investment funds supervision department to a level enabling it to fully meet its mandate. - Government should review maximum level of fines and FI should review its apparent policy of forbearance in the use of fines at the top end of the range. - Principle 18 - FI should argue its case in ESMA that a custodian should not be affiliated with the management company of a UCITS. - Consider need for additional segregation requirements and detailed confirmation of assets by independent auditor where AMC and custodian are not at arm’s length. - Principle 21 - FI, in consultation with government, should increase resources in the securities firms supervision department to a level enabling it to fully meet its mandate. - Principle 22 - Consider more timely/frequent reporting by securities firms. - Principle 24 - Consider giving FI express authority to petition the court for the appointment of a receiver/administrator. - Principle 25 - In addition to reviewing trading rules of a securities exchange for compliance with the SMA and its Regulations, FI should also review and analyze performance of the trade matching or execution algorithm of automated trading systems. - Principle 26 - See Recommendation to Principle 7. - Principle 28 - Government should carry out a comprehensive review of the legal and judicial framework around prosecution of securities market crimes to see whether steps could be taken to make the process more effective, proportionate and dissuasive. ### Authorities’ Response to the Assessment - (Section heading present in source; no substantive content supplied under this heading in the provided text.) *Source: _cr11283 - 2011. Previously this issue was an impediment to* ### 39. The Swedish authorities appreciate the work carried out by the IMF in assessing ### _cr11283 - 39. The Swedish authorities appreciate the work carried out by the IMF in assessing ### Authorities' response to IMF assessment - The Swedish authorities appreciate the work carried out by the IMF in assessing Sweden against the IOSCO principles. - Overall, the authorities agree with the mission’s assessment. - The authorities consider many of the recommendations valuable to improve the regulation and supervision of the securities markets. ### Next section - VII. DETAILED ASSESSMENT *Source: _cr11283 - 39. The Swedish authorities appreciate the work carried out by the IMF in assessing* ### 40. The assessment of the country’s observance of each individual Principle is made ### _cr11283 - 40. The assessment of the country’s observance of each individual Principle is made ### Assessment categories and methodology - Assessment categories: fully implemented, broadly implemented, partly implemented, not implemented and not applicable. - The IOSCO Methodology provides assessment criteria for each Principle and recognizes variation in means of implementation depending on domestic context, structure, and stage of development of the country’s capital market. - Category definitions: - Fully implemented: all assessment criteria specified for that Principle are generally met without any significant deficiencies. - Broadly implemented: exceptions are limited to those specified under the broadly implemented benchmark for that Principle and do not substantially affect overall adequacy of the regulation. - Partly implemented: assessment criteria under the partly implemented benchmark are generally met without any significant deficiencies. - Not implemented: major shortcomings as specified in the not implemented benchmark are found. - Not applicable: does not apply because of the nature of the country’s securities market and relevant structural, legal and institutional considerations. ### Principles Relating to the Regulator — Overview (Table 7: Sweden) - The following Principles and accompanying descriptions, assessments and comments relate to the Swedish regulator (FI) as presented in the source. ### Principle 1 — The responsibilities of the regulator should be clear and objectively stated - Description — legal and regulatory framework includes: - Securities Market Act (SMA) (2007); - Investment Funds Act (IFA) (2004); - Financial Instruments Trading (Market Abuse Penalties) Act (2005); - Capital Adequacy and Large Exposures Act (2006); - Financial Instruments Trading Act (1991); - Money Laundering and Terrorist Financing Act (2009); - Act on Public Offers on the Stock Market (2006); - The Reporting Duty for Certain Holdings of Financial Instruments Act (2000); - Financial Advice to Consumers Act (2003); - the Public Access to Information and Secrecy Act (2009); - Administrative Procedure Act (1986); - relevant regulation issued by FI; - regulations governing investment services and activities; - regulations governing operations on trading venues; - regulations governing investment funds; - regulations and general guidelines governing measures against money laundering and terrorist financing. - FI responsibilities and mandates: - Responsibility, powers and authority set out in the Ordinance (2007) on Authorities, the Ordinance (2009) with instructions for FI, and sector acts such as the IFA and the SMA. - FI is the only competent authority for supervision of credit institutions, insurance companies, securities firms, exchanges and investment fund companies. - Ordinance (2009) assigns FI responsibility for supervision, regulation and licensing of financial markets and financial firms and coordinating supervision as regards AML/CFT. - Section 2: FI to work towards a stable and well functioning financial system with a good level of consumer protection; monitor and analyze developments; rules and routines should be cost-efficient and simple; duties include international supervisory cooperation, drawing up reports, and crisis preparedness cooperation with RB and the Swedish Civil Contingencies Agency. - FI to consult with the Swedish National Financial Management Authority, the Swedish Consumer Agency, RB and the Swedish NDO; annual appropriations letter may set specific responsibilities for the fiscal year. - Assessment: Fully Implemented - Comments: - FI is a unitary regulator but must regulate banking, securities and insurance under several separate statutes; interfaces can create risks to retail investors. - Specific interface issue: SMA vs Insurance Intermediation Act — insurance intermediaries (1000 in total) may sell CIS by advice but may not give advice on shares, bonds, structured products or other complex instruments without a SMA license; FI has concerns some intermediaries are not respecting the frontier and FI is undertaking a project to establish the scale of the problem. - The issue is framed as effectiveness of enforcement rather than gaps between laws. ### Principle 2 — The regulator should be operationally independent and accountable - Description — institutional and constitutional context: - FI is an administrative authority under the MoF; Instrument of Government (1974) obliges FI to act with objectivity and impartiality and provides independence. - The 2009 Ordinance sets permanent instructions; government issues annual appropriation instructions setting policy objectives and reporting framework. - Swedish administrative authorities competent to take decisions independent of instructions from government, parliament or other public authorities; government and Parliament cannot dictate decisions in individual cases. - No apparent improper commercial influence on FI operational activities. - 2009 Ordinance sets consultation conditions; no requirements for consultation with Government ministers; ministers prohibited from directly interfering in day-to-day activities. - Funding and budget processes: - Cost of FI activities met out of charges levied on supervised entities which FI passes on to the government with a15 percent retention of the fees collected on average. - Balance of FI’s annual budget decided by Parliament on a proposal from the Government; mid-year review permitted; Budget Act permits government to impose some limitations on use of funds. - Government issues appropriations instructions after state budget adopted; letters provide details on reporting and specific projects; both state budget and letters are public and available electronically. - Accountability, liability and transparency: - No specific provisions concerning employee liability for FI decisions taken in good faith; general provisions under the 1972 Damages Act apply; case law sets high threshold for negligence. - Employees may be held liable only if gross negligence or criminality; presumption employees are not liable. - Board members and Director General appointed by government on minimum terms: Board members three years, Director General six years. - Director General removable before end of six year term only for misconduct or disability; reasons for removal must be publicly disclosed. - Public accountability mechanisms: annual report reviewed by Swedish National Audit Office; Parliamentary Ombudsman and Chancellor of Justice oversight; Director General appears at least once a year before the Parliamentary Finance Committee; FI issues public reports and quarterly statistics; subject to Freedom of the Press Act and Public Access to Information and Secrecy Act. - In enforcement actions FI must provide written reasons for material decisions; Administrative Procedure Act specifies reasons and procedural protections including disqualification, right to be informed of information brought into the matter and right to respond; judicial review ultimately available. - Confidential and commercially sensitive information protected under Public Access to Information and Secrecy Act. - Assessment: Broadly Implemented - Comments — reasons for Broadly Implemented: - Restrictions on operational independence: - Government can demand FI take on additional work financed out of the budget; such requirements can be issued any time during the financial year and are mandatory. - These requirements may redirect resources from day-to-day supervision and enforcement and require FI to revise priorities and reallocate staff. - The IOSCO Principle’s requirement that a regulator be “operationally independent from politically interference” is not to be interpreted narrowly; government-mandated additional work that diverts supervisory resources calls operational independence into question. - Funding concerns: - FI is dependent for about 85 percent of its annual budget on an allocation from Parliament. - Dependency exposes FI to risk of budget cuts during economic strain and makes multi-year planning difficult (e.g., major IT projects). - Assessor suggests merit in FI moving to a broader funding base by retaining a higher percentage of funds generated from fees and having freedom to set fees, subject to consultation; fully self-funded model may be inappropriate given concentrated Swedish financial sector. ### Principle 3 — The regulator should have adequate powers, proper resources and the capacity to perform its functions and exercise its powers - Description — Powers: - Key securities market powers provided in the IFA and the SMA. - FI mandated to issue regulations regarding prudential and conduct of business rules; can issue and amend regulations under devolved authority within parameters of law. - SMA and IFA require investment firms and fund management companies to provide FI with any and all information regarding their operations at request; FI can issue regulations regarding information supervised entities must provide. - FI has power to demand information from any person and to summon and question a person for supervisory tasks (except when conflicting with professional secrecy of lawyers). - Similar provisions under Financial Instruments Trading (Market Abuse Penalties) Act, Financial Instruments Trading Act and the Reporting Duty for Certain Holdings of Financial Instruments Act. - Pursuant to SMA and IMA, FI may intervene when an investment firm or fund management company has violated obligations; FI determines when intervention is necessary. - FI measures include orders for prompt remedial action, warnings, fines and license revocation for serious infringements; “FI-toolkit” of sanctions has expanded considerably since 2001, especially regarding power to levy fines, although some limitations remain. - Description — Resources: - Budget decided by Parliament based on FI’s request; within budget and objectives FI is independent in performing regulatory and supervisory functions, subject to special Government requirements. - FI sets its own operational goals and controls approved budget including salaries, training, equipment, travels. - Supervisory resources growth: 2000 FI had 154 employees (on a full time basis); nine years later the number has grown to 229. - Employee personal development: - Every employee has two scheduled yearly meetings with supervisor for performance evaluation and to assemble a personal development plan; Personnel department coordinates training proposals. - FI offers in-house and external training including computer skills, secrecy laws, and introductory training on FI’s purpose; luncheon seminars with external speakers. - Assessment: Broadly Implemented - Comments: - Staff resources increased but FI total staff is below the median for EEA regulators despite Sweden being approximately at the median level in size and complexity in Europe; manifest shortages in some key departments identified. - Staff turnover at 15 percent is high; FI finds it difficult to retain experienced personnel who often leave for industry roles such as compliance or risk officers. - Given small regulator size and inability to compete on salary, FI must enhance work experience to retain staff. - Government-mandated projects (Principle 2) that require reallocating staff from day-to-day supervision exacerbate resource constraints. ### Principle 4 — The regulator should adopt clear and consistent regulatory processes - Description — Processes and transparency: - FI strives for consistent exercise of powers, coherent practice, and treating similar cases similarly; public service commitment times for handling applications are published. - FI has reworked process documents to achieve consistent and transparent design of main processes (supervision, licensing, regulatory development) with built-in checkpoints requiring supervisors at different levels to monitor and sign off activities. - General procedural rules set out in the Administrative Procedures Act and sectoral Acts; FI has internal rules and routines. - FI has an explicit and transparent process for identifying need for regulatory changes, consulting market participants and other authorities. - FI consults public before issuing new rules and often invites reference groups from the industry; all rules and guidelines published on FI’s website. - Since autumn 2009 FI publishes a memorandum with reasoning behind proposed rules and an analysis of consequences (impact studies). - FI publishes important licensing and sanctions decisions on its website. - Administrative Procedure Act ensures procedural fairness: transparency, hearing parties, disqualification, judicial review, simple/rapid/economic handling without jeopardizing legal security, obligation to express decisions in an easily understandable way, and reasons in writing for decisions affecting rights or interests. - SMA and IFA contain two exemptions from right of appeal: (1) decisions by FI to convene a board or shareholders meeting under SMA and IFA, and (2) decisions to order someone to give FI information on certain business matters where uncertainty exists about applicability of the Act. - FI typically communicates in writing and holds meetings with parties in licensing matters; special internal process for license revocation to ensure satisfactory investigation and that party has been informed of allegations. - Confidentiality: - FI’s procedures for making investigation reports public are consistent with protection of non-public information and personal data under Public Access to Information and Secrecy Act and Personal Data Act. - Secrecy covers business affairs of supervised entities, business or personal affairs of parties in fit and proper tests, and information on state support of credit institutions. - Investor education: - FI promotes financial education in collaboration with the CPA and NECB, including programs for schools, immigrants, and young unemployed persons. - Assessment: Broadly Implemented - Comments: - Procedural rules intended to ensure fairness are in place; structure and processes are reasonably transparent and sanctioning process is standardized and public. - Practical issue: rights of an entity under investigation to make representations in addition to written responses are limited. - Although written representations may occur at two stages, there is no right for the entity or legal advisors to make in-person representations to the Board before the Board decides on sanctions. - Concern is acute where the Board, acting in a quasi-judicial role and often following advice from the Chief Legal Counsel, may revoke a license; even if an appeal succeeds later, revival of business is unlikely. - Assessor understands FI has considered this issue but no proposals have emerged and suggests FI review internal processes to allow licensees to make representations prior to major sanctions such as license revocation. ### Principle 5 — The staff of the regulator should observe the highest professional standards including appropriate standards of confidentiality - Description — ethical standards, conflicts of interest and confidentiality: - FI staff required to meet highest professional standards, observe legal requirements and written guidance on avoidance of conflicts of interest, objectivity and impartiality; monitored primarily by head of relevant unit. - Ordinance (2009) provisions: - Board members and employees shall not, for themselves or another person, run or be part of a company that conducts operations requiring permits, registration or notification from FI or corresponding foreign authority. - Board members and employees may not be employed by or sponsored by such companies. - Board members and employees may not, without prior authorization, have loans from companies under FI supervision; permission for Chairman issued by Government; for other board members including Director General permission issued by Chairman; in other cases permission issued by FI. - Restrictions on holding/trading securities and disclosure requirements laid down in internal rules; active monitoring by Chief Legal Counsel on a regular and annual basis. - FI adopted Swedish Securities Dealers Association rules for staff transactions in financial instruments and currency: short term trading not permitted; expected holding period at least one month though losing positions may be terminated earlier. - Staff guidelines include: - Use caution when performing own securities transactions to avoid damaging FI reputation. - Only do business in financial instruments proportionate to own finances and not to the extent that individual wealth is at risk. - Not use position or act so suspicion arises of improper financial gain. - Refrain from exploiting unpublished price sensitive information. - Appropriate use of information regulated by Public Access to Information and Secrecy Act and contracts on professional secrecy; breach may lead to discipline and secrecy extends beyond employment period. - Swedish Data Inspection Board supervises compliance with Code of Personal Data; protects individual privacy. - Ordinance (2009) requires FI to have a personnel committee (further details not provided in source excerpt). - Assessment: (Assessment heading provided in source but not shown in the excerpt for Principle 5; description and safeguards summarized above.) *Source: _cr11283 - 40. The assessment of the country’s observance of each individual Principle is made* ### Section 25 of the Government Agencies Ordinance, shall decide on: (1) dismissal from ### _cr11283 - Section 25 of the Government Agencies Ordinance, shall decide on: (1) dismissal from ### Section 25: Employment sanctions and penalties - Matters the authority shall decide on: - (1) dismissal from employment caused by personal factors, - (2) disciplinary issues, - (3) notice for prosecution, and - (4) suspension. - Criminal sentencing provisions: - Employees may be sentenced to prison for up to two years, or in case of gross negligence or criminal intent, up to six years. - Assessment: Fully Implemented ### Principles of Self-Regulation — Principle 6 (Role and structure of SROs) - Core statement: - The regulatory regime should make appropriate use of Self Regulatory Organizations (SROs) that exercise some direct oversight responsibility for their respective areas of competence, and to the extent appropriate to the size and complexity of the markets. - Description highlights: - Self regulation has a long history in Sweden and still has a far greater role here than in many other European countries. - The term SRO is not formally recognized in Swedish law but many bodies are considered to have self regulatory functions; two sorts have specific responsibilities under the regime for securities market regulation and over which FI has supervisory powers. - First type of SRO: securities exchanges or RM as defined in the SMA which implements MiFID. - Under the SMA a securities exchange must maintain appropriate rules for trading on its RM. The rules shall state: - the participants' obligations to the securities exchange; - rules governing transactions on the market; - the qualification requirements for participants' employees and agents who trade on behalf of the participants; and - the mechanisms for clearing and settlement of executed transactions. - A securities exchange is required to have a disciplinary committee charged with the task of handling violations of the rules mentioned above by members and (where relevant) issuers. - Legislative requirements for SROs are specified in general terms; more detailed requirements are set out in regulations issued by FI. - FI supervises on an ongoing basis the SROs and their rules to satisfy itself that they continue to meet the criteria set out in the legislation and regulations, including supervising issuers and members for compliance with SRO rules. - One element of a securities exchange’s rule book under the SMA must be rules regarding public take-over bids which apply to shares admitted to trading on the RM operated by the securities exchange. - The rules must satisfy the requirements imposed by the 2004 Take-overs Directive as implemented in Sweden via the Act on Public Take-Over Offers on the Stock Market. - Second type of SRO: the Swedish Securities Council (SSC). - The Takeovers Act has given FI powers and the right to delegate certain of its powers to the SSC; FI has exercised this right. - The SSC takes decisions on a range of issues set out in the Takeovers Act, most notably on whether an extension should be granted to extend the deadline for preparing and filing for approval the offer document. - The SSC must publish its decisions if the decision means that the application is fully or partially granted; the Council announces the decision via publication on its website. - Decisions made by the Council can be appealed to FI. Decisions regarding these matters made by FI can in turn be appealed to the administrative court. - FI monitors the performance of the SSC to satisfy itself that it is using its delegated powers properly; FI’s ultimate sanction is to withdraw the delegated powers. - Assessment: Not Assessed - Comments: - The SSC’s function appears primarily to provide a mechanism by which parties to a take-over bid can appeal decisions made by a securities exchange under its rules. - This mechanism is necessary because the Takeovers Directive requires such decisions to be taken by a competent (i.e., statutory) authority and not an exchange, although FI has delegated those powers to the SSC. - The SSC is less powerful than the U.K. Take-over Panel but shares the characteristic of being a self regulatory body with an on-going role in the pan-EU harmonization of the regulation of takeover bids on a statutory basis. - The principle is rated “not assessed” because IOSCO has set no criteria for the Principle and it is used for descriptive purposes only. ### Principles of Self-Regulation — Principle 7 (Oversight and standards for SROs) - Core statement: - SROs should be subject to the oversight of the regulator and should observe standards of fairness and confidentiality when exercising powers and delegated responsibilities. - Description — authorization requirements for securities exchanges under the SMA: - Authorization to operate a securities exchange may be granted by FI to a Swedish limited company or a Swedish co-operative association where: 1. the Articles of association or statutes do not conflict with the SMA or any other statutory instrument; 2. there is reason to believe that the envisaged operation will be conducted in accordance with the provisions of the SMA and other statutory instruments governing the undertaking's operations; 3. there is reason to believe that any person who holds or may be expected to hold a qualifying holding in the undertaking: a) will not impede the conduct of the operations in a manner inconsistent with the SMA and other statutory instruments governing the undertaking's operations; and b) is otherwise suitable to exercise a significant influence over the management of a securities company; 4. all persons who shall serve on the undertaking's board of directors or act as managing director or who shall be appointed as an alternate therefore possess sufficient insight and experience in order to participate in the management of a securities exchange and are otherwise suitable for such duties; *Source: _cr11283 - Section 25 of the Government Agencies Ordinance, shall decide on: (1) dismissal from* ### 5. the undertaking fulfils the requirements otherwise set forth in the SMA. Under the SMA a ### _cr11283 - 5. the undertaking fulfils the requirements otherwise set forth in the SMA. Under the SMA a ### Exchange conduct principles and RM obligations - Securities exchange conducting a RM must apply three principles: - (i) free access, whereby each and every party who satisfies the requirements of the SMA and the securities exchange may participate in trading; - (ii) neutrality, whereby the securities exchange's rules for the trading facility shall apply in a uniform manner vis-à-vis all who participate in trading; and - (iii) effective transparency, whereby participants receive prompt, contemporaneous, and correct information regarding trading and that the public has the opportunity to obtain such information. - An exchange SRO must follow professional standards regarding confidentiality, procedural fairness and appropriate use of information, and must avoid or resolve potential conflicts of interest. - The functions of an SRO are part of a licensed exchange and supervised as part of FI’s overall supervision of the exchange. - FI has the power to sanction an exchange if it fails to meet obligations under law and regulations. - On an ongoing basis an exchange must: - monitor trading on the RM to ensure compliance with the SMA and other statutory instruments and generally accepted practice; - grant FI access to its system for monitoring trading and price trends and provide whatever information FI requires upon request; - identify and manage conflicts of interest. ### Supervisory structure and appeals - The SSC is an appeals body from decisions taken by a stock exchange; SSC decisions can be appealed to FI; FI decisions can be appealed to the administrative court. - FI monitors SSC performance and may withdraw delegated powers if confidence in SSC decision-taking is lost. - Assessment for exchange/SRO supervision: Broadly Implemented. ### Comments on market structure, regulatory gaps and recommendations - FI’s powers over exchanges strengthened since 2001 FSAP, but limitations remain in securing necessary rule/process changes without threatening significant sanction. - FI has no direct powers over issuers listed on a RM except regarding prospectuses and takeovers (shared power with the exchange); it is unclear what action FI could take if an exchange refused FI’s interpretation of law. - Market structure concerns: - Multiple exchanges exist under same legal structure; largest is controlled by a U.S. publicly quoted exchange operator with global interests. - Commercial pressures on MTFs to seek authorization as RMs to access listing fees market, opening regulatory arbitrage opportunities. - Recommendation: Government should keep situation under review and consider transferring to FI the powers to supervise, on an ongoing basis, companies admitted to trading on any exchange or MTF in Sweden to ensure consistently applied, effective and efficient issuer regulation. - Exchanges and MTFs should have admission-to-trading rules that are no less robust than those of FI. ### Principle 8 — Inspection, investigation and surveillance powers - FI can inspect regulated entities' business operations, including books and records, without prior notice. - FI may obtain books and records and request data/information from regulated entities without judicial action, even absent suspected misconduct, in response to particular inquiries and on a routine basis. - As a unitary regulator FI does not need to seek cooperation of another regulator for banking and other information. - FI can supervise authorized exchanges and regulated trading systems through surveillance and can impose record-keeping and record retention requirements; retention requirement is five years. - Regulated entities must maintain records concerning client identity and tracing of funds and securities in and out of brokerage and bank accounts related to securities transactions. - Under the Act on Measures against Money Laundering and Terrorist Financing: - applicants’ business plans must describe internal rules regarding measures against money laundering and financing of particularly serious crime; - firms must appoint an anti-money laundering officer and identify the person to FI. - FI delegates certain takeover powers to SSC, supervises SSC, has full access to SSC information, reviews SSC operations annually, and SSC is subject to disclosure/confidentiality requirements no less stringent than FI’s. - Assessment: Fully Implemented. - Comments: FATF October 2010 Follow-Up Report recognized significant progress and removed Sweden from regular follow-up process. ### Principle 9 — Comprehensive enforcement powers - FI powers include intervening against AMC, investment firm or securities/derivatives exchange not complying with laws/regulations. - FI may order remedial measures within a certain time, issue a remark combined with a fine, issue a warning for serious violations, and revoke licenses in particularly serious cases. - FI powers specifically include: - seek orders, refer matters for civil proceedings or take other action to ensure compliance with regulatory, administrative, and investigative powers; - impose administrative sanctions; - order suspension of trading in securities or take other appropriate actions; - require data, information, documents, records and statements or testimony from any persons involved in relevant conduct or who may have information relevant to an inquiry/investigation. - Sanctions or corrective action from FI do not compromise private rights of action; private persons may seek remedies under the Financial Advisory Services to Consumers Act. - Market Abuse Act 2005 requires FI to notify NECB when there is reason to believe an offence under that Act has been committed. - Under the IFA FI shall provide any and all information required by a competent authority in a state within the EEA to exercise supervisory functions over a foreign regulated entity. - Assessment: Fully Implemented. - Comment: Relationship between FI and the Consumer Protection Agency may need clarification. ### Principle 10 — Effective and credible use of powers and compliance programs - FI operates a risk based supervision system using macro- and micro-economic factors and complaints to determine supervisory activities. - Exchanges monitor trading and price trends via automated systems that register fluctuations in price and turnover and indicate deviant trading patterns. - FI has: - an automatic system to handle and analyze information filed pursuant to SMA transaction reporting requirements; follow up currently manual; - recently acquired a fully automated market surveillance system to increase ability to generate meaningful alerts. - FI issued general guidelines regarding Reporting of Events of Material Significance; undertakings should report events that may result in: - significant financial damage to a large number of customers; and - significant bad will for the undertaking. - Examples of reportable events include: - erroneous or deficient information provided in conjunction with customer transactions; - customer transactions handled in an erroneous or deficient manner; - errors in technical systems; - violations of internal or external regulations. - FI has a consumer protection unit; all complaints are registered in the central register of FI. - FI monitors supervisory and enforcement performance quantitatively and qualitatively; inspection activities are checked by FI’s internal auditors reporting to FI’s board; Swedish National Audit Office audits state activities including FI regularly. - Regulated entities required to have effective compliance functions; business plans must describe compliance function operations; FI monitors these. - FI can discipline entities for failure to supervise subordinate personnel, lack of sound routines for management, internal control, risk assessment, and information systems management. - FI supervises exchanges’ monitoring of trading and price trends to ensure compliance with laws and generally accepted practice. - Assessment: Partly Implemented. - Comments — key issues leading to “Partly Implemented”: - Limited resources in departments supervising investment firms and fund management companies result in insufficient on-site inspections; reliance on self-reporting and auditor notification is considerable. - A recent major case revealed weaknesses in auditor notification; FI is considering ways to enhance enforcement credibility among auditors. - Enforcement is integrated and dispersed among supervision teams; the same individuals perform both supervision and enforcement roles, which may create due process and role-conflict concerns. - FI is considering staff training to address differing skill sets between supervision and enforcement functions. - Low level of fines impacts credibility: fines are limited to 10 percent of the previous year’s revenues of the firm or person concerned with a cap of SKr 50 million. - Example: largest fund management company has annual revenues probably in excess of SKr 4.5 billion; several other licensees generate annual revenues in excess of SKr 1 billion. - There have been cases where FI’s statutory discretion not to fine a fund manager which remedied a breach indicates a weakness in the use of administrative sanctions. - FI is not a prosecutor for criminal offences; suspected criminal behavior (e.g., insider dealing) is passed to the NECB; legal constraints on gathering and presenting evidence and issues regarding level of penalties affect effectiveness. - 2008/9 detailed examination of all securities firms for MiFID compliance discovered significant non-compliance in most firms leading to numerous sanctions and one license revocation; that work enabled baselines for current risk based supervision but FI has limited evidence of current compliance rates. ### Principle 11 — Authority to share public and non-public information - General principle of public access to information (Freedom of the Press Act) obliges FI to share information; “Public” interpreted as including domestic and foreign regulators. - Act of Public Access to Information and Secrecy restricts disclosure where it can be presumed disclosure would cause damage to the entity or third-party business/personal activities. - General provision: information may be shared with other authorities if interest in disclosure has priority over interest in confidentiality. - Statutes imply information sharing in specific situations, e.g., Financial Instrument Trading (Market Abuse) Penalties Act. - Two gateways for sharing confidential information with foreign authorities: - (1) where government by law or ordinance has determined information may be provided to a foreign authority — applicable statutes include SMA, IFA, Financial Instruments Trading Act, Financial Instrument Trading (Market Abuse Penalties) Act and Insurance Business Act; limitation: these statutes only refer to authorities within the EEA. - (2) for authorities outside the EEA: sharing permitted when information can be provided to a Swedish authority and it is in the Swedish national interest to disclose to the foreign authority; FI bases decisions on contribution to enhancing confidence in global financial markets. - FI decides case by case and does not need external approval before sharing information for enforcement/regulatory purposes with foreign counterparts. - Information exchange subject to EU Directive on data protection implemented in Sweden via the Personal Data Act; information may not be transferred to third countries without adequate personal data protection. - Assessment: Fully Implemented. - Comment: Change in law on March 1, 2011 allows FI to share information with foreign counterparts even if the alleged conduct would not constitute a breach of Swedish law if conducted within Sweden; FI re-applied to become a full signatory to the IOSCO MMoU and that status was granted in April 2011. ### Principle 12 — Information sharing mechanisms domestically and internationally - Domestically, FI must confer with RB on monetary matters and provide RB with necessary information. - Agreement between FI and NDO: FI will, on request, give information about deposits and capital ratios to NDO; FI informs NDO when new institutions are licensed, branches of foreign entities are established in Sweden, and Swedish entities establish branches abroad. - Public Access to Information and Secrecy Act: secrecy provisions do not hinder communication to Swedish Parliament, Government, and other Swedish supervisory authorities; confidential information concerning suspicion of crime may be disclosed to police or authority taking action if imprisonment is prescribed. - Information received under an agreement with a foreign authority cannot be disclosed if disclosure would breach the agreement. - EU law requires cooperation and information sharing among authorities within the EEA; implemented in Swedish law. - FI has signed more than 40 active MoUs and Letters of Intent with foreign authorities and is a signatory to ESMA multilateral MoU. - Public Access to Information and Secrecy Act: information received through international agreement is not public if Parliament has approved the agreement or if government has incorporated it in the Ordinance; currently 35 agreements are incorporated. - FI requires that information received by the other authority under MoUs/Letters of Intent be used solely for intended purpose; FI may assist without MoU if confirmation is given that information will be safeguarded. - In 2009 FI received and processed 23 requests for assistance concerning foreign authorities’ investigations on insider dealing or market abuse and several requests in merger, acquisitions and other issues; it declined one request due to a then-existing impediment now removed. - Requests for information are given priority; FI staff must be prepared to locate and share information when not restricted by law. - Assessment: Fully Implemented. ### Principle 13 — Assistance to foreign regulators - FI has extensive powers to assist with information held by FI and to access information held by other Swedish entities (banks, investment service providers, natural persons). - Information on transactions on regulated and OTC markets is reported daily to FI by providers of investment services; providers must create and save documentation which FI can access on demand; documentation archived for at least five years. - Registers on legal owners of limited liability companies are held by the CSD in book entry form or the company itself; Swedish Companies Registration Office holds many registers and FI has direct electronic access to information (board, CEO, external auditors, owners, etc.). - FI can collect requested information from other parties in Sweden if not in FI’s files. - FI may take voluntary statements at the request of a foreign authority or in supervisory capacity but cannot compel statements nor take statements under oath; FI may require a person to attend questioning under threat of a fine for non-attendance, although the person has the right to remain silent. - FI cannot bring a case to court to assist foreign regulators; insider investigations initiated by FI are handed over to NECB when criminal offence suspected; NECB decides on court proceedings; FI can assist in obtaining cooperation from NECB or other authorities. - Sweden has implemented EU Directive on financial conglomerates and identified six Swedish conglomerates; top holding company and group companies are obligated to answer FI’s questions; cooperation with non-EEA authorities follows procedures in Principle 12. - Assessment: Fully Implemented. ### Principles for Issuers and disclosure (Principle 14) - Swedish public limited liability companies are regulated by the Swedish Companies Act (last amended in 2010). - From April 1, 2010, to be classified as a limited liability company a company must have share capital of at least SKr 50,000. - Approximately one quarter of all Swedish companies are limited companies. - Only a public limited liability company with share capital of at least SKr 500,000 can promote sale of its shares to broad circles and list shares for trading on a stock exchange or other organized marketplaces; therefore all listed companies are public limited liability companies. - Financial Instruments Trading Act requires a prospectus when transferable securities are offered to the public or admitted for trading on a regulated marketplace unless otherwise prescribed. - Since 2001 the prospectus review process has been strengthened; prospectuses must be submitted to and approved by FI before an offer to the public can be made; FI reviews for compliance with the Act and FI Regulation implements the Prospectus Directive. - FI employs seven staff in Issuer Supervision; in 2010 they: - reviewed 125 full prospectuses; - reviewed 30 base prospectuses for bond issues; - reviewed 24 prospectuses required for admission to trading on a securities exchange but where no capital was raised. - FI can issue fines for prospectus offences up to SKr 10 million. - Prospectus requirements: - contain all information necessary for an investor to assess assets, liabilities, financial position, results and future prospects of issuer and guarantor and of the transferable securities; - information must be easy to understand and analyze; - advertising of offers must include information about where/how to get the prospectus and must not be misleading or false. - Board of directors responsible for prospectus content; named lawyers and accountants can be civilly liable to shareholders. - Liability provisions: founders, board members or managing directors who intentionally or negligently cause damage must pay compensation where damage results from violation of the Act, annual reports legislation, or articles of association. - Warrants defined as transferable securities; prospectus rules apply; standardized derivatives classified as non-transferable contracts and not covered by prospectus rules. - Ongoing issuer supervision: - Exchanges must have clear transparent admission-to-trading rules; instruments admitted only where conditions exist for fair, orderly and efficient trading. - Listing rules implement Market Abuse, Transparency, MiFID and Takeovers Directive. - Exchanges responsible for monitoring listed companies (self-regulatory structure). - NASDAQ OMX listing process: - Admissions Committee of exchange staff and capital market experts; - Surveillance Dept of 30 people in Legal division; - Disciplinary Committee chaired by retired supreme court judge, deputy a current supreme court judge, plus one law professor and 2 capital market experts; hears on average 10 cases a year; has not delisted a company since the 1980s. - FI’s Issuer Supervision reviews exchange and NGM work on company annual reports and accounts for compliance with accounting standards; groups must comply with IFRS; single companies comply with a mix of IFRS and Swedish GAAP. - Insiders Register is public and contains transactions of persons assumed to have superior information; companies must keep a logbook of possible insider information not yet public. - Reporting timelines: - Annual report for issuers with securities admitted to trading on a RM must be published no later than four months after financial year end. - Issuer of shares, bonds or transferable securities must publish interim report for first six months as soon as possible and not later than two months after end of period. - Public companies with securities admitted only on an MTF must publish annual report no later than six months after financial year end; no legal obligation for periodic reports but MTF may impose by contract. - Disclosure requirements include making information public that is material for valuation; SMA and FI Regulations require: - (a) financial information and other required disclosure in prospectuses, listing documents, annual and other periodic reports, and where applicable in connection with shareholder voting decisions, be timely; - (b) periodic information about financial position and results of operations be made publicly available (may be in summary form); - (c) appropriate measures (e.g., provision of more recent unaudited financial information) when audited financial statements in a prospectus are stale. - General requirement to disclose all material information or all information necessary to keep disclosures from being misleading. - Listed companies generally expected to publish price sensitive information without delay, although law allows deferral of publication of material price-sensitive information in certain circumstances. *Source: _cr11283* ### 1. there are acceptable reasons; and ### _cr11283 - 1. there are acceptable reasons; and ### Main text - 1. there are acceptable reasons; and *Source: _cr11283 - 1. there are acceptable reasons; and* ### 2. there is no risk that the public will be misled: and the issuer can ensure that the information is ### _cr11283 - 2. there is no risk that the public will be misled: and the issuer can ensure that the information is ### Disclosure, listing rules, and exchange supervision - NASDAQ OMX grants concessions under its listing rules allowing companies to withhold information when "there is no risk that the public will be misled: and the issuer can ensure that the information is not divulged." - Assessment: Broadly Implemented. - Comments and findings: - FI has little influence over conduct of listed companies under the law except via ensuring exchanges interpret and enforce their listing rules appropriately. - FI has full sanctioning powers should an exchange fail to meet obligations, but uncertainty exists about outcomes if a dominant exchange (NASDAQ OMX, which has over 90 percent of the listed companies in Sweden, and all the large ones) were to challenge FI’s judgment while exercising powers under the law directly. - FI staff report a close and cooperative relationship with NASDAQ OMX surveillance staff; the exchange frequently consults FI on contemplated actions regarding listed companies. - NASDAQ OMX listing rules require a company to notify the exchange of its intention to withhold information but have no explicit mechanism or detailed criteria for overruling the company. - The exchange claims a strong presumption that price sensitive information should be made public immediately with few exceptions; greater transparency on acceptable reasons for withholding would be helpful. - The maximum four month period for filing annual reports (European standard) is slow compared with other markets: U.S. requires largest issuers to file within 75 days of year-end and 90 days for others; Canada uses a 90 day period (except smallest issuers). ### Principle 15 — Holders of securities should be treated in a fair and equitable manner - Description: Under the SMA issuers of transferable securities admitted to trading on a RM must publish all information that can affect market value in a fast and equitable manner; securities exchanges oversee compliance. - Legal and governance framework: - Main voting rights rule: all shares have equal rights unless articles of association provide otherwise; law permits differentiated share classes up to a maximum of ten times votes (a share may not have more than ten times the number of votes of any other share). - Differentiated voting rights currently found in about half of the Swedish stock market companies; in practically all of these the difference is 1:10. - Companies Act (2005) mandates shareholders be treated in a fair and equitable manner; includes rules on calling shareholder meetings, rights of minority shareholders to require extraordinary meetings, appoint auditors, and call for separate examinations of management and accounts. - Sweden has implemented the Takeovers Directive, Transparency Directive, and (with some delay) the Shareholder Rights Directive. - Protections and disclosure: - Reporting requirement to FI of significant holdings when holdings reach or exceed or fall below any of the limits of 5, 10, 15, 20, 25, 30, 50, 66, 67, or 90 percent. - FI publishes holding-change information not later than midday on the trading day following receipt and issues fines for late reporting. - Insider registry (under Principle 14) available on FI’s website, updated daily; insiders defined in Act concerning Reporting Obligations for Certain Holdings of Financial Instruments (2000) as owners of shares corresponding to 10 percent or more of share capital or all shares in the company. - Insiders must report all trades within five days; companies must provide complete list of insiders and notify FI of changes within fourteen days. - Companies issuing transferable securities on a RM must continuously register natural persons with access to insider information in a "logbook." - Specific equitable-treatment areas covered by law/regulation: - a. Voting (i) election of directors; (ii) corporate changes affecting terms/conditions of securities; (iii) other fundamental corporate changes - b. Timely notice of shareholder meetings - c. Procedures enabling beneficial owners to give proxies or voting instructions efficiently - d. Ownership registration (registered shares) and transfers - e. Receipt of dividends and other distributions, when, as, and if declared - f. Transactions involving (i) a takeover bid, and (ii) other change of control transactions - g. Holding company directors and senior management accountable for violations of law - h. Bankruptcy or insolvency of a company - Takeover regime: - All holders of securities of the same type in a target company must receive equal treatment; protection for other holders if a person/entity gains control. - A bid to acquire 30 percent of a company triggers mandatory bid rules. - Mandatory bid price must be at least equal to the highest price paid by the offeror and associates in the previous six months; if the offeror or associates pay a third party more than the bid price within six months after takeover, price paid to previous sellers must be increased to that level. - Offeror must comply with exchange rules and accept exchange sanctions for breaches. - Offer documents require extensive information about terms, identity of persons acting in concert, shares covered, time limits, consideration and financing, maximum/minimum shares, holdings by offeror and persons acting in concert, reasons, intentions for target company and employees, compensation, and applicable national legislation for resulting agreements. - Where consideration consists of transferable securities issued/held by offeror, offer document must contain information comparable to that required in a prospectus. - Self-regulation and bodies: - Swedish Securities Council (SSC) operates under devolved powers from FI, can grant exemptions and apply rulings in takeover contexts. - FI can require parties to launch mandatory offers or stop frustrating actions, and can suspend public takeover offers. - The SSC is part of the Association for Generally Accepted Principles in the Securities market; membership includes Swedish Corporate Governance Board and Swedish Financial Reporting Board. - Swedish Corporate Governance Board manages the Swedish Corporate Code of Governance (Code); Code introduced July 1, 2005, broadened and revised, with latest revision in 2010 coming into force on February 1, 2010. - Assessment: Fully Implemented. - Comments and enforcement detail: - Insider transaction reporting deadline of five days appears too long given current technology. - FI issues fines for late reporting—approximately 120—40 a year. Fines can range from SKr 15,000–SKr 350,000. - FI fears a tighter deadline would lead to a surge in fines and protests about excessive regulation. ### Principle 16 — Accounting and auditing standards - Description and framework: - Central provisions in the Accounting Act (1999) covering recording, annual accounts, and filing; criteria expanded upon by IFRS and Swedish GAAP. - Rules for audited annual reports, consolidated accounts, and interim reports are spread across laws; sector-specific Acts apply for banks, securities firms, and insurance companies. - Since January 1, 1996 these Acts comply with EU accounting directives (fourth and seventh) and banking and insurance directive. - For issuers with securities listed on a RM the SMA stipulates group accounts must follow IFRS as adopted by the EU. - Under the Financial Instruments Trading Act 1991 and FI’s Regulations, public companies must include audited financial statements in prospectuses, listing particulars, and annual reports; prospectuses must include last three years’ audited financial statements following IFRS as adopted in the EU. - Required audited financial statements include: - a) A balance sheet or statement of financial position. - b) A statement of the results of operations. - c) A statement of cash flow. - d) A statement of changes in ownership equity or comparable information. - Use of standards: - Sweden uses IFRS as adopted by the EU in consolidated accounts. - Public issuers admitted to trading only on an MTF may be allowed to follow Swedish GAAP instead of IFRS; Swedish GAAP considered of high and internationally acceptable quality. - Where unaudited statements are used (e.g., interim reports), financial information presented in accordance with IFRS as adopted by the EU or Swedish GAAP; Swedish Accounting Standards Board interprets Swedish GAAP. - Auditing: - Sweden adopted IFAC international auditing standards (ISA) in accordance with EU directive 2006/43 EC. - Independence of auditors required under the Auditors Act and RS (translated copy of ISAs) with extra Swedish principles; external auditor required to be independent in fact and appearance. - Supervision of auditors/auditing standards is responsibility of the Supervisory Board of Public Accountants. - Resignation, removal, or replacement of an external auditor must be announced at the shareholder’s meeting. - Enforcement and institutional responsibilities: - Although FI is the administrative authority under the SMA, enforcement of law and regulations on issuers listed in Sweden is carried out by the RMs (currently NASDAQ OMX and NGM); FI responsible only for issuers with registered office in Sweden whose shares/debt securities are admitted to trading only in other member countries. - FI issues binding regulations and directions covering enforcement actions by RMs. - During 2010/2011 there will be an evaluation of the Swedish system of enforcement of companies’ compliance with accounting standards that may lead to changes in national enforcement organization. - Market composition: - Application of accounting and auditing standards not significantly impacted by foreign companies; Swedish equity market largely domestic—only about 20 companies (out of 260) are domiciled outside Sweden. - Assessment: Fully Implemented. - Comments: - Assessor notes risk that enforcement reliant on commercially driven stock exchange resources may create selective enforcement and regulatory arbitrage; position under review at the MoF and NASDAQ OMX would not oppose another body assuming enforcement role. ### Principles for Collective Investment Schemes — Principle 17: eligibility and regulation of CIS operators/marketers - Regulatory framework for operating a CIS: - Main regulation: IFA, implementing UCITS Directives; FI has issued regulations on certain IFA provisions. - Authorization required from FI to operate an investment fund. - An AMC can operate Swedish UCITS and Swedish non-UCITS. - Investment firms authorized under the SMA to provide portfolio management may apply for IFA license to operate Swedish non-UCITS only. - Authorization "fit and proper" conditions for an AMC include: - i) head office situated in Sweden; - ii) operations will be conducted in accordance with IFA and other statutory instruments; - iii) any person with a qualified holding shall not impede conduct consistent with IFA and be suitable to exercise significant influence; - iv) CEO, board members and deputies shall possess sufficient insight and experience and be suitable; - v) fund rules to be operated by AMC have been approved by FI; - vi) company fulfils conditions otherwise set forward in IFA. - An AMC shall have a minimum initial capital of EUR 125,000 and own capital must not fall below initial capital during operations. - AMC subject to general obligation to maintain public confidence in the fund market, not unduly jeopardize individual capital investments, and conduct sound operations. - Authorization process and ongoing regulation: - FI regulations set detailed application requirements including business plan elements (activities, owners, group description, management, economic situation, organization, delegation agreements, information systems/security, administrative processes, conflicts of interest, internal control mechanisms, ethical issues, customer complaints, controls for personal transactions and anti-money laundering) and require attachments of internal instructions and guidelines. - FI assesses compliance of the proposed operations with IFA and regulation. - FI has issued regulations on operational requirements (internal control, documentation, outsourcing) and rules of conduct (conflicts of interest); rules to be reviewed for UCITS IV implementation in July 2011 leading to more detailed operational requirements. - Supervisory powers and sanctions: - FI empowered to apply sanctions for unlicensed operation and violations: order to cease business, impose fines. - FI can intervene by ordering limitation of operations, risk reduction measures, prohibition of decisions, issuing remarks or warnings (public); fines may accompany remarks/warnings. - For serious breaches FI may revoke authorization; under threat of revocation FI can secure removal of persons on board or managing director who fail IFA requirements. - Revocation required in specific cases: i) authorization obtained by false information or undue manner; ii) fails within one year from granting to commence operations; iii) has declined the authorization; iv) fails during six consecutive months to conduct operations covered by authorization. FI may issue warning instead of revocation in cases i, ii, iv. - FI can order fines for delayed information provision. - Ongoing supervision and reporting: - FI conducts ongoing supervision and may request any information and conduct on-site inspections at any AMC, custodian, or outsourced third party. - AMC must present holdings list for each CIS at any time; Swedish UCITS must provide this list to FI quarterly; Swedish non-UCITS on a date set by FI. - Swedish non-UCITS must calculate and report non-UCITS' risk level as per last day of every month. - AMC required to submit quarterly, semi-annual, and annual reports without delay and maintain records for at least five years. - AMC must report management changes to FI and any material business-plan changes; fund rule changes must be approved by FI prior to entry into force. - Conflicts of interest, conduct, and outsourcing: - AMC required to have internal instructions for handling conflicts of interest; conflicts disclosed in business plan. - IFA rule: management must not be delegated to the custodian or an entity whose interests could conflict with AMC or unit holders. - FI’s regulations cover ethical matters and related party transactions and include general guidelines on remuneration policies. - No explicit IFA/FI provisions on best execution, appropriate trading, churning or underwriting, but FI can intervene under general obligations and sound business operations; explicit rules to be introduced with UCITS IV in July 2011. - Auditor of an AMC must immediately notify FI if aware of facts that may constitute a regulatory violation. - AMC required to act exclusively in common interest of unit holders; AMC may not hold fund property, act as guarantor, or take/give cash loans. - Custodian must act independently and exclusively in common interests of unit holders; FI recently fined two custodians for inadequate internal controls, one case resulting in fund management company overcharging unit holders for several years. - Outsourcing permitted under conditions: delegation must not relinquish core operations or impede protection of unit holders; third party must have suitable knowledge/skills; AMC must reserve right to monitor, issue instructions, and immediately terminate agreement if in common interest of unit holders. - Delegation requirements set forth in FI’s regulations; AMC must inform FI of delegation arrangements and submit agreement for prior review; FI may order amendments if agreement violates IFA or impedes effective supervision. - Delegation does not affect AMC responsibility under IFA; AMC must establish processes to assess service provider performance and have expertise to monitor delegated activities. - Information on delegation disclosed in AMC business plan and full prospectus, including service provider expertise, significant activities, and circumstances that may give rise to conflicts of interest. - Marketing and distribution: - "Marketing" in Sweden means distributing information and marketing material; this exclusive meaning is supervised by the Consumer Protection Agency and not FI. - "Marketing" in sense of selling, distributing, or acting as intermediary for a CIS is subject to authorization/licensing. - An AMC can distribute third party funds after license to perform certain services (in-sourcing). - Swedish securities company, credit institution authorized under SMA, or foreign securities company with a branch in Sweden can distribute CIS units per SMA (MiFID implementation). - Distribution normally requires a license for execution of orders (if order sent directly to AMC) or reception and transmission of orders (if order sent via another intermediary). - SMA enables securities companies established within the EEA to conduct securities business in Sweden on a cross-border basis. - Insurance brokers can distribute investment fund units under Insurance Brokers Act as an ancillary service requiring a license from FI available only to brokers licensed to mediate life insurance; no capital requirements but must have indemnity insurance covering sale of investment funds (covering professional negligence) and demonstrate sufficient competence; insurance brokers may not handle client funds or fund units and must pass orders directly to AMC. - International cooperation and cross-border marketing: - As EU member state, cooperation provisions with other EEA states follow UCITS III Directive. - IFA requires FI to consult competent authorities in other EEA states in certain authorization situations (e.g., AMC subsidiary of entity in another EEA state). - Foreign UCITS may be marketed/sold in Sweden following notification to FI; no license required but UCITS must ensure payments, redemptions, and provision of required information in Sweden; UCITS IV (July 2011) introduces new notification/documentation procedures via home state regulator. - Foreign non-UCITS require FI license to be marketed/sold in Sweden, subject to conditions: i) similar business in home state; ii) subject to supervision in home state and competent authority consent; iii) effect necessary measures to make payments, redeem units, and provide required information in Sweden; v) planned operations in Sweden compatible with IFA and other legislation. - IFA contains provisions on delegation of fund management to foreign entities provided delegated company is supervised and authorized; for non-EEA entities FI must be able to establish satisfactory cooperation with home authority; provisions for international cooperation in case of IFA violations by foreign AMC/CIS operating in Sweden. - Assessment: Partly Implemented. - Comments: Four reasons for significant downgrade cited; first reason noted: - Regulation of insurance intermediaries marketing CIS is inadequate and too easy to obtain a license. There are 565 such entities, out of a total insurance intermediary sector of around [text truncated in source]. *Italic: Content derived from the specified IMF source PDF.* ### 1000. They are mainly very small firms. The numbers are growing. They are largely unsupervised ### _cr11283 - 1000. They are mainly very small firms. The numbers are growing. They are largely unsupervised ### Risks and market conduct in fund distribution - Large population of mainly very small intermediaries that are largely unsupervised for this activity. - These intermediaries: - Are not required to provide quarterly reports. - Are not required to have capital but carry PII for claims of professional negligence. - Rely on customer complaints to indicate problems. - Prevalent misconduct: - Fraud is not uncommon. - Product bias where the intermediary recommends the fund which pays the highest (undisclosed) fee. - Regulatory response under consideration: - FI is attempting to strengthen licensing requirements under existing legislation. - FI has proposed legislative change to end commission based sales and to move the industry to a transparent advisory fee based system. - Specific exploit in Sweden: - Emergence of fund salespersons exploiting a Swedish interpretation of the UCITS directive that allows for marketing (advertising) of a CIS without a license. - Activity involves recommendations and sales but not handling purchase funds; investors are invited to send funds to an address outside the jurisdiction. - Unregulated nature means no safeguards on suitability or quality of funds sold. - Sweden plans to strengthen the wording of the IFA so that any kind of marketing of a CIS in Sweden will require a notification or license. ### Supervisory capacity, activity and constraints - Investment funds supervision department resourcing and scope: - Investment funds supervision department consists of seven people (there are 10 in licensing fund managers and funds). - They supervise 83 AMC, the 565 insurance intermediaries, and, in cooperation with colleagues in the securities department, 23 investment firms that manage non-UCITS. - Inspection history and current capacity: - Last industry wide inspection program was undertaken three years ago and uncovered significant numbers of breaches. - With current resources the department finds it difficult to carry out more than 10 AMC specific inspections in a year. - The department’s goals: - Visit new funds within one year. - Visit 10–20 AMCs a year on theme based inspections. - Meet all fund management companies once a year (not a formal inspection, but takes place at the AMCs office). - Licensing and approvals workload: - The department handles between 5 and 10 new fund management company applicants a year, each of which takes around 20 person days to process. - There are on average 20–30 new funds a year where the FI has to approve the prospectus and fund rules. - Subsequent changes to fund rules must also be approved by FI. - Inspection triggers: - Most inspections are initiated by FI based on its risk assessment process. - Inspections also arise from themed visits, external events, on-going reporting data, complaints from the public, firms’ self-reporting breaches, or external auditors reporting as required under the law. - FI exploring mechanisms to improve the system as current mechanisms have not been working as intended. ### Use of administrative sanctions and notable enforcement cases - Example of self-reported overcharging: - Two years ago the largest fund management company in Sweden notified FI that it had significantly overcharged clients in two funds over a period of 2.5years. - The company repaid clients Skr 540million. - FI decided not to fine the AMC because it rectified the breach. - This decision indicates a significant weakness in FI’s use of administrative sanctions. - IOSCO requires that there be effective, proportionate and dissuasive sanctions for violation of CIS operator obligations. - Commentary: even the maximum permitted fine of SKr 50 million would have had a minor impact on the company given the total cost of restitution and the company’s annual revenues of SKr 4 billion or more, but would have signaled serious enforcement intent. - The case led to a modest fine on the custodian; the initial investigation of the custodian was initiated due to its failure to detect the overcharging, and the main reason for sanction and fine was failure to fulfill supervisory duties according to the IFA. - Custody deficiencies and fines: - FI recently fined two of the big four banks for deficiencies in their custody departments. - Fines were SKr 2.5 million and 3.5 million respectively. - Findings included that one bank had not exercised independent and sufficient control over assets of one of the bank’s own fund management companies for several years, and in another case assets of a number of funds were not controlled at all for a period of one year. - These fines do not appear sufficient to be a deterrent. - FI’s position on custodian independence: - FI’s official position expressed to the EU Commission is that intra-group relationships between a UCITS custodian and a management company create conflicts of interest that make it difficult for the custodian to act independently and solely in the interests of unit holders. - FI believes the issue should be resolved through a new provision in the UCITS directives to the effect that a custodian should not be affiliated with the management company of a UCITS. ### Legal form, segregation, disclosure and valuation requirements (Principles 18–20) - Principle 18 — Legal form and asset segregation - Description highlights: - Fund rules must state legal status (Swedish UCITS or Swedish non-UCITS) and that net fund assets are owned by unit holders jointly. - AMC represents unit holders; fund cannot acquire rights or assume obligations. - Fund rules must be attached to the full prospectus; full prospectus must include additional information for assessing risks and a clear description of the risk profile. - FI approves fund rules and is responsible for ongoing supervision of AMCs and investment funds. - Amendments to fund rules must be approved by FI; FI may require unit holders be informed and may delay application of amendments up to three months. - AMC may not hold fund property; custodian must keep assets segregated and act independently and solely in best interest of unit holders. - AMC required to have an auditor; FI entitled to order auditors to participate in audit. - Reporting timelines: - Annual report within four months of financial year end. - Half-yearly report for first six months within two months following expiry of the half year. - Management of investment fund shall immediately be taken over by the depository where: i) FI has revoked the authorization of the AMC; ii) the AMC has been placed into liquidation; and iii) the AMC has been placed into insolvent liquidation. - Assessment: Broadly Implemented - Comments: - FI fined two big four banks (fines SKr 2.5 million and 3.5 million) for custody deficiencies; fines seen as insufficient deterrent. - IOSCO requires custodian independence or special legal/regulatory safeguards. - Principle 19 — Disclosure for suitability and valuation of investor interest - Description highlights: - AMC shall maintain a full prospectus and a simplified prospectus for each investment fund. - Full prospectus shall contain fund rules, information to assess the fund and risks, a clear explanation of risk profile, and information about delegation arrangements. - Simplified prospectus shall present basic information in a readily understandable summary and be attached to the full prospectus. - Required content includes types of assets, whether derivatives may be used, investment focus, and whether fund value may vary significantly due to composition or management methods. - AMC must confirm in writing to each unit holder the registration of fund holding and where documents are available. - Each year AMC shall inform unit holders in writing of total costs for the fund in the immediately preceding year, specifying management costs including depository costs. - Simplified prospectus content includes AMC authorization details, targeted investor profile, investment policy, risk profile, historic performance, tax rules, fees, dividends, publication of unit value, sale and redemption of units. - No requirement that prospectuses contain audited financial information; annual report must include audited financial information. - Full and simplified prospectuses and latest annual report/half-yearly report shall be provided free of charge to any party intending to purchase units. - With UCITS IV implementation there will be rules requiring the full prospectus to state the date of issuance. - FI can intervene in offerings that violate fund rules, the IFA, FI’s Regulations or other legislation; prohibitions on false or misleading advertising are in the Marketing Act 2008. - Assessment: Fully Implemented - Principle 20 — Asset valuation, pricing and redemption - Description highlights: - Fund value calculated according to principles in the fund rules; assets valued on market value basis. - AMC must regularly, and not less than once per week, calculate and publish the value of units of its UCITS. - Non-UCITS must at least every month calculate and publish an indicative NAV if not open for redemptions/subscriptions every month. - FI’s regulations state how NAV should be calculated; rules are in accordance with high-quality, accepted accounting standards. - Guidance for unlisted securities: value at market price; valuation by independent and competent persons according to consistently applied pre-defined principles; valuation should not be performed by those responsible for management or by using acquisition price. - Fund rules must include valuation principles for non-listed financial instruments and OTC-derivatives; fair valuation using objective grounds is minimum where market prices unavailable. - AMC auditors review accounts forming the basis of the annual report; FI may appoint auditors to participate. - IFA states unit value = value of fund assets divided by total number of units; fund rules must state principles for calculation of sales and redemption price and whether fees apply. - New and more explicit rules on valuation will come into force with UCITS IV implementation in July 2011. - Pricing errors are investigated by FI and normally lead to AMC compensating unit holders for losses. - Fund rules shall state that the investment fund may be closed for entry and exit in extraordinary circumstances preventing valuation that ensures equal treatment; FI must be notified and may take action. - Assessment: Fully Implemented ### Market intermediaries and minimum entry standards (Principle 21) - Regulatory framework and authorization: - Authorization from FI required to conduct securities business under the SMA (implements MiFID). - SMA covers dealing in transferable securities, money market instruments, fund units and financial derivatives, transmission and execution of orders, managing financial instruments, advising on financial instruments and handling investor funds. - Exemption for insurance intermediaries who provide advice only on units in CIS. - FI performs comprehensive “fit and proper” assessments of owners and senior management using information from Swedish National Police Board, Data AB, Swedish National Tax Board and foreign supervisory authorities for foreign citizens. - Assessment includes proficiency requirements, industry knowledge, skill and experience. - Initial capital requirements are set out in the SMA. - Applicants must submit written information on internal controls, risk management and supervisory systems and identify potential conflicts of interest; deficiencies must be corrected before authorization. - FI has power to refuse authorization; authorizations can be refused subject to administrative or judicial review. - Reporting and ongoing obligations: - Firms must inform FI immediately upon qualifying holding changes (qualifying holding = 10 percent or more of capital or votes or otherwise significant influence). - Management changes must be reported immediately; firms must register changes with the Swedish Companies Registration Office. - SMA mandates revocation of authorization where board members or managing director do not fulfill requirements, after notice and remediation period up to three months; FI may instead order removal or appoint a replacement. - Material events as defined in FI guidance must be reported (events that may affect ability to fulfill obligations to customers, cause significant financial damage to many customers, or cause significant bad will). - Unauthorized conduct requiring authorization: FI will order cessation. - Public availability of licensing information: - Information on existence of a license, its category and status is available on FI’s website. - Additional information on scope of permitted activities and identity of senior management and authorized individuals available online via Swedish Companies Registration Office (electronically connected). - Conduct supervision and recordkeeping: - FI monitors, investigates and enforces securities laws and regulations on market abuse, representation of material information, prospectus, marketing, insider notice requirements, and enforces sections of the Financial Advice to Consumers Act (2003). - Entities wishing to provide investment advice must seek authorization as a securities firm under the SMA and submit to all related rules including segregation of client assets. - SMA requires securities firms to maintain records of all investment services, ancillary services and transactions to enable FI monitoring. - FI regulations include clear and detailed requirements for client disclosures (investment strategies, fee structure, other client charges, potential conflicts of interest, past investment performance) and competence requirements for advisors. - If an advisor has been sanctioned by FI that information is available on FI’s website. - Assessment and supervisory capacity constraints: - Assessment: Partly Implemented - Primary downgrade drivers: - Insufficient supervisory resources. - Problems with insurance intermediaries giving advice on securities to retail investors without authorization under the SMA. - Licensing process and monitoring: - Licensing is handled by a legal department and appears thorough. - A new license can take around 150 hours to process over five months. - All applicants must attend at FI’s office but not all are subject to on-site inspection during the process; large firms with potential conflicts will be visited. - Department aims to visit newly approved licensees within 12 months of license grant (licensees given 12 months to commence operations). - Four to five licenses are granted each year and seven to eight license extensions to new business are processed in that period. - Market structure and supervisory staffing: - Market dominated by the four largest banks which carry out 68 percent of the trading volume on NASDAQ OMX on their own account and for clients. - These banks are supervised prudentially in a separate unit; another 6 banks are supervised prudentially in a second unit, along with 140 nonbank securities firms. - The second unit has a staff of 5. - Conduct of business regulation is carried out across the board in one unit of 5 people. - These staffing numbers are assessed as too low for effective supervision. - Supervisory practice given constraints: - Within staffing limits, inspections and examinations appear thorough with detailed pre-visit planning and objective-based assessments. - Feedback to firms itemizes problem areas comprehensively and action is required and followed up. - Prudential supervision section visits large complex firms at least annually, and in some cases quarterly. - For the remaining 140 firms the aim is to visit them on average every [text truncated in source]. *Source: _cr11283 - 1000. They are mainly very small firms. The numbers are growing. They are largely unsupervised* ### 2.5 years. The department has introduced a risk based supervision approach to make the best use ### _cr11283 - 2.5 years. The department has introduced a risk based supervision approach to make the best use ### Risk-based supervision and supervisory capacity - The department has introduced a risk based supervision approach to make the best use of limited resources. - The risk assessment process is currently largely manual. - Conduct of business supervisors plan to visit 10–20 firms annually, either for cause or as part of a program of themed visits. - The department does not do regular on-site inspections. - Following the introduction of MiFID in 2007, the department reviewed all licensees in 2008/9 for compliance with key elements of the new legislation; this review resulted in several sanctions including one license revocation and established a baseline for subsequent risk based assessment. - FI has a cross-sectoral project to determine minimum levels of supervision, including on-site inspections, applicable to all licensees. - At current resource levels, major events can impose a serious strain on supervisory processes; following a recent major case FI is valuing securities marked to market across banks and non-banks to verify valuations, trading book/banking book allocations, and to encourage improved internal valuation procedures. ### Interface between the SMA and the Insurance Intermediation Act (retail investor risk) - Unless licensed under the more rigorous requirements of the SMA, an insurance intermediary is not permitted to give investment advice on shares, bonds, structured products or other complex financial instruments; insurance intermediaries may distribute product information and give advice with respect to CIS. - The dialogue accompanying product distribution by insurance intermediaries may appear to retail clients as investment advice; where an intermediary crosses the boundary into advice, it should be licensed under the SMA and be subject to SMA requirements (client suitability, product knowledge, competence) which are missing in the Insurance Intermediation Act. - There is no investor compensation scheme under the Insurance Intermediation Act for non-insurance products sold under the insurance intermediary exemption. - FI is undertaking a project to establish the extent to which products other than CIS (such as structured products and other high-commission complex instruments) are being sold in breach of the exemption from licensing under the SMA. ### Principle 22 — Capital and prudential requirements for market intermediaries - Initial and ongoing minimum capital requirements exist and are harmonized at EU level under MIFID and the Capital Requirement Directive (CRD); fully transposed into Swedish law via the Capital Adequacy and Large Exposures Act (2006). - Capital adequacy requirements address market, credit, liquidity, operational, legal (including reputational) risks and apply to on and off-balance sheet exposures. - Required capital increases with risk according to formulae set out in law; firms must identify, measure, control, internally report, and verify risks and maintain satisfactory internal controls. - Firms must have methods for continuous evaluation and maintenance of capital sufficient to cover nature and level of risks; methods must be evaluated to ensure full coverage. - Capital standards aim to allow an intermediary to absorb some losses and to wind down over a relatively short period without loss to customers or disruption of market order. - Firms required to maintain records enabling capital levels to be readily determined at any time; reporting basis data must be documented to enable FI oversight. - Reporting cadence: firms report own funds and capital requirements to FI on a quarterly basis no later than the twentieth banking day in the month after each balance sheet date; FI can require more frequent reporting. - Annual and semi-annual accounts are subject to audit by independent auditors; quarterly inclusion of current year profits in own funds requires verification by external auditors. - FI empowered to appoint auditors to participate in audits at the entity’s expense; external auditors must notify FI of facts that may constitute material violations or negative impacts on continued operations. - FI reviews capital levels via quarterly capital adequacy and large exposures reports and within the yearly Pillar II process and can add additional capital requirements. - Where legal obligations are disregarded FI can intervene: issue orders to limit operations, issue remarks or warnings, or revoke authorization for sufficiently serious violations. - Assessment: Fully Implemented ### Principle 23 — Internal organization and operational conduct - Authorization condition: adequate management and organizational structure and adequate internal controls. - Senior management must be of sufficiently good repute and experience and bears primary responsibility for legal compliance. - Requirements: maintain, monitor and regularly evaluate procedures and systems; have an internal audit function; appoint independent external auditor; FI access to reports and documents. - Client protection measures: segregation of client funds and securities unless client gives express prior consent; segregated assets excluded from estate of insolvent intermediary. - Insolvency: Swedish court appoints a liquidator at FI’s request to run winding-up; FI may allow continued securities activities during orderly wind-up to protect customers’ assets. - Client suitability and know-your-customer: intermediaries must obtain and retain client knowledge and experience before providing investment advice. - Client documentation and reporting: intermediaries must provide contractual documentation, reports on services and costs, and at least once a year an overview of instruments and funds held on behalf of the client. - Complaints handling: intermediaries must maintain effective and transparent procedures for prompt and reasonable handling of complaints. - Compliance, recordkeeping and retention: compliance function required; records of services and transactions retained for at least five years and accessible by FI. - Legal form and accounting: intermediaries must be limited companies and comply with general accounting and auditing provisions and specific intermediary requirements. - Conflicts of interest: intermediaries must take reasonable steps to avoid conflicts, act honestly, fairly and professionally, disclose nature/source of conflicts and keep records of conflicted services. - Many obligations derive from MiFID, which is fully adopted in Sweden; additional requirements for financial advisor education and documentation to retail investors apply to investment advice. - Assessment: Fully Implemented ### Principle 24 — Procedures for failure of a market intermediary - FI assesses all supervised Swedish entities at least yearly to ensure proper risk management and that capital requirements reflect risk exposure; firms expected to maintain large enough capital buffers to endure severe stress. - If a well-capitalized supervised entity becomes stressed it must inform FI immediately. - FI’s coordination: will alert the RB for liquidity facilitation and the NDO regarding deposit guarantee schemes. - FI’s possible measures regarding the entity: - demand closure of business areas; - demand that a quoted entity inform the stock exchange of its situation; - revoke licenses or temporarily take over control (preferably with NDO); - conduct an impact study before significant action to evaluate consequences to market, owners and customers (mandatory). - FI makes information on actions available to the public by website publication and press release. - FI has successfully handled several major intermediary failures in cooperation with other authorities and overseas in the last three years (examples cited include Carnegie Investment Bank and the situation in the Baltics in 2008). - FI powers include orders to limit operations, orders to reduce risks within a time period, and prohibition on decision taking. - FI cannot apply for firm bankruptcy but may request District Court to appoint an administrator for unrepresented shares/participating interests; District Court in place of residence or Stockholm District Court adjudicates. - Administrator compensation: paid by owner and may be advanced by undertaking; court determines compensation if payment liability is disputed. - Deposit insurance (Deposit Insurance Act): state-provided guarantee managed by the NDO; since October 2008 covers all types of accounts; compensation up to Euro 50,000 per customer if a financial institution goes bankrupt. - Investor Compensation Act (EC directive 97/9/EC): covers securities handled by certain securities companies and related funds; customers may be compensated up to SKr 250,000 per institution. - FI, RB and MoF have an MoU on crisis management (communication and cooperation) mentioning financial disruption scenarios. - Additional MoU (2008) on cooperation among financial supervisory authorities, central banks and finance ministries of the EU on cross-border Financial Stability — FI is a signatory. - FI required under SMA to cooperate and exchange information with competent authorities consistent with MiFID and the Transparency Directive; FI must provide or verify information following request from another EEA authority and allow presence at inspections. - Supervision MoUs exist for Swedish institutions with significant foreign activities (e.g., Nordea Bank, NASDAQ OMX); no formal MoU with the US SEC despite NASDAQ OMX ownership links. - Regular scenario/stress tests carried out together with RB and at Nordic level. - Assessment: Fully Implemented ### Principle 25 — Authorization and oversight of trading systems and exchanges - Licensing and supervision of exchanges and trading systems has become broader and more complex since 2001. - Market structure: three securities exchanges (RMs) in Sweden; several MTFs (including two operated by stock exchanges); one dark pool (operated by a stock exchange); several large banks use internal crossing networks. - Authorization by FI required to operate an MTF or stock exchange per MiFID; authorization for an RM requires suitability of qualified holders and suitability of board/management. - Operators of MTFs follow procedures applied to securities firms; exchange operator can also operate an MTF. - Under the SMA exchanges must conduct business honestly, fairly and professionally, and maintain public confidence. - Exchange principles required: free access, neutrality, and effective transparency (prompt, contemporaneous, correct information). - Exchanges/MTFs must maintain rules for trading, dispute resolution and appeal procedures, operational failure procedures, and satisfy FI on system performance re: transparency and confidentiality. - Application requirements include record keeping, reporting mechanisms for suspected breaches, clearing and settlement descriptions, mechanisms to identify and address disorderly trading, trading halt procedures and cooperation with FI in trading disruption. - Exchanges required to have a Disciplinary Board; FI regulations govern immediate reporting of trades indicating insider dealing or market manipulation; FI submits such reports to public prosecutor as soon as possible. - FI may inspect exchanges on-site and requires access for monitoring trading and price trends. - Exchanges must monitor trading via technological systems that continuously and in real time register price and turnover fluctuations and signal deviant trading patterns; threshold values for deviant patterns must be defined per market/instrument. - Ongoing FI supervision verifies compliance with SMA and applicable regulations and FI can intervene for disregarded obligations. - No separate approval process for admission rules; admission verification is part of authorization and supervision; instruments must meet admission requirements for fair, orderly and efficient trading and free negotiability for transferable securities. - Assessment: Broadly Implemented - Comments on limitations: - Authorization provisions applied to trading systems operated by some large banks do not fully meet Principle 25 transparency requirements: internal crossing networks are not subject to pre-trade transparency as MTFs would be, nor to systematic internalizer classification. - FI has not established formal procedures for review of new derivatives contracts prior to launch; exchanges inform FI and FI requires case-by-case risk assessments and legal opinions. - FI does not review or analyze performance of trade matching or execution algorithms of automated trading systems. - Exchange license revocation is difficult in practice but has been used in one small exchange case, leading to a change in ownership. ### Principle 26 — Ongoing regulatory supervision of exchanges and trading systems - Market surveillance is carried out day-to-day by surveillance functions at RMs, MTFs and by investment firms organizing trading; surveillance functions are subject to conflict of interest rules and supervised by FI. - Supervision activities include quarterly meetings to gather information and verify compliance and inspections of surveillance functions; ad-hoc measures follow notifications about rule changes and incident reporting. - Pre-trade information is available from public sources (e.g., Reuters); more granular pre-trade data is requested from RM/MTF when needed. Post-trade information is available from FI’s transaction reporting system. - FI does not approve rulebook changes but can require rule changes to be submitted and can demand amendments if non-compliant; FI has not used its right to prescribe regularly reported information and instead collects information informally. - FI sanction powers against RM/MTF: - require corrective action or refrain from taking a decision; - issue a warning combined with a penalty fee for serious breaches; - revoke authorization. - Securities exchanges must immediately notify FI if they suspend trading due to unequal information access or insufficient issuer information; FI will then decide whether suspension should continue and may order suspension without prior exchange decision. - Assessment: Fully Implemented - Comments: - Exchanges in Sweden (e.g., NASDAQ OMX) have extensive self-regulatory remits covering issuer scrutiny, listing, information obligation monitoring, financial reporting monitoring, and adherence to Swedish Corporate Governance Code; this multiplicity of roles raises accountability questions relative to FI. - NASDAQ OMX Surveillance functions: Issuer Surveillance (IPO scrutiny, listing, monitoring issuer information and financial reporting, corporate governance monitoring) and Trading Surveillance (maintain fair, efficient trading; IT monitoring with alarms; powers to correct trading data, annul transactions, stop trading). - The exchange provides training and advice to listed companies and trading members; would not object to transfer of issuer financial reporting monitoring to another body; exchange does not monitor/enforce Corporate Governance beyond “comply or explain” approach. ### Principle 27 — Transparency of trading - Transparency requirements follow SMA and FI Regulations, aligned with MiFID; Commission Regulation (EC) No 1287/2006 sets detailed equity transparency requirements directly applicable across EEA. - Pre-trade transparency: - Continuous auction order book systems must publish aggregate number of orders and shares at each price level for the five best bid and offer price levels throughout normal trading hours. - Quote-driven systems must publish best bid and offer by price of each market maker in that share and attached volumes throughout normal trading hours. - Post-trade transparency: - Investment firms, RMs and MTFs must publish security, time of trade, price and quantity as soon as possible and on reasonable commercial terms. - MiFID derogations permit delayed publication for large trades or trades large relative to normal market size. - Sweden requires investment firms to make public transactions in shares not admitted to trading on an RM (going beyond MiFID). - No pre-trade transparency requirement for debt securities under MiFID; RMs/MTFs must publish post-trade aggregated quantities by debt security on a daily basis. - FI implemented MiFID Article 25 requiring investment firms trading in securities admitted to trading on an RM to report trade details to FI on T+1, whether or not trades were on an RM; this provision includes debt securities. - FI receives ESMA reports of trades in Swedish securities executed outside Sweden when FI is determined to be regulator of the most liquid market. - Assessment: Broadly Implemented - Comments and concerns: - Transparency fragmentation post-MiFID has made it more difficult for investors, particularly institutional investors, to determine best execution. - Swedish dark pool (NASDAQ OMX) is limited to large orders to avoid market impact; banks’ internal crossing networks execute regular sized client orders without market exposure, risking a two-tier market and potential regulatory arbitrage to avoid MTF or systematic internalizer classification. - Dark pools and bank crossing networks are required to publish executed trades, but pre-trade opacity and high-frequency trading (bids/offers visible only to computers) raise transparency challenges. - Exchanges have adopted price/member firm/time prioritization to enable banks to capture both sides of trades in the exchange order book, potentially limiting third-party execution opportunities. - Ongoing MiFID review and lack of effective consolidation of post-trade information in Europe underpin the “broadly implemented” assessment. ### Principle 28 — Detecting and deterring manipulation and unfair trading - Sweden has fully implemented the Market Abuse Directive; market/price manipulation, misleading information, insider dealing and front running are offences under the Financial Instruments Trading (Market Abuse Penalties) Act; fraudulent conduct is criminal. - Reporting of trades by persons with insider status covered by the Act concerning Reporting Obligations for Certain Holdings of Financial Instruments; administrative sanctions apply to notification/disclosure breaches and FI fines late reporters. - Securities firms and exchanges must report suspicious transactions to FI; FI can fine securities firms for trading that undermines market confidence and can order cessation of trading or, in extreme cases, withdraw a license. - Day-to-day real-time trading supervised by stock exchanges and trading venues; FI conducts direct surveillance of national trading venues but not direct real-time surveillance. - All firms must report transactions in securities admitted to trading on an RM or MTF and other trades to FI for database entry; FI supervises reporting correctness. - FI is implementing a fully automatic system (FI’s largest ever IT project) to monitor trades; staff analyze trade data and forward aberrant patterns for further investigation; Suspicious Trading Reports (STRs) from RMs, MTFs and firms are sent directly to the NECB. - Cooperation: although venue numbers have grown, surveillance cooperation arrangements among venues have not developed; FI compiles information and coordinates; FI participates in Urgent Issue Groups (UIG) in EEA and MoUs. - Market abuse enforcement is criminal-only; FI refers suspected criminal-purpose trades to the NECB. - Prosecutions (by year and persons): - 2002 – 2 (3 persons) - 2003 – 0 - 2004 – 1 (1 person) - 2005 – 3 (7 persons) - 2006 – 3 (7 persons) - 2007 – 5 (11 persons) - 2008 – 4 (6 persons) - 2009 – 8 (15 persons) - 2010 – 0 - Sentencing: prison sentences can range from fourteen days to four years; guilty parties can be ordered to disgorge profits. NECB notes that most insider judgments result in suspended sentences and a fine; maximum fine amounts: - SKr 150,000 or (SKr 200,000 (EUR 22,000) for multiple offences). - Assessment: Partly Implemented - Rationale for downgrade: - Sanctions for violations are assessed as not sufficiently effective, proportionate and dissuasive (key question 2(b)). - Suspended prison sentences and maximum fines (up to EUR 22,000 for multiple offences) may not be dissuasive or proportionate relative to potential gains from insider dealing. - NECB success rate: successful, fully or partly, in 79 percent of cases brought over the last ten years, but prosecutorial challenges include lack of documentary evidence, coded communications, and limits on phone-tap evidence utility. - Despite investigative difficulties, NECB has a good record of prosecutions; collateral costs of convictions (employment prospects, licensing) may add deterrent value. - Additional recommendation: - Steps should be taken to require cooperation between exchanges and between exchanges and MTFs; current secrecy provisions should be repealed to improve cross-market surveillance and efficiency. ### Principle 29 — Management of large exposures, default risk and market disruption - Settlement Finality Directive implemented via Act on Settlement Systems (1999); CCPs must satisfy FI that they meet Directive requirements to obtain benefits. - Large exposures risk addressed in the Capital Adequacy and Large Exposures Act implementing the Capital Requirements Directive for banks and nonbank investment firms. - Settlement typically T+1; CCPs monitor unsettled trades; trades rejected by CCP/CSD are settled bilaterally; non-settled transactions governed by RM/MTF rules. - FI does not monitor open positions directly but can require full position information; market authorities have powers to act under their rules. - CCPs and CSD do not exchange information between themselves; FI can access necessary information at short notice and share where MoUs exist. - Default procedures exist in CCP public rules; CSD does not have a default procedure of the same type; transactions approved for settlement into CSD clearing are not affected by participant default per public rules. - Netting acceptance: Financial Instruments Trading Act (1991) provides that final settlement agreements in event of insolvent liquidation are valid against the estate and creditors if settlement occurred per system rules. - Assessment: Fully Implemented ### Principle 30 — Oversight of clearing and settlement systems - A separate CPSS-IOSCO assessment was conducted for futures markets; securities markets (shares and bonds) arrangements were not assessed in this report. - FI notes radical improvements in NASDAQ OMX clearing and settlement for cash bonds and equities since 2001, including moving from net to gross systems. - Clearing and settlement system is now owned by Euroclear; there is a CCP for top tier stocks (ECMF) based in the Netherlands; FI has a MoU with the Dutch regulator on this arrangement. - Assessment: Not Assessed *Source: _cr11283 - 2.5 years. The department has introduced a risk based supervision approach to make the best use* ### 41. This is a fundamental part of FI’s mandate. According to the 2009 Ordinance which ### _cr11283 - 41. This is a fundamental part of FI’s mandate. According to the 2009 Ordinance which ### FI mandate, duties, and cooperation - FI has a particular responsibility for monitoring and analyzing development in the area of its responsibility under the 2009 Ordinance which gives high level and continuing instructions to FI. - If the authority sees a risk that instability in the financial sector could adversely affect the functioning of the Swedish financial system, FI should notify the Government. - FI is required to cooperate with the RB and the Swedish Civil Contingencies Agency on issues relating to the Crisis Management and Enhanced Preparedness Ordinance. - The Regulator should have or contribute to a process to review the perimeter of regulation regularly. - FI must promote a stable and sound financial system and Endeavour to ensure solid consumer protection in the financial system (explicit obligation in the 2009 Ordinance). ### Conflicts of interest, incentives, and supervisory responsibilities - The Regulator should seek to ensure that conflicts of interest and misalignment of incentives are avoided, eliminated, disclosed or otherwise managed. - Numerous references in the law and FI regulations require licensees, including securities exchange, to identify, properly manage and disclose conflicts of interest; this is a core element of FI’s licensing and supervisory work. ### Auditors and audit standards - Auditors should be subject to adequate levels of oversight. - Auditors should be independent of the issuing entity that they audit. - Audit standards should be of a high and internationally acceptable quality. - FI notes that the three new Principles on Auditors are essentially an unbundling of accounting and auditing standards in the current version of the Principles; Sweden was assessed as meeting the required standard. - FI does not believe that application of the new draft Methodology would lead to any change in that assessment. - Reference made to discussion under Principle 16 above. ### Credit Rating Agencies (CRAs) and oversight - CRAs should be subject to adequate levels of oversight. The regulatory system should ensure that credit rating agencies whose ratings are used for regulatory purposes are subject to registration and ongoing supervision. - CRAs in Sweden are subject to registration and oversight pursuant to the EU Regulation on CRAs (Regulation (EC) No 1060/2009), which is directly applicable to national European member states. - The Regulation stipulates that oversight of CRAs and supervision of compliance is performed by the competent authorities of the concerning Member. - There are no CRAs in Sweden. According to FI, the trend among CRAs, presumably caused by pan EU regulation, is to concentrate their business in one or two locations; London is generally the preferred choice. ### Other providers of analytical or evaluative services - Other entities that offer investors analytical or evaluative services should be subject to oversight and regulation appropriate to the impact their activities have on the market or the degree to which the regulatory system relies on them. - FI notes that to date IOSCO has only provided one example of such an entity. - Such an entity would have to be licensed as an investment firm under the SMA and have received an ancillary permission from FI to carry on the business of providing investment research and financial analysis or other forms of general recommendations relating to transactions in financial instruments. - Such a firm is covered by the law and FI Regulations covering conflicts of interest and general guidelines relating to investment recommendations directed at the general public. - If a company wishes to provide only such ancillary services it could not be licensed under the SMA, but it would be subject to FI Regulation and supervised under the Financial Instruments Trading Act 1991. - Regulations cover requirements that the person producing, and with responsibility for, the investment recommendations be identified; requirements on the presentation of such recommendations; requirements regarding conflicts of interest; and requirements on the dissemination of investment recommendations produced by a third party. - Issues related to risk are assessed as part of FI’s normal risk assessment process. ### Hedge funds and managers - Regulation should ensure that hedge funds and/or hedge fund managers/advisers are subject to appropriate oversight. - Hedge funds and their managers are not subject to a customized regime nor has Sweden (like IOSCO) attempted to define a hedge fund. - Such funds and their managers fall within the regime for special funds (i.e., non-UCITS). - The current licensing regime for special funds and their managers, as described in the current IOSCO Principles 17–20 on CIS, applies. - FI believes that the current regime is compliant with the new methodology. *Source: _cr11283 - 41. This is a fundamental part of FI’s mandate. According to the 2009 Ordinance which* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11283.pdf_