SWEDEN - The financial regulator Finansinspektionen (FI) has called on Stockholm-based Carnegie bank to replace its chief executive.

FI sees "serious deficiencies" in the bank's governance and control of its operations.

"In light of its findings, there is sufficient cause for FI to take action against the bank by either revoking its licence or issuing a warning," the regulator said.

For now it has opted to issue a warning and demands the replacement of chief executive Stig Vilhelmson, who took the role in spring last year, as well changes to the board of directors.

The bank's external nomination committee - which includes representatives of Swedish fund managers and banks as well as Ossian Ekdahl, head of corporate governance at the first national buffer fund AP1 - has called for an extraordinary general meeting on new board appointments.

Carnegie will also have to pay the maximum financial penalty that FI can impose - SEK50m (€5.4m).

"FI states that governance of the operations has been contradictory and the bank's internal rules have been incomplete," the regulator stated.

"The control functions have been significantly undersized in relation to the scope and risk of the operations," the supervisor continued.

Furthermore, "allocation of responsibility has been unclear" and "important review assignments have been allocated to persons lacking sufficient competence to carry out the task".

The FI also saw the bank's annual reports for 2005 and 2006 presenting "incomplete information with regard to trading operations".

No comment from Carnegie was received before deadline.

Carnegie's asset management unit won a pure alpha equity overlay mandate with the Swedish default fund AP7 in July.