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Swedish financial system faces 'significant challenges'

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  • Swedish financial system faces 'significant challenges'

SWEDEN - The Finansinpektionen (FI) has warned while the Swedish financial system has "fared well" in the current market environment, there is "no guarantee" the firms it supervises will not suffer difficulties.

In its interim report for the first half of 2008, the Swedish Financial Supervisory Authority, revealed the Swedish financial system could face "significant challenges" in the near future.

It pointed out the "second round effects" of the international financial turbulence have started to appear over the last few months as growth has slowed and shares and real estate have fallen in value.

In addition, the report noted evidence indicates the business cycle of the Baltic countries is decelerating, while inflation and short-term interest rates in Sweden and other countries are rising.

The Finansinpektionen admitted it sees "a number of events" that could negatively affect financial companies and consumers, several of which "can continue to develop over the coming months".

However, the organisation said: "Our assessment is that the Swedish financial system is well-placed to deal with much worse times", and added Swedish consumers are "generally judged to have received information that gave them the opportunity to create a view of the risks and potential of the financial products they use".

That said, the report admitted this is "no guarantee that everything has gone right everywhere and that no consumers will be affected by unexpected financial losses, or that none of the 3,700 financial firms under the FI's supervision will suffer from difficulties".

The report predicted the development of "various kinds" of visible problems and irregularities "to a greater extent than normal", which creates a risk that in the near future the FI will need to spend more resources on "reactive enforcement" - dealing with problems that have already occurred - which in turn could affect ongoing and planned regulation and enforcement.

The report claimed turbulence in the financial markets has not meant the FI has had to "reduce the levels of ambition" regarding preventative work, and confirmed it had been able to perform the tasks the government had set out for the FI in its regulations. 

But it admitted the main threat to the FI's ability to handle an increased caseload is the availability of qualified employees, as staff turnover in the first half of 2008 remains high, at 15% compared with 17% in 2007, and as a result it warned "in some areas the FI would have difficulties in parallel pursuit of two or more complex cases".

In the first six months of 2008 the FI has so far employed a range of sanctions, including banning one firm, withdrawing the authorisation of another company, issuing warnings to six businesses and notes and penalties to two firms, as well as issuing fines in 49 other cases. 

Going forward, however, the report noted the FI will focus for the rest of 2008 on following up the new authorisation regulations on the securities market, as well as make preparations for Solvency II, review the advice of complex products and focus on new products and conditions.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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