Credit market companies and consumer protection

In total there are just over 60 credit market companies in the Swedish market. This is a very heterogeneous group of firms in which some are owned by other, larger, firms, oil companies for example, or are part of banking groups. Other credit market firms are run as privately owned, small firms that are independent from other companies. Their business approaches also vary, some have a relatively wide range of financial services while others specialise in specific products or markets. Their risk profiles also vary considerably.

Thirteen of these credit market firms have permission to receive deposits and it is these firms that are covered by this review. There are also very great differences between these thirteen firms. The focus of the investigation has been on management and control, credit risk, capital adequacy, large exposures and issues such as audits and reporting to FI.

There are primarily two important positive conclusions to be drawn from the review that has been undertaken:

• Firstly we have not identified any cases of dishonest businesses among the firms reviewed
• Secondly we have not identified any cases where there is an acute threat to a firm's financial position and savers' money.

Most of the credit market companies which were investigated are well-capitalised and the risk of major losses that would be greater than the capital buffer is currently small.

On the other hand several of the firms have limited liquidity reserves, which means that a run by depositors caused by rumours would be difficult to manage. If companies defaulted, client losses would certainly be covered by the deposit guarantee, however, from a societal and supervisory perspective, this is obviously not satisfactory. For this reason FI will monitor developments in these firms and require good liquidity management and a healthy balance between capital and risk.

The investigation uncovered shortcomings in governance and internal control, risk management, reporting to FI and information to customers regarding the deposit guarantee. These shortcomings were not such that they threatened the stability of the firms, but did mean that the firms' control of their business activities was not as good as could have been wished. Taken individually these shortcomings are not overly serious and most firms remedied them in the course of the ongoing investigation. Even so FI has appointed special auditors to particular firms where there is reason to strengthen supervision. These are Svea Ekonomi, Flexil Finans, Exchange Finans and Collector.**

In addition FI will continue its discussions with the ordinary auditors regarding their obligation to report to FI.

FI considered the shortcomings brought to light for one firm so significant that they have resulted in sanctions. By improperly withdrawing capital from the firm, Exchange Finans has broken the regulations of the Swedish Companies Act regarding unlawful value transfer. This firm has also fallen below the minimum requirements for own funds, and de facto conducted banking operations without having the proper licence for this activity. This has resulted in Finansinspektionen applying a warning and a financial penalty of SEK 500,000. A more detailed account of this decision can be found at www.fi.se.

*Swedish legislation allows since 2004 other credit institutions (credit market companies) than banks to take deposits. In an international perspective this is quite unique, since in most countries, banks are the only institutions that are allowed to take deposits.

**Investigations into Collector and AK Nordic are not yet complete.

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