Oops, do we really need a SFSA license?

Background
The fintech sector has been growing with great speed the last couple of years. Sweden and especially Stockholm is one of the strongest growing fintech markets today with successful companies such as Klarna, Izettle and Tink. The Swedish Financial Supervisory Authority (the “SFSA”) has recognised this development and established an Innovation Centre that provides information and dialogue for the fintech market. During 2019, the Bank for International Settlements (“BIS”) began to establish innovation hubs in various parts of the world with the task of promoting international cooperation and research on innovative financial technology. Considering that Sweden is in the forefront with regards to research and analysis of technical financial services, the Riksbank has proposed to be a candidate for the BIS to establish an innovation hub in Sweden.

In addition to the Governmental Authorities, there are many initiatives from the business side to get the actors in the fintech market to collaborate and share ideas as well as receive guidance, e.g. the Stockholm Fintech week and Setterwalls‘ own Fintech Forum.

It is apparent that the need for information and advice regarding the regulatory requirements for innovative fintech companies is substantial. Often the business ideas do not fit into the normal regulatory model and quite complex regulatory considerations need to be made. As a consequence, it is paramount that the viability of the business idea is validated in due time. Having worked in the fintech sector for some time, we would like to share some initial advice that could be helpful if you have an innovative t fintech business idea, but hesitate because of the complex regulatory landscape.

You are not alone
We believe a key success factor for fintech companies is collaborating and sharing ideas with other people in the forefront of the fintech space, learning from their experience on dos and don’ts. Listening to seminars on fintech will give you a good understanding of market practice. However, this will only give you a general understanding of whether your idea is viable. At a certain point there will be a need for more specific legal advice such as a legal opinion regarding what type of legal creature your business is and if it requires a license or registration from the SFSA.

Ask for regulatory advice early on
In our experience many fintech companies struggle with strategic questions – do we have a viable business model, can we earn enough money, will we get financing? Often focus is on the business side targeting potential earnings and financing. Sometimes regulatory considerations tend to be dealt with in detail too late along the road. As a result, they may come as an unpleasant surprise, and in some cases even be a deal breaker that makes private equity companies withdraw their funding. 

What happens if a company by mistake performs regulated business without a license?
The SFSA’s mandate to intervene against companies performing regulated business without a license or registration depends on what type of license or registration the company has obtained. If a company for instance performs payment services without license or registration, the SFSA shall order the company to cease business. The order may be combined with imposing a fine.

In addition to this, having performed regulated business without a license or registration may be very detrimental for a company that later applies for obtaining such a license.

How much does it cost?
The costs of applying for a license or registration with the SFSA varies mainly with what type of license or registration you are applying for. The more extensive and complex the license is, the more work is needed for preparing the application. Furthermorethe fee to the SFSA is correspondingly higher. As an example, the SFSA’s fees for a Payment Service Provider license is SEK 138 000 whereas the fee for a registration is SEK 84 000 for legal persons.

How long does it take?
The SFSA’s handling time of an application depends on the type of license or registration you have applied for. For applications for a license or registration as a Payment Service Provider the handling time is three months. It should be observed that this period starts from the point in time when the SFSA deems the application to be complete. However, acquired by experience the SFSA normally asks for supplementary information and documentation after the initial application has been filed, so the mentioned period of time will normally be somewhat longer.

You should not underestimate the time needed to prepare the business plan and policies and procedures that shall be filed to the SFSA in connection with the application. A common mistake is a company´s belief that the policies and procedures are just simple templates. Instead, an important factor for the SFSA is assessing that the documents are adapted to your specific business and risks.

Setterwalls will be there to assist you
Getting the right advice can be crucial in order not to make mistakes, lose valuable time or money. Setterwalls is recognised as one of the leading law firms in Sweden with respect to fintech matters. We have long standing experience from license applications and regulatory investigations as well as from negotiating the necessary business agreements. So, don’t let uncertainty get in your way – you are always welcome to contact us with questions on your business idea.